Nuclear bill coming due for JEA

The Plant Vogtle nuclear plant in Georgia is 230 miles away from Jacksonville, but the financial impact of the budget-busting plant keeps coming closer as JEA begins to assess how much Vogtle will drive up customers’ bills.

The nuclear plant’s swollen price also hovers over JEA’s negotiations with bidders interested in buying the utility because its multi-billion dollar Vogtle obligation would need to be resolved if the city were to sell JEA.

Plant Vogtle might not be a household name for JEA’s 478,000 electric customers because so far, JEA’s cost for purchasing power from the plant when Vogtle’s two units come online in 2021 and 2022 hasn’t shown up in monthly electric bills.

JEA said last December it had a path forward to avoid rate increases through at least 2023, touting it as a “bold plan” that was achievable because of the utility’s financial strength.

JEA officials now say they plan to start crunching numbers for Vogtle in the coming months with an eye toward possible rate increases in 2021 or 2022.

“The reality is we’re looking down the barrel at some pretty substantial expense increases,” JEA CEO Aaron Zahn said at a recent board meeting.

The initial analysis shows double-digit boosts in what customers will pay.

JEA’s cost will rise sharply when the new nuclear units are finished in the next three years, said Ryan Wannemacher, chief financial officer for the utility.

“As those go online, we’re going to have to look at rate adjustments at that time,” he said.

JEA has been spending millions of dollars on a court battle over Vogtle, so far without any success.

JEA spent about $5 million through Sept. 30 on litigation and related negotiations in its lawsuit that tried to void an agreement JEA signed to purchase power from Vogtle for a 20-year period. JEA has set aside $10 million in the budget that started Oct. 1 to continue on that legal track.

Meanwhile, JEA has entered into negotiations with nine entities about privatizing JEA, which could include a sale of all or part of the city-owned utility. JEA expects to wind up those negotiations in March.

In a voluntary disclosure notice to investors in August, JEA said it’s too early to determine how its financial obligations from Plant Vogtle would be transferred to another entity if there were a deal. The financing for Plant Vogtle includes Build America Bonds whose federal subsidies benefit state and local governments, which has kept JEA’s 20-year cost from being several hundred million dollars higher than it already is.

JEA’s notice told investors the power purchase agreement would not prevent JEA from selling “all or part” of the electricity it gets from Plant Vogtle to another entity.

Whether JEA remains city-owned or gets privatized, Plant Vogtle will be a heavy financial load on whoever is responsible for the obligations covered by the power purchase agreement.

Wannemacher said when Plant Vogtle’s two new reactors are up and running, JEA’s annual cost for purchasing power from Vogtle will be about $200 million a year. That electricity will fill 13 percent of what JEA requires, enabling it to cut about $40 million in costs elsewhere for power needs.

That cost of purchasing the power is based on paying about $140 million to $150 million of debt each year for a portion of Vogtle’s construction cost, according to JEA. The rest of the annual expense will help pay for Vogtle’s operation.

Wannemacher said covering JEA’s cost for Vogtle through rate increases would add an average of $16 to $17 per megawatt hour. The typical residential customer using a megawatt hour (also expressed as 1,000 kilowatt hours) currently pays a monthly bill of $111.76, excluding taxes, so the nuclear plant’s expense would be a significant increase.

Wannemacher said it’s too soon to say how Vogtle’s cost would affect individual bills because an in-depth study will determine how to spread out the cost among various categories of residential and commercial customers.

“It’s not like the bills are going to double, but it’s a meaningful impact to customers,” he said. “We’re always trying to do everything we can to mitigate rate increases.”

He said JEA has a lot of customers who struggle financially and “we do a lot to think about that group when we have these conversations.”

Manufacturers who use large amounts of electricity also will want to know how JEA determines any rate increase because they compete in a global market, said Lake Ray, president of the First Coast Manufacturers Association.

“I think that manufacturers will be watching it very closely.” he said. “They will be very concerned and will necessarily ask questions because of the direct effect on the cost of the products they’re generating.”

He said the prospect of a rate increase could cause some manufacturers considering Jacksonville for investment to decide they will look elsewhere.

The two new Plant Vogtle reactor units are being built in an ownership partnership of Georgia Power, Oglethorpe Power, the city of Dalton, Ga., and the Municipal Electric Authority of Georgia, known as MEAG Power.

JEA doesn’t have an ownership interest. JEA entered into a contract with nonprofit MEAG Power to purchase electricity generated by a 206 megawatt portion of the two units, which is one-tenth of the 2,200 megawatt capacity of both units.

JEA originally viewed nuclear power as a competitively priced source of electricity with the added bonus of having no carbon emissions.

Construction costs have doubled, which likewise increased what JEA must pay for electricity in the “hell or high water” contract, a common type of agreement in the utility industry that gives a purchaser no option to walk away and leave the seller holding the bag.

The nuclear units were supposed to be finished in 2016 and 2017, but that got pushed back. The current target date is November 2021 for one unit and November 2022 for the other unit.

JEA has seen the Vogtle train coming down the track for years. JEA created a fund for Vogtle that has almost $57 million in it to help cover the smaller payments that are due during the construction.

The main thrust of JEA’s strategy has been to clear room in its budget by aggressively paying down other debt.

Last December, the JEA board continued that debt pay-down strategy by approving the Star Plan, which the utility hailed as a way to avoid any base rate increases through 2023. The base rate is the biggest portion of a bill and covers almost everything except for the utility’s cost of fuel for generating stations.

JEA’s annual cost of debt service for its electric system was $203 million in the 2018-19 budget, and that dropped to $138 million in the 2019-20 budget. The Star Plan calls for JEA to keep pursuing the strategy for four more years to drive down annual debt costs through 2028.

Wannemacher said the projections made in December were more of a “high-level” analysis, whereas a rate study does a more nuanced examination of how to design rates to cover costs.

“If we’re going to do a rate increase, we try to do a rate increase once and then be done with it for a number of years,” he said.

He said JEA has so far reduced its total debt payments from 2020 to 2026 by $600 million compared to the outlook in 2012.

“It’s affected the timing of the rate increases, but eventually the [Vogtle] cost is coming,” he said. “We probably won’t be able to affect the magnitude as much.”