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Financial Markets Impact JEA
Jacksonville, Fla. (October 8, 2008) Over the past few weeks, a crisis has swept through U.S. and global financial markets that has essentially closed the municipal debt market—a vital source of capital for JEA.
The utility sector is capital intensive and requires access to credit to ensure that the important infrastructure of the country remains operating and can be expanded to meet growing demands. Although JEA’s operations are financially sound, the inability to access credit markets in an efficient manner is putting a strain on our business operations. The impacts include the difficulty in finding a sufficient number of lenders for short-term borrowings at economic rates. When short-term borrowing can be found, it is at extraordinarily high interest rates—in some cases four times the rates paid only weeks ago in August. Long-term bond markets are also at a standstill. This will severely hamper JEA’s ability to fund major construction projects.
The result of all this is that the interest savings JEA has used in the past to keep customer costs down are being eroded and our overall financing costs are being driven above budgeted amounts. The immediate concerns regarding the credit market crisis is our short term ability to current financial metrics and commitments, as well as a longer term concern over the ultimate cost to our customers.
JEA’s 2009 fiscal year capital plan called for $700 million which would require $550 million of additional outside funding. With the bond market nearly frozen and rising interest rates, JEA is not only reducing capital expenditures, but reducing expenses across the board.
JEA’s Board of Directors, CEO and Executive Team are taking the following actions to ensure JEA’s financial strength is maintained and that customers continue to receive service at the lowest rates possible.
- Reduce or freeze capital spending
- Freeze hiring, including replacements for the next twelve months
- Eliminate temporary and contract workforce
- Redeploy staff where possible
- Freeze consulting contracts, evaluate and reduce/eliminate where possible
- Cut non-mission critical expenses such as travel, training, paid communications, etc.
- Defer non-mission critical repair and maintenance expenses
No one knows how long it will take for the choppy waters of the financial markets to calm, but JEA is taking an aggressive and proactive approach to put the organization and the community in the best possible position during this turbulent time.
JEA is the eighth largest community owned electric utility in the United States, providing electric, water and sewer service to more than 875,000 accounts in northeast Florida.
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