JACKSONVILLE, Fla. — A settlement of JEA's long-shot attempt to void an agreement for buying power from the Plant Vogtle nuclear plant will require JEA to pay a total of $20 million more over a 20-year period for purchasing electricity from the nuclear plant.
JEA will pay about $1 million more per year to the Municipal Electric Authority of Georgia, which is a co-owner of Plant Vogtle, in order to settle a lawsuit that centered on whether a 2008 agreement binding JEA to buy power from Vogtle for 20 years is valid and enforceable.
JEA's higher cost for the electricity is on top of about $10 million in legal fees that JEA piled up in a futile attempt to void the Plant Vogtle contract. If the court battle had continued, JEA would have run up millions of dollars more in legal expenses and risked the possibility that MEAG Power could have won a breach-of-contract claim adding a high-dollar damage judgment to JEA's tab.
The two new reactors at Plant Vogtle in Georgia are slated to go online in late 2021 and late 2022. JEA has said its cost of getting electricity from Vogtle will be about $200 million per year, which will add up to $4 billion over the 20-year term. Plant Vogtle will provide about 13 percent of JEA's electric needs for its customers.
In addition to JEA agreeing to pay about $1 million more per year to MEAG for electricity from Plant Vogtle, the settlement gives JEA the option of deciding at a later date whether it wants to continue the power-purchase agreement for longer than the 20-year term.
JEA interim CEO Paul McElroy said that by gaining that right to continue the agreement for a longer time frame, JEA will be able to assess in 10 to 15 years whether it makes financial sense to keep buying nuclear power if future environmental regulations drive up the cost of using carbon-based fuel for generating electricity.
McEloy said that depending on what those regulations turn out to be, the option to keep tapping emission-free nuclear power for part of JEA's electric needs "might be worth tens of millions of hundreds of millions of dollars, or it could be worth nothing." He said if JEA decides against extending the agreement's length, "It's not going to cost us anything to walk away."
JEA and MEAG announced on June 30 they had settled the lawsuit on terms "that will create additional future value to both JEA and MEAG Power." That announcement did not specify what those provisions were.
McElroy said if JEA had pursued the lawsuit, it probably would have racked up another $8 million to $10 million in legal fees over the next 18 to 24 months.
"That's money that's saved," he said of reaching a settlement.
He said settling the lawsuit means JEA and MEAG each avoid the prospect of damages they were at risk for in the pending claims.
When the Jacksonville City Council voted July 28 for a resolution expressing support for the settlement, council member Randy DeFoor said MEAG could argue that its damages are more than $100 million because after JEA filed its lawsuit, credit rating agencies knocked down ratings for MEAG's debt.
The city of Jacksonville and JEA also took hits to their credit ratings.
Moody's downgraded its ratings for billions of dollars in JEA and city of Jacksonville debt. Moody's said in October 2018 the city's participation in the lawsuit cast doubt on its "willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt."
At that time, the city said Moody's downgrade was "based upon wild speculation, completely without rationale or merit" and that the lawsuit was aimed at protecting JEA ratepayers.
At the July 28 council meeting, council member Aaron Bowman recalled meeting Moody's analysts in New York when "they told us that this lawsuit was frivolous and bad on our image."
"So yes, it's a big deal for us," Bowman said of the decision on settling the suit.
An order signed last Wednesday by U.S. District Judge Mark Cohen in Atlanta spells out the terms for bringing the lawsuit to a close by detailing changes to the power-purchase agreement.
The city of Jacksonville and JEA, which is an independent authority, both had to sign off on the settlement because they jointly sued MEAG in September 2018 when Aaron Zahn was the utility's chief executive. The city and JEA wanted to void the 2008 agreement for JEA to purchase power from MEAG's ownership stake in Vogtle.
The 2008 agreement stated that contractor Westinghouse would absorb cost-overruns, but when the expense of building the new reactors soared, Westinghouse declared bankruptcy. JEA's "hell or highwater" contract requires it to purchase electricity from MEAG at a cost that accounts for the escalating construction costs of the new reactors, which have taken years longer to finish than the original schedule.
Cohen ruled on June 17 that the power-purchase agreement is valid and enforceable, delivering a resounding victory to MEAG.
That wasn't the final word on the court battle, however, because Cohen said JEA still could pursue its claim that MEAG was negligent in how it handled the contract in the face of rising construction costs. Cohen also said MEAG could pursue its breach-of-contract claim against JEA.
The council voted 14-3 for the resolution supporting a settlement. Council members LeAnna Cumber, Rory Diamond and Ron Salem were opposed, saying they wanted more information from JEA before deciding on the resolution, which was voted on by council the same night it was introduced.
The JEA board unanimously supported the settlement. Mayor Lenny Curry backed it as well.
In a positive sign for the city, Moody's said last week it is putting the city's debt rating on review for an upgrade because of the settlement agreement. Moody's also will launch an upgrade review for its rating on JEA water and sewer debt.
Moody's did not announce the same upgrade review for JEA's electric debt, but Moody's did revise the rating's outlook from negative to positive.
Moody's said in order to upgrade that rating for electric system debt, JEA not only has to close the chapter on the Vogtle lawsuit but also find "additional strategies" to cope with taking on the high cost of purchasing power from Plant Vogtle.
Moody's said JEA must continue to show signs of stability at the leadership level, which has had a complete replacement of the board and senior leadership team since December after the former board ended negotiations for a potential sale of the utility.