Fitch Rates JEA, Florida's 2014 Senior and Subordinate Electric Revs 'AA'; Outlook Stable

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

--Approximately $44.2 million electric system revenue bonds, series three 2014A;

--Approximately $219.9 million electric system subordinated revenue bonds, 2014 series A.

The bonds are scheduled to price via negotiation on Jan. 14 and Jan. 15. The series three 2014A bonds and 2014 series A bonds will refund outstanding electric revenue bonds for level interest savings.

In addition, Fitch affirms the 'AA' rating on the following outstanding JEA revenue bonds (par amounts outstanding as of Sept. 30, 2013):

--$1.4 billion electric system revenue bonds;

--$1.3 billion electric system subordinated revenue bonds;

--$124.6 million bulk power supply system revenue bonds;

--$837.3 million St. John's River Power Park revenue bonds.

The Rating Outlook is Stable.

SECURITY

The series three 2014A 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 bonds is junior to the senior bonds. A default of the subordinate revenue bonds does not trigger a cross default of the senior revenue bonds.

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

LARGE RETAIL PROVIDER: JEA is a large, vertically integrated retail electric provider serving nearly 427,000 customers. The authority serves an economically sound and stable service area with a highly diverse customer base. Residential users account for a considerable 47% and 41% of system revenues and sales, respectively, and no meaningful customer concentration exists.

STRONG FINANCIAL MANAGEMENT: Financial operations and capital planning are guided by an effective management team and highly engaged board.

SOUND FINANCIAL PROFILE: Debt service coverage (DSC) has averaged a strong 3.1x over the prior five fiscal years while liquidity has steadily grown over the same period to a healthy 190 days cash. Both metrics are consistent with Fitch's median ratios for the given rating category. Fitch expects future financial performance to continue at a comparably strong level based on JEA's most recent financial forecast.

DIVERSIFYING RESOURCE PORTFOLIO: The electric system's diverse resource portfolio includes capacity that is approximately two-thirds natural gas-fired; however, coal and other solid fuels are used to generate over half of required energy supply. The planned addition of nuclear capacity in 2018 will further diversify JEA's resource portfolio.

ANTICIPATED DEBT REDUCTION: Leverage metrics have moderated in recent years but remain high for the given rating category. Continued improvement is expected given plans to fund capital needs through at least fiscal 2018 from excess operating cash flow and existing reserves.

RISING NUCLEAR CONSTRUCTION COSTS: Revisions to the Vogtle nuclear expansion project completion schedule and budget in 2013 are a concern but appear manageable for JEA as the project will account for an estimated 5% of the electric utility's total resource capacity and 12% of forecasted energy supply in 2018. Future challenges to completing construction and resolving contractor litigation remain and will be evaluated going forward.

RATING SENSITIVITY

ADDITIONAL LEVERAGE: While not anticipated, a failure to reduce debt levels as currently forecast and bring leverage ratios more in line with median ratios for the 'AA' category could ultimately pressure the rating.

NUCLEAR PROJECT DEVELOPMENTS: Higher Vogtle project costs related to construction or related financing that reduce JEA's financial and operating flexibility would be viewed negatively.

CREDIT PROFILE

SOLID OPERATING RESULTS CONTINUE IN 2013

JEA's financial metrics remained strong in fiscal 2013 and continue to compare well to Fitch's medians for the 'AA' rating category. DSC coverage remained healthy at 2.7x and close to the rating category median of 3.0x, despite a sizeable drop in funds available for debt service (FADS). The decline in FADS was driven principally by a reduction in sales coupled with the board's decision to hold rates steady.

Balance sheet resources, including available reserves in the system's renewal and replacement fund, increased to a robust 190 days cash at the close of fiscal 2013, also in line with the median for comparably rated utilities.

The utility has no additional debt plans through at least fiscal 2018, which should result in a favorable reduction in leverage ratios. Capital spending for the electric system totals approximately $731.5 million through fiscal 2018. Continued fuel diversification and existing retrofits position JEA well to meet new and proposed environmental regulations.

DECLINING SALES

The decline in sales in fiscal 2013, while modest, marks the fifth year out the prior six years that sales declined. The 0.5% reduction follows a considerably higher 10.4% drop in the prior year. By contrast, JEA's adopted budgets assumed growth of 1.5% in fiscal 2012 and 0.5% in fiscal 2013.

Factors driving the more recent declines include cooler weather conditions as well as conservation and ongoing energy efficiency programs. Fitch believes recent rate increases compounded by declining income levels are also contributing factors. Load growth through fiscal 2018 is projected to rise modestly annually, which Fitch considers to be a somewhat aggressive assumption given more recent trends.

RATES REMAIN COMPETITIVE

Residential electric rates remain average relative to other regional providers, despite the imposition of annual base rate increases between fiscals 2008-2012 that totaled 20%. The authority's 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 November 2013, slightly below the current statewide average for municipally owned and operated systems. No additional rate increases are currently planned, which should improve JEA's relative affordability.

CONCERNS OVER VOGTLE COST INCREASES AND CONSTRUCTION DELAYS

JEA is participating in the development of the 2,204 MW Vogtle expansion project, via a 20-year purchase power agreement signed in 2008 with the Municipal Electric Authority of Georgia (MEAG; Fitch rates MEAG's power revenue bonds 'A+' with a Stable Outlook). Construction has been on-going since 2009 and accelerated following the Nuclear Regulatory Commission's approval of the final AP 1000 reactor design, and issuance of the construction and operating licenses (COL) in February 2012. However, the co-owners of the project recently revised the expected commercial operation dates for the units from April 2016 and 2017, to the fourth quarter of 2017 and 2018, respectively.

JEA's total estimated cost of the project has increased by approximately $156 million to an estimated total of $1.7 billion as a result of delays in the COL approval process and challenges related to the initial construction activity. Litigation between the co-owners and the contractor over the responsibility of certain costs related to the timing of the design approval and COL issuance is also continuing and could potentially result in further revisions to the forecast.

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 diverse with residential customers composing a healthy 41% and 47% of total system sales and revenues, respectively. JEA's 10 largest customers represent a cross-section of relatively stable employers that comprised a modest 13.8% of revenues in fiscal 2013.

Employment grew by 1.3% in 2011, 2.5% in 2012, and by an additional 2.5% through the first 10 months of 2013, reducing the city's October 2013 unemployment rate to 6.3% from a peak of 11.3% in 2010. Wealth indicators are about even with state indices and only modestly lower than national averages.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study -- June 2013' (June 13, 2013);

--'U.S. Public Power Peer Study Addendum -- June 2013' (June 13, 2013);

--'U.S. Public Power Rating Criteria' (Dec. 18, 2012).

Applicable Criteria and Related Research:

U.S. Public Power Peer Study -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710397

U.S. Public Power Peer Study Addendum -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710641

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696027

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=813790

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