Fitch raises JEA, Florida, water revenue bonds, affirms electric debt

Fitch Ratings upgraded Jacksonville, Florida, utility JEA’s more than $1.2 billion of water and sewer system debt to AA-plus from AA.

The elevated rating applies to $1 billion of water and sewer system senior revenue bonds; $185 million of subordinated revenue bonds; and $28 million of district energy bonds. The outlook is stable.

The upgrades “reflect the sustained trend of very low leverage over the past few years,” Fitch said Tuesday. “As financial margins have improved and outstanding debt has trended lower, the system’s leverage ratio, measured as net adjusted debt to adjusted funds available for debt service, has declined to just 4.1 times at year end 2022, and has been below 6.0 times since 2015.”

Fitch noted the rating also considered the system’s strong revenue defensibility, “which is rooted in JEA’s monopolistic revenue source characteristics, very favorable demographic trends and growing customer base, and independent rate setting ability.”

Fitch assessed the system’s standalone credit profile at aa-plus, representing the credit profile of the utility on a stand-alone basis irrespective of its relationship with the AA-rated city of Jacksonville.

Fitch noted it doesn’t make a distinction between JEA’s senior- and subordinate-lien obligations “given the modest amount of subordinated debt outstanding relative to the system’s overall debt profile and the high coverage of all-in debt service.”

JEA provides water treatment and water-distribution services and wastewater collection, treatment and disposal services to a service territory that includes Jacksonville and parts of St. Johns, Nassau and Clay Counties and has about 380,000 customers.

As an independent agency of the city of Jacksonville, JEA has its own board of directors, with four members nominated by the city council and three by the mayor.

“The monthly bill for water and sewer service is very affordable for the majority of the customer base,” Fitch said. “The system also maintains a very strong operating risk profile with a very low cost burden and elevated life cycle investment needs supported by adequate annual capital investment.”

The system’s capital plan is about $2.2 billion through 2027. It will be funded mainly from pay-go sources including developer capital contributions and some additional debt.

Fitch on Wednesday affirmed its AA rating on the JEA’s electric system’s $854 million of revenue bonds, $470 million of subordinated revenue bonds, $25 million of bulk power supply system revenue bonds and $93 million of St. Johns River Power Park revenue bonds. The outlook is stable.

Fitch also assessed the electric system’s standalone credit profile at aa.

The ratings and SCP reflect “the electric system’s very strong historical financial performance and very low leverage profile,” Fitch said. “Strong operating income coupled with a decline in total debt outstanding, which has included an acceleration of early debt retirements/redemptions and rate increases in anticipation of the completion of the new nuclear units at Plant Vogtle, has led to a decline in the leverage ratio.”

The rating agency said that since 2014 total electric system long-term debt outstanding has fallen by more than $1.3 billion while funds available for debt service have increased by $75 million. This has resulted in a decline in the leverage ratio to 3.7 times in 2021.

“JEA’s resource base is evolving with the retirement of coal-fired capacity, the addition of nuclear energy and energy from low-cost solar contracts,” Fitch said. “While the cost of power rose significantly in 2022 to about 12 cents/kWh, fuel and purchased energy costs declined in fiscal 2023, which Fitch expects will help stabilize the utility’s cost burden closer to historical levels.”

JEA tried and ultimately failed to get out of its agreement to get power from a nuclear power plant under construction in Georgia.

Construction of Vogtle Unit 3 is complete and looks to be on track to go into service later this month. Unit 4 is projected to be completed later this year and could be on-line by early 2024.

In 2022, Moody’s Investors Service upgraded JEA’s water and sewer enterprise’s senior and subordinate lien revenue bonds to Aa2 from Aa3. At the same time, Moody’s raised the rating on the JEA’s district energy system’s revenue bonds to Aa3 from A1.

In 2021, S&P Global Ratings revised the outlook on JEA’s senior and subordinate water and sewer revenue bonds to stable from developing and affirmed the AA-plus long-term rating on JEA’s water and sewer system senior-lien revenue bonds and AA long-term rating on the water and sewer system subordinate revenue bonds.