TEXT - Fitch rates JEA, Florida revs 'AA'

Fri Dec 21, 2012 3:38pm EST

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Dec 21 - Fitch Ratings assigns an 'AA' rating to the following JEA, Florida
revenue bonds: 

--Approximately $121.7 million electric system revenue bonds, series three 
2013A;

--Approximately $54.4 million electric system subordinated revenue bonds, 2013 
series A;

--Approximately $70.1 million electric system subordinated revenue bonds, 2013 
series B.  

The 2013 series A bonds are expected to price on Jan. 16, 2013 while the two 
remaining offerings will price on Jan. 23. Proceeds of the 2013 series A bonds 
will refund outstanding electric revenue bonds (series 2001 series C) for 
approximately 18% savings of refunded par. Series three 2013A and subordinate 
revenue bonds 2013 series B will refund outstanding variable-rate electric 
system bonds and pay a portion of the cost to terminate existing swaps. 

In addition, Fitch upgrades to 'AA' from 'AA-' the rating on the following 
outstanding JEA revenue bonds (par amounts outstanding as of Sept. 30, 2012):

 

--$1.4 billion electric system revenue bonds;
--$1.3 billion electric system subordinated revenue bonds;
--$126 million bulk power supply system revenue bonds;
--$962 million St. John's River Power Park revenue bonds.

Fitch also affirms the 'F1+' rating on JEA's $82.8 million tax-exempt electric 
system commercial paper (CP) notes, series C.  

The Rating Outlook on all long-term bonds has been revised to Stable from 
Positive.

SECURITY 

The series three 2013A bonds are secured by a first lien on net revenues of the 
electric system, including offsetting transfers from JEA's rate stabilization 
fund. The pledge of net revenues for the subordinated 2013 series A and B bonds 
is junior to the senior bonds. A default of the senior revenue bonds triggers a 
cross default of the subordinate revenue bonds. The reverse does not hold.

Outstanding St. John's River Power Park (SJRPP) bonds and bulk power supply 
system bonds are contract debts of JEA, payable as operations and maintenance 
expenses of the electric system on a take-or-pay basis. 

KEY RATING DRIVERS 

IMPROVED FINANCIAL FLEXIBILITY: The rating upgrade to 'AA' reflects the 
continued improvement in JEA's overall credit profile over several years, 
including a measured increase in operating margins and financial metrics, 
maintenance of competitive rates, greater diversification of resources and 
steady gains in reducing leverage. 

LARGE RETAIL PROVIDER: JEA is a large, vertically-integrated retail electric 
provider serving nearly 423,000 customers. The service territory is economically
diverse, there is no concentration among the largest customers, and residential 
customers comprise a healthy 45% of system revenues. 

POSITIVE TREND IN FINANCIAL PERFORMANCE:  Debt service coverage (DSC) and 
liquidity strengthened to 3.2x and 170 days cash on hand in fiscal 2012 versus 
Fitch's 'AA' rating category medians of, respectively, 2.1x and 167 days. 

COMPETITIVE RATES: JEA's electric rates are in line with the median for Florida 
municipalities, despite recent increases to bolster the system's financial 
metrics and manage higher costs. The authority's cost structure, which consists 
of a base rate and a fuel and purchased power rate, are not subject to 
regulation. 

ANTICIPATED DEBT REDUCTIONS: No plans to issue additional debt through fiscal 
2017 will result in a nearly $450 million reduction in outstanding debt, thereby
improving JEA's still below-average equity-to-capitalization ratio (19.9%). The 
rating category median, including less capital intensive retail distribution 
systems, is 51%. 

DIVERSIFYING FUEL SUPPLY: The electric system's diverse resource mix includes 
approximately two-thirds natural gas-fired capacity, but coal and other solid 
fuels constitute over half of generation. Management continues to lessen the 
system's reliance on coal with new combustion turbines and the addition of 
various renewable resources, as well as with planned nuclear capacity from MEAG 
Power's Plant Vogtle units 3 and 4. 

STRONG MANAGEMENT: A proactive and tenured management team has demonstrated its 
ability to identify and effectively mitigate system risks. 

AMPLE LIQUIDITY: The 'F1+' rating on the CP program is supported by JEA's ample 
internal liquidity sources, including a recently extended $82.8 million credit 
agreement with J.P. Morgan, equal to several times potential liquidity demands.

CREDIT PROFILE 

IMPROVED FINANCIAL POSITION 

JEA's financial performance has steadily improved over the past few years from 
what was already a generally sound position. Rating pressures in the mid-2000s 
were related to the system's limited financial flexibility at the time. JEA's 
rates were among the lowest in the state, and compression in its operating 
position ultimately ensued. Since then, management embarked on a plan beginning 
in fiscal 2008 to systematically raise rates, which has led to a measured 
improvement in the authority's financial metrics and overall flexibility.  

JEA's financial position continued to improve in fiscal 2012 as a second 
consecutive year of declining MWh sales was positively offset by a sizeable 
reduction in annual debt service costs.  Consequently, DSC improved to a more 
robust 3.2x compared to JEA's prior five-year average of 2.8x and Fitch's 'AA' 
rating category median of 2.5x. Balance sheet resources, including available 
reserves in the system's renewal and replacement fund, were equal to a sizable 
170 days cash at the close of fiscal 2012, also comfortably above the median for
comparably rated utilities.

The utility has no additional debt plans through at least fiscal 2017, which 
should result in a solid reduction in leverage ratios. Capital spending for the 
electric system totals approximately $749 million through fiscal 2017. Continued
fuel diversification and existing retrofits position JEA well to meet new and 
proposed environmental regulations. 

RATES REMAIN COMPETITIVE 

JEA's residential electric rates remain average relative to other regional 
providers, despite the imposition of annual base rate increases over the prior 
four years that totaled 20%. The fuel and purchased power rate is adjusted 
annually based on purchased power costs, although the rate can be modified as 
needed with board approval if costs vary by more than 10% from JEA's budget. 
JEA's average monthly bill (based on usage of 1,000 kWh) totaled about $116 as 
of October 2012, slightly below the $119 statewide average for municipally owned
and operated systems. No additional rate increases are currently planned, which 
should improve JEA's relative ranking among regional systems. 

BROAD SERVICE TERRITORY 

JEA is one of the largest municipally-owned electric utilities in the United 
States. The service area for the electric system includes the entire city as 
well as a small number of customers in neighboring St. Johns, Nassau and Clay 
Counties. The system's customer base is relatively diverse with residential 
customers composing a healthy 40% and 45% of total system sales and revenues, 
respectively.  JEA's 10 largest customers represent a cross-section of 
relatively stable employers that comprised a modest 13.6% of revenues in fiscal 
2012.  

The local economy remains well diversified and employment figures have exhibited
steady, albeit modest, growth dating back to mid-2010. The city's unemployment 
rate remains slightly above average, however, at 8.1% as of October 2012. Wealth
and income levels are average.
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