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Status Quo 2 Baseline – Assumptions review

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  • Status Quo 2 Baseline –Assumptions review

  • 2

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Goals for today

    ▪ Review case for change presentation

    ▪ Align on Status Quo 2 key messages (what it is and is not and main outcomes)

    ▪ Review and align on major assumptions that underpin Status Quo 2; agree on any specific changes to be made to finalize if needed

    ▪ Following April 4, the SLT aligned on 3 areas in which to further develop Status Quo 2

    – Headcount: SLT developed perspective on reductions and business impact, HR team developed financial impact estimate

    – Non-labor O&M: SLT developed additional initiatives towards goal of reducing 2020 non-labor O&M budget by 10%

    – Capex: Energy, Water, Planning developed reduced capex forecast, using Status Quo 1 as a baseline

    ▪ We developed an updated status quo 2 cash flow projections based on the analyses above

    April recap Goals for today

  • 3

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Approach to status quo 2

    DRAFT 12/10/2020

    ▪ A preliminary assessment of one course of action JEA could take within the boundaries of the current charter

    ▪ A high level assessment of the trade-offs that accompany this course of action against JEA’s core values

    ▪ A proposed course of action▪ An exhaustive analysis of all

    possible opportunities to reduce cost while minimizing impact to the organization

    ▪ A set of only “off the table options” (some initiatives proposed in status quo 2 may be implemented pending further analysis)

    What status quo 2 IS… … and IS NOT

  • 4

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Executive summary

    ▪ Status quo 2 follows from Status Quo 1 – a business as usual scenario that projects revenues to fall, costs to increase and a $3.2B cash flow gap by 2030 in the absence of any action by JEA

    ▪ Status Quo 2 addresses this gap without going outside the current charter, which prevents JEA from aggressively pursuing new business opportunities

    ▪ In the absence of charter change, Status Quo 2 reduces headcount, cuts capital investment, initiates allowable new revenue opportunities, and raises rates where necessary

    ▪ Status Quo 2 also reduces debt levels in the energy business, anticipating increased competition from distributed generation and accelerated revenue loss post 2030

    ▪ Status Quo 2 cuts the cumulative cash flow gap to under $1B ($732M by 2030) and eliminates the cash gap in the water business, and still requires a 26% increase in required energy revenue yield by 2030

    ▪ However, absent an integrated strategic plan, Status Quo 2 will reduce the quality of service JEA provides, negatively impacting customers, the community, the environment, and JEA employees

  • 5

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Potential to reduce cash flow gap by $2.5B through levers within JEA constraints

    ▪ Status quo 2 cost reductions now exceed benchmark cost reduction from achieving lowest-quartile utility performance

    ▪ NOTE: Status Quo 1 cash flow gap has increase by $400M for energy, $300M for water since April 4 due to updated O&M projects for 2020

    Cumulative cash flows 2019 – 2030, $M

    64% yield increase required by 2030 with debt paydown2

    Status quo 1 Cash flow gap

    RevenueEnhancement

    359911

    Pay off energy debt by 2030

    labor cost savings4

    69

    Non-labor O&M cost savings

    572

    Remaining cash flow gap

    Capex cost savings

    65-155

    $900M additional debt by 20301 Positive cash flows by 2030 with

    initiatives

    SOURCE: JEA internal financial projections

    N/A

    1 Relative to "all rates case" debt level in 2030 2 42% increase in monthly customer bill 3 17% increase in monthly customer bill 4 Includes capitalized labor 5 Net of $144M increase in purchased power from Greenland PPA (capex savings total $533M)

    Water

    Energy

    1 2 3 4 5

    PRELIMINARY

    2,331

    509

    1,2361,232

    220

    389323

    887

    898

    Greenland5Other

    26% yield increase required by 2030 with initiatives3

  • 6

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 2 shows JEA Energy Business reducing debt levels in line with other competitivesectors post grid parity

    SOURCE: JEA

    142012

    3

    2216 203018 20 24 26 28

    7

    0

    5

    10

    6

    1

    2

    4

    8

    9

    11

    Merchant power (avg)

    Electric utility (avg)

    Telecom (avg)

    Historic and projected debt to EBITDA - Energy, multiple

    1 Electric, telecom and merchant constitute median ratios 2013 - 2017

    Forecast Grid parity

    Status Quo 1

    Status Quo 2

    In Status Quo 1, reduced EBITDA (assuming no rate increases) plus financing for Greenland Power Plant lead to debt levels increasing to unsustainable levels, especially when JEA enters a competitive environment

    In Status Quo 2, JEA pays off all debt and does not incur new debt, leading to Debt: EBITDA ratios in line with those maintained by other utilities and sectors with asset-heavy, competitive businesses

    INCLUDES ON AND OFF-BALANCE SHEET DEBT1

    Greenland (SQ1) and Vogtle (SQ1 and 2) additional debt

  • 7

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 2 reduces headcount by 29%, but maintains the salary increases projected in Status Quo 1

    0 0

    100 500

    500

    300

    200

    400

    1,000

    1,500

    2,000

    2,500

    10972

    166

    86

    146

    174

    91

    192

    287

    103

    212 258245

    115

    223

    122

    234

    130 137260

    271 284

    273

    353319

    372336

    392 413

    303

    458

    202

    154

    97

    183

    435

    Cost, $M Headcount, #

    0

    1,500

    0

    200

    500

    100

    300

    400

    500

    2,000

    1,000

    0

    50 60

    11445

    20

    124

    51

    11627

    137

    21

    53

    12027

    2622

    151128

    239

    26

    56

    23

    14126

    24

    58

    133

    20192

    26 26

    282725

    62

    27

    54

    27

    6664

    27

    68

    156

    29

    232

    28

    2030

    260

    146

    214 220 226246 253 261 269

    277

    72

    166

    227

    Assumptions

    ▪ In status quo 1, labor costs increase by 5% from FY19 to 20 (using actuals for FY19 and current budget estimate for FY20), and headcount increases slightly assuming vacancies are filled

    ▪ Labor costs increase 5-6% thereafter in SQ1, based on historical increases, including introduction of long-term compensation program and assumptions around increased medical benefits funding needs

    ▪ In status quo 2, a headcount reduction of 29%, or 574 FTE, conducted in FY19 is realized in FY20, given severance and leave

    ▪ Status Quo 2 removes the long-term compensation increase and slows salary and benefits growth to 3% annually after FY20

    2

    Status Quo 1

    Status Quo 2

    Cost, $M Headcount, #

    1 2020 SQ1 benefits include estimated $15M increase due to long-term compensation program; FY19 using 6-month actuals x 2

    FTE OT Benefits1 Salary Contract

  • 8

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details - energy

    0

    200

    400

    0

    50

    100

    200

    600150

    800

    23

    9880

    126

    162

    98 10337

    146

    11993

    2624

    61

    20

    84

    26

    89

    2933 35

    113

    98

    73

    114 120132 139

    154

    22

    108

    27

    77103

    31108

    Cost, $M Headcount, #

    Status Quo 1

    Status Quo 2

    600

    200

    00

    150

    200

    100

    50

    400

    800

    0 8

    20191 22

    1536 8

    22

    38 7

    73

    16

    2120

    39 8

    69

    87

    23

    184642

    17 18

    4340 457

    19

    26

    20

    27

    26 20

    48

    25

    61

    28

    21

    50

    24

    9

    29

    752

    16

    99

    98

    66 71 7690

    79 81 84 8793

    2030

    Major assumptions:

    ▪ 26% (168 FTE) headcount reduction in all electric system areas (generation, substation and transmission, distribution)

    ▪ Outsourcing of select functions in generation with additional 14% (87 FTE) reduction)

    Implications:

    ▪ Customer: Decrease in reliability with fewer employees available for regular maintenance and outage response (potential reversal of recent gains in SAIDI / SAIFI / CEMI5 to among best in state)

    ▪ Community: Reliability impact and delays to connecting new developments and repairing public lighting; reduced ability to provide mutual aid during storm events

    ▪ Financial: Will likely increase corrective maintenance and replacement power purchase; limited opportunity to grow the business when customers are dissatisfied with core product

    ▪ Employee: decreased leadership oversight, training opportunities, morale

    2

    Cost, $M Headcount, #

    FTE OT SalaryBenefits Contract

    SOURCE: 1 High overtime in 2019 drove cost higher than expected for actuals

  • 9

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details – water and wastewater

    60

    0

    80

    40

    20

    800

    100

    0

    120

    200

    400

    600

    43

    68 31

    55

    17

    38

    18 19

    45

    2521

    47

    114

    22

    6050

    762664

    23

    52 58

    29

    7067

    108

    337284

    63

    98 103

    8028

    9388

    BenefitsSeries

    OT Salary

    80600

    0

    800

    0

    200

    100

    120

    40

    20

    60 40062

    41

    64

    17

    55

    29

    64

    24

    43

    17

    393838 42

    2019

    14

    32 34

    20

    15

    33

    21

    58

    1615

    22

    37

    16

    28

    35

    23

    36

    17

    203025 26 27

    18 1957

    18

    666068 70 72 74

    19

    Major assumptions:

    ▪ 13% (62 FTE) headcount reduction overall▪ Reductions come from reduction in night and

    weekend crew capabilities, reduced maintenance schedules, reduced support function capabilities within business area

    Implications:

    ▪ Customer and community: Decrease in reliability with reduced regular maintenance, increased risk of extended water safety issues during storms

    ▪ Financial: Will likely increase corrective maintenance spend; potential need to rely on additional contractors

    ▪ Environmental: increased risk of pump station overflows due to fewer clean-outs and maintenance

    ▪ Employee: decreased leadership oversight, training opportunities, morale

    2

    Cost, $M Headcount, #

    Status Quo 1

    Status Quo 2

    Cost, $M Headcount, #

  • 10

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details - customer

    20

    600

    30

    0

    40

    60

    100

    200

    400

    50

    80070

    14

    34

    38 1615

    369

    43

    11

    22

    14

    27

    11

    28

    12

    47

    29

    4540

    13

    31 32 37

    55

    18

    39 41

    19

    3317

    5258 61

    64

    4942

    FTE SalaryBenefitsOT

    800

    0

    400

    50

    10

    0

    60

    200

    60040

    20

    309

    19

    2030

    10 10

    24

    38

    27

    11

    2019

    33

    22

    8

    35

    2320

    24

    8

    28

    19

    21

    33

    26

    20

    32

    9

    22

    9

    20

    9

    2321 22

    28

    22

    25

    10

    24

    36

    109

    25

    29 303431

    37

    29

    Major assumptions:

    ▪ 12% (38 FTE) headcount reduction overall▪ Reduces or eliminates most community

    engagement and communication functions

    ▪ Reduces customer service levels, e.g. by reducing key account and low income teams, closing customer care center, reducing scope of customer solutions programs

    Implications:

    ▪ Customer: Decreased service levels and options for customers

    ▪ Community: Reduced awareness of JEA activities, reduced understanding of JEA’s role in community

    ▪ Employee: decreased leadership oversight, training opportunities, morale

    2

    Cost, $M

    Status Quo 1

    Status Quo 2

    Cost, $M

    Headcount, #

    Headcount, #

  • 11

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details - TS

    150

    20

    0

    100

    10

    200

    30

    40

    0

    50

    5

    3128

    18

    5

    26

    33

    17

    5

    13 15 16

    22

    520

    16

    6 6 6

    19

    77

    20

    78

    22

    8

    23 24

    19

    21

    23 2427

    30

    21

    30

    20

    0

    100

    10

    0

    50

    150

    40

    50

    21

    21

    16

    15

    13 0

    2019

    36

    20

    1718

    22

    22

    23

    20

    16 16

    25

    16 16

    26

    16 16

    27 2824

    21

    2030

    19

    41

    22

    29

    20 21 21

    16

    21 21

    Major assumptions:

    ▪ Outsource ~80% of JEA TS staff to 3rd party provider (112 FTE)

    ▪ Retain core TS team to manage contract and pursue specific technology projects needed by utility (limited to what is still needed in status quo 2)

    ▪ Assume transition period in 2020 with both contract and employee costs, and $13M one-time costs to set up contract

    ▪ Savings begin to accrue in 2023 post transition period, with net $35M savings 2020-2030

    Implications:

    ▪ JEA internal: lower cost and higher quality service in long run, with increased access to IT innovations; potential for disruption in service in interim and need for rigorous contract management

    2

    Cost, $M Headcount, #

    Status Quo 1

    Status Quo 2

    Cost, $M Headcount, #

    FTE OT SalaryBenefits Contract

    HIGHLY PRELIMINARY AND SUBJECT TO CHANGE

  • 12

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details – supply chain

    5

    20

    30 150

    0

    50

    25

    10

    15

    100

    0

    25

    12

    24

    22

    5

    14

    54

    10

    2019

    21

    51

    11

    28

    16

    20

    23

    6

    11

    21

    12

    22 25

    616

    23 27

    13

    6

    1714

    26

    7

    2030

    720

    15

    7 8

    16

    19 8

    1517 18

    2427

    29

    20

    15

    25

    50

    0 0

    150

    100

    5

    10

    30

    43

    24 5

    4

    21

    4

    2019

    0

    28

    2

    3

    2

    20 24

    3 3

    34

    35 510

    3

    23

    3

    53

    22

    4

    25

    3

    63

    26

    3

    4

    662 3

    27

    6

    29

    4

    7

    2030

    15

    10 10 11 1112 12 12 13

    13 14 14

    Major assumptions:

    ▪ Assumes 21% (29 FTE) reduction in headcount, with additional 26% of headcount (36 FTE) outsourced in select functions

    ▪ Assumes cuts to all areas within supply chain (ops support, procurement, emergency preparedness)

    Implications:

    ▪ JEA internal: potentially reduced ability to perform core services with lower levels of support

    2

    Cost, $M Headcount, #

    Status Quo 1

    Status Quo 2

    Cost, $M Headcount, #

    FTE OT Benefits Salary Contract

  • 13

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Labor details – corporate, administrative, SLT

    00

    100

    20

    100

    200

    40

    60

    300

    80

    50

    150

    250

    23

    61

    25

    51

    2030

    10

    8576

    21

    321

    57

    40

    17

    34

    18

    65

    2721

    55

    26

    36

    19

    262522

    38

    20

    23 24 29

    58

    43

    22

    2019

    48

    24

    28

    54

    31

    8172

    52

    68

    21 28

    45

    20

    49

    SalaryFTE OT Benefits1

    300

    200

    100

    20

    400

    80

    0

    60

    0

    100

    40

    22

    10 10

    21

    23

    19

    28

    19

    8

    21

    8

    35

    20

    22

    319

    30

    28

    8

    20

    9

    21

    24 25

    25

    26

    927

    2030

    2423

    34

    24

    10

    29

    1031 32 33

    27

    228

    31299

    202019

    37

    Major assumptions:

    ▪ 15% (42 FTE) reduction in headcount overall▪ Reductions vary by area across

    environmental, compliance, government affairs, finance, HR, planning

    ▪ Positions reduced or eliminated include technicians, clerks, security staff, and analysts

    ▪ Includes reduction of SLT by 40% (from 15 positions to 9), including:

    – Consolidating CEO / MD and COO / president into single position

    – Replacing CFO position with comptroller – Moving Energy and Water Planning within

    Energy and Water VP/GMs

    – Eliminating CITO, CAO, CGAOImplications:

    ▪ JEA internal: potentially reduced ability to perform core services with lower levels of support

    2

    Cost, $M Headcount, #

    Status Quo 1

    Status Quo 2

    Cost, $M Headcount, #

    1 2020 includes estimated $15M increase due to long-term compensation change in SQ1 only

  • 14

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 2 reduces total 2019-30 energy capex by 37% (32% when PPA costs are included)

    Expanded generation -capacity total

    Distribution capacity

    TS

    Total

    Substation and transmission capacity

    R&R

    Category

    Cancel substation feeder network project; defer upgrades

    Cancel substation reconfiguration, defer substation upgrades

    Cancel Greenland and replace with PPA

    25% reduction in TS spend starting 2020

    AssumptionsTotal 2019-2030 spend –Status Quo 1, $M

    533

    123

    237

    163

    1,728

    2,785

    -26%

    -100%

    -16%

    -1%

    -22%

    -37%

    SOURCE: JEA

    Total 2019-2030 spend –Status Quo 2, $M

    % change from SQ1 Risks

    ▪ Customer and community: Decrease in reliability with reduction in R&R

    ▪ Financial: Increase maintenance costs; potential costs in emergency repair and replacement; PPA terms potentially unattractive in long term

    ▪ Environmental: Potentially reduced air quality from decreased generation fleet maintenance

    234

    128

    144

    103

    1,278

    1,743-1,887

    Cancel or defer planned generation maintenance, PPAs, T&D maintenance

    3

    -73%

    Including PPA

    -32%

  • 15

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 2 reduces total 2019-30 water and wastewater capex by 22%

    Growth / new connections: collections, transmission, pump

    new supply - reclaim

    New supply - purification, pipelines, wells

    Reliability and resiliency

    Enironmental quality / water quality

    Biosolids / other

    Growth / new connections: wastewater treatment

    Renewal and replacement

    No change

    Reduce well rehab and replacement

    Defer and reduced rehabilitation, improvement, replacement; reduce TS

    Defer and reduce reclaim capacity and storage projects

    Removed water purification phases 2 and 3 and 3rd river crossing

    Remove planned spend on facility generators, reduce future resiliency spend

    No change

    No change

    32

    279

    1,293

    199

    53

    205

    327

    325

    2,713

    -17%

    -6%

    0%

    -14%

    -61%

    -38%

    0%

    0%

    SOURCE: JEA

    53

    129

    261

    32

    201

    199

    176

    985

    2,036 -22%TOTAL

    Risks▪ Customer and community:

    Decrease in reliability with reduction in R&R; potential for moratorium on new development in South Grid

    ▪ Financial: Reduced revenue from expanded reclaim system; increase maintenance costs; potential costs in emergency repair and replacement

    ▪ Environmental: Delay in addressing supply challenges

    Category AssumptionsTotal 2019-2030 spend – Status Quo 1, $M

    Total 2019-2030 spend – Status Quo 2, $M

    % change from SQ1

    3

  • 16

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 2 reduces non-labor O&M by 10% in 2020 from Status Quo 1 base, but maintains increases thereafter

    100

    300

    250

    350

    50

    150

    200

    0

    6259

    135

    72213

    213

    55

    168

    4751

    162

    53

    175

    57221

    182 189240

    197

    64

    205

    67 69

    222 230

    269 75

    182

    239230249 259

    280 291303 315

    250

    50

    0

    300

    200

    150

    100135

    535147

    28

    19663

    134

    2019

    45

    20

    46

    149

    21

    211

    66

    49

    205

    163156

    22 23

    170

    24

    55

    178

    25

    244

    58

    186

    26

    202

    60

    220194

    21469

    27 29 2030

    233

    179

    223254 266

    277 289

    182

    Water Energy

    Assumptions

    ▪ Status Quo 1 projects a 17% increase in FY20, followed by annual 4% increase in non-labor O&M (materials and supplies, contractors, other), based on historical rate of increase

    ▪ In status quo 2, cost reduction measures are taken within each business area in 2020 totaling $25M, less $1M in 1-time costs to implement measures

    ▪ Status quo 2 also includes $10M in one-time cost-savings in 2020 from reduced legal fees and $.5M annual savings starting 2021 by renting a less expensive new headquarters building

    ▪ The projected SQ1 cost increase in FY20 means non-labor costs decrease by 2% in FY20

    ▪ While $22 of $25m cost reduction measures are ongoing each year, reductions are applied to the same 4% growth of O&M as in SQ1

    4

    Cost, $M

    Status Quo 1 non-labor O&M, $M

    Status Quo 2 non-labor O&M, $M

    Cost, $M

  • 17

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    SQ11 SQ2

    25

    101

    SQ 2Reductions2

    1-time cost

    35213

    179

    -12%

    6.8

    2.4

    2.5

    2.2

    5.0

    6.3

    Water

    Customer

    Energy

    TS

    Supply chain

    Corporate and admin3

    25.0

    Non-labor O&M – key initiatives

    1 Includes utility spend, which was not evaluated for reduction 2 Does not include non-labor savings from outsourcing initiatives3 Includes supply chain, environmental, compliance, gov affairs, HR

    Key initiatives RisksFY20 SQ1 vs SQ2 comparison, $M

    4

    ▪ Change from time-based to operating hours-based maintenance

    ▪ Increase vegetation management cycle▪ Improve contractor management

    ▪ Customer: reliability risk from vegetation cycles

    ▪ Minimal impact from operating hours maintenance, contractor management

    ▪ Reduce marketing and public awareness campaigns

    ▪ Community: Reduced awareness of JEA activities and changes

    ▪ Cancel STPO engineering▪ Reduce professional services related to

    environmental permitting, planning, monitoring

    ▪ Environmental: Reduced ability to control JEA environmental impact

    ▪ Community: Reduced security; delay in septic tank phase out

    ▪ Move Oracle support to 3rd party provider▪ Reduce support for legacy applications

    ▪ Minimal external impact; potential reduced employee satisfaction

    ▪ Cancel STPO alternatives and resiliency planning studies

    ▪ Reduce emergency generator availability▪ Reduce chemical usage

    ▪ Community: delay in STPO program; potential increased water issues during major storm events

    ▪ Environmental: potential TMDL risk from chemical usage

    Initiatives Legal fees

    ▪ Reduce building maintenance, upkeep, security

    ▪ Community: Reduced quality of JEA buildings

  • 18

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Revenue initiatives developed to date provide $389M additional revenue by 2030

    21

    389

    48

    41

    150

    211

    429

    Cost to implement2019-30 impact Net impact

    ▪ Real estate optimization

    ▪ Retail marketplace

    ▪ Residential Solar Application Fee

    Overview

    ▪ Convert more commercial and industrial customer to electric (e.g., vehicles)

    ▪ Sell/lease surplus properties

    ▪ Online marketplace to sell energy-related appliances and services. Use to collect data, create engagement and awareness, and generate modest income.

    ▪ Charge an application/inspection fee to cover the cost of solar PV interconnection reviews and inspections

    Initiative

    ▪ Expand electrification

    Risks & considerations

    ▪ No regrets

    ▪ Trade-offs; less flexibility

    ▪ No regrets

    ▪ Trade-offs; publicity and customer pushback

    5

    2019-2030 potential, $M

    Retail marketplaceExpand electrification Real estate optimization Residential Solar Application Fee

  • 19

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Additional non-labor O&M reduction and revenue enhancement initiatives

  • 20

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Corporate cost (1/2)

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Facilities O&M Other Services and Charges (OSC) reduction

    ▪ 40% reduction in maintenance, landscaping, paintaing, planned rehab work; eliminate PM on generators

    ▪ Trade-offs ▪ 2.41

    Annual opportunity, $M

    0.4

    0.5

    0.6

    2.4

    2.4

    0.2

    00.1

    Cost savings

    0.1

    10

    9

    7

    8

    11 0.2

    0.2

    1

    2

    3

    4

    56

    7

    8

    9

    10

    11

    ▪ Eliminate septic tank phase out engineering

    ▪ Eliminate the septic tank phase out program

    ▪ Trade-offs ▪ 2.42

    ▪ Reduce professional services, training, travel, misc

    ▪ Reduce professional services related to resource planning

    ▪ Trade-offs ▪ 0.63

    ▪ Reduce security patrol

    ▪ Reduce number of security patrol personnel

    ▪ Difficult; increased security risk across affected areas

    ▪ 0.54

    ▪ Professional services reduction

    ▪ Reduce professional services and supplemental staff for permitting, compliance

    ▪ Trade-offs ▪ 0.4125

    ▪ Reduce profess-ional services

    ▪ Reduce professional services for QA, other activities

    ▪ Trade-offs; increased regulatory risk

    ▪ 0.2466

    ▪ Reduce profess-ional services

    ▪ Reduce professional services ▪ Trade-offs ▪ 0.2437

  • 21

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    0.4

    0.5

    0.6

    2.4

    2.4

    0.2

    110

    0.20.2

    0.1

    Cost savings

    0.1

    7

    8

    9

    10

    Corporate cost (2/2)

    ▪ Reduce tools, training, travel

    ▪ Reduce tools, training, travel ▪ Trade-offs; increased regulatory risk

    ▪ 0.0611

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Reduce spend on civil service position assessment

    ▪ We currently budget $932K for civil service position assessment development with PSI. To date, approximately 60% of our position assessments have been developed, including many of the repetitive hire positions. We can halt that and bring it back in house if necessary. Also, if we freeze or greatly reduce hiring there should be a lesser need for assessment development.

    ▪ Trade-offs ▪ 0.28

    Annual opportunity, $M

    ▪ Reduce downtown security

    ▪ Reduce number of downtown security personnel

    ▪ Trade-offs; increased security risk across affected areas

    ▪ 0.110

    ▪ Miscellaneous supplies and tools reduction

    ▪ Reduce professional services and supplemental staff for labs, remediation

    ▪ Trade-offs ▪ 0.1959

    1

    3

    4

    56

    7

    8

    9

    10

    11

    2

  • 22

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Customer cost

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Reduce paper bills ▪ Reduce paper bills sent out. Initiative underway to implement "opt-out" program for new customers

    ▪ Trade-offs; some customers may not have computers

    ▪ 0.22

    ▪ Reduce marketing budget

    ▪ Reduce marketing budget ▪ Trade-offs; customer engagement

    ▪ 21

    Annual opportunity, $M

    0.2

    2.0

    Cost savings

    1

    2

  • 23

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Energy cost (1/2)

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Outsource material handling functions

    ▪ Outsource material handling functions at Northside Generating. This would include but not limited to, fuel unloading and handling, ash handling and disposal and by-product support

    ▪ Trade-offs; labor issues with IBEW

    ▪ 1.82

    ▪ Change to an “operating hours” overhaul scheduling strategy

    ▪ Change from a “time frequency” based decision making process for major outage requirements, to an “operating hours” based approach as currently accepted by the OEM’s (savings currently based on deferred maintenance (not eliminated) )

    ▪ Trade-offs; Risk is proportionate to the amount of hours on the machines. Insurance (FM Global) carrier concerns.

    ▪ 3.81

    ▪ Inventory optimization

    ▪ Better materials management and siting in business areas where materials are fast-turn and workforce is distributed and currently has to make extra trips to pick up materials

    ▪ No regrets ▪ 0.54

    ▪ Contractor management

    ▪ Develop and implement a contractor management program (currently sized based on NGS)

    ▪ Trade-offs; monitoring and additional cost reduction burdens on current contractors could create discontent

    ▪ 1.0

    3

    Annual opportunity, $M

    0.3

    0.5

    0.5

    1.0

    1.8

    3.8

    0.2

    Cost savings

    1

    2

    5

    67

  • 24

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Energy cost (2/2)

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Vegetation trim cycle

    ▪ Increase cycle by 20% (to 36 months) to decrease costs

    ▪ Trade-offs; reliability metrics worsen, customer satisfaction decrease

    ▪ 0.55

    ▪ JEA personnel for transmission work

    ▪ Utilize JEA personnel to perform transmission maintenance, eliminating need for contractor

    ▪ Trade-offs; may affect pricing for unit contract

    ▪ 0.36

    ▪ Eliminate participation in 3 rodeos

    ▪ Eliminate participation in 3 rodeos ▪ Trade-offs; morale ▪ 0.27

    Annual opportunity, $M

    4

    3

    0.3

    0.5

    0.5

    1.0

    1.8

    3.8

    0.2

    Cost savings

    1

    2

    5

    67

  • 25

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    IT cost

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ ERP cost optimization

    ▪ 3rd party support provider for Oracle and other support

    ▪ Trade-offs ▪ 1.81

    ▪ Reconcile vendor use of duct bank to existing project agreements

    ▪ Recover revenue according to original contracts with Comcast for use of space

    ▪ Trade-offs ▪ 0.42

    Annual opportunity, $M

    ▪ Telecom audit ▪ Identify over-billing opportunities to address

    ▪ Trade-offs ▪ 0.23

    ▪ Rental and lease ▪ Negotiate cost of rented and leased equipment

    ▪ Trade-offs ▪ 0.24

    4

    3

    0.2

    0.2

    0.4

    1.8

    Cost savings

    1

    2

  • 26

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Water cost (1/2)

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Project Funding Revisions

    ▪ Modify project funding processes and requirement to streamline business processes

    ▪ No regrets ▪ 0.33

    Annual opportunity, $M

    ▪ Scope and Fee Negotiator

    ▪ Hire an expert with experience in negotiating rates and fee structures for capital projects

    ▪ No regrets ▪ 1.81

    ▪ Wastewater Biosolids Hauling

    ▪ In-source biosolids hauling from wastewater reclamation facilities to Buckman WRF

    ▪ Trade-offs; unclear level of impact

    ▪ 0.42

    ▪ Design-Build Continuing Service Contract

    ▪ Develop master contracts with qualified design-build contractors for repeat, small capex jobs

    ▪ No regrets ▪ 0.34

    ▪ Hydrogen Peroxide Use Reduction

    ▪ Optimize hydrogen peroxide feed rate while maintaining odor control (estimate 10% reduction in usage possible)

    ▪ Trade-offs; potential customer dis-satisfaction

    ▪ 0.26

    ▪ Reduce coating / paint for metal surfaces

    ▪ Reduce coating / paint for metal surfaces

    ▪ Trade-offs; reliability ▪ 0.35

    0.2

    0.2

    0.2

    0.3

    0.3

    0.3

    0.4

    1.8

    10

    Cost savings

    0.1

    0.10.1

    0.1 0.1

    1

    11

    12

    13

    1

    2

    3

    4

    5

    6

    7

    89

    10

    11

    12

    13

  • 27

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Water cost (2/2)

    OverviewInitiative Risks & considerationsAnnual potential, $M

    ▪ Glycerin Use Reduction

    ▪ JEA can reduce glycerin usage and still meet compliance limits (28% under compliance limit now)

    ▪ Trade-offs; environmental risk ▪ 0.19

    Annual opportunity, $M

    ▪ Remove GIS position for outage mapping

    ▪ Reduce GIS position for outage mapping

    ▪ Trade-offs; community ▪ 0.27

    ▪ Reduce potable pump reservation

    ▪ Reduce portable pump reservation ▪ Trade-offs; resiliency ▪ 0.28

    ▪ Reduce standards studies

    ▪ Make do with in-house investigation of proposed standards changes

    ▪ Trade-offs; efficiency ▪ 0.110

    ▪ Perform CCTV inspections in-house

    ▪ Perform CCTV inspections in-house ▪ Trade-offs; efficiency ▪ 0.112

    ▪ Reduce cleaning of pumps and wells

    ▪ Reduce cleaning of pumps and wells ▪ Trade-offs; risk of clogging ▪ 0.113

    ▪ Perform Crane Inspections Utilizing JEA Personnel

    ▪ Bring crane inspections in-house if certifications can be obtained

    ▪ Trade-offs; effort involved to certify

    ▪ 0.111

    0.2

    0.2

    0.2

    0.3

    0.3

    0.3

    0.4

    1.81

    0.1

    0.1

    0.1

    0.10.1

    Cost savings

    10

    11

    12

    13

    1

    2

    3

    4

    5

    6

    7

    89

    10

    11

    12

    13

  • 28

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status Quo 1-2 summary

  • 29

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status quo 1 and 2 summary - energy

    1 O&M electric system only, all other years include corporate 2 EBTDA minus capex – calculated by solving for coverage ratios such that net income increases in status quo scenarios 3 Balance sheet debt only; using last scheduled payment in 2007 and 2019, using total debt / net income for 2030 projections

    Value to customer

    Value to community

    2030 - Status Quo 2030 - Status Quo 2

    Financial value

    Environmental value

    % generation from renewables

    2007

    0%

    2019

    2%

    B – no COJA – keep COJ

    6%

    B – no COJA – keep COJ

    6%

    Years to pay off debt 32 25 >100 0

    Sales, mn MWh1 13.2 12.1 11.3 11.3

    Non-fuel Revenue, $M 515 860 1,146 956

    Expenses (O&M + capex, $M) 3791 527 623 380

    Net income 2 (135) 53 89 321

    Number of accounts, 0001 409 471 543 543

    Rates ($ yield per MWh) 37 62 94 7886 70

    # employees TBD 1460 1460 948

    City contribution 73 93 104 1040

    Quality of service Good better

    Rates (monthly residential bill) 104 123 168 144159 134

    0

  • 30

    The following “Baseline Conversation” financial projections are presented solely for JEA Board of Directors planning and action. They are not a projection of future financial performance and, as such, should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision. The projections are merely a mathematical representation of a hypothetical case for change. Actual results are likely to differ materially from this business case. Use of this presentation not in its entirety could result in material financial harm to the company.

    Status quo 1 and 2 summary - water

    1 Water accounts 2 EBTDA minus capex – additional debt is issued to cover capital expenditures 3 Using last scheduled payment for 2007 and 2019, Currently not solved in SQ1 given that additional debt is issued to cover capex

    Value to customer

    Value to community

    2030 - Status Quo

    2030 - Status Quo 2

    2007 2019 A A

    Environmental value

    Years to pay off debt3 34 25 N/A

    Sales, 000 Kgal1 43 36 38 38

    Non-fuel Revenue, $M 249 474 521 522

    Expenses (O&M + capex, $M) 266 357 510 370

    Net income 2 (115) 1.2 (-122) 44

    Number of accounts, 0001 303 353 417 417

    Rates ($ yield per kgal) 2.4 4.3 4.6 4.6

    Quality of service Good better

    Rates (monthly residential bill) 50 70 70 70

    City contribution 18 25 31 31

    # employees TBD 495 495 433

    Septic tank phase-out progress N/A Minimal Minimal None

    Financial value

    Nitrogen discharge (tons) 850 566 560

    24

    Slide Number 1Goals for todayApproach to status quo 2Executive summaryPotential to reduce cash flow gap by $2.5B through levers within JEA constraintsStatus Quo 2 shows JEA Energy Business reducing debt levels in line with other competitive� sectors post grid parityStatus Quo 2 reduces headcount by 29%, but maintains the salary increases projected in Status Quo 1Labor details - energyLabor details – water and wastewaterLabor details - customerLabor details - TSLabor details – supply chainLabor details – corporate, administrative, SLTStatus Quo 2 reduces total 2019-30 energy capex by 37% (32% when PPA costs are included)Status Quo 2 reduces total 2019-30 water and wastewater capex by 22%Status Quo 2 reduces non-labor O&M by 10% in 2020 from Status Quo 1 base, but maintains increases thereafterNon-labor O&M – key initiativesRevenue initiatives developed to date provide $389M additional revenue by 2030Additional non-labor O&M reduction and revenue enhancement initiativesCorporate cost (1/2)Corporate cost (2/2)Customer costEnergy cost (1/2)Energy cost (2/2)IT costWater cost (1/2)Water cost (2/2)Status Quo 1-2 summaryStatus quo 1 and 2 summary - energyStatus quo 1 and 2 summary - water