Is this a trend?
* NextEra Energy in Florida is stalking South Carolina’s state-owned Santee Cooper utility.
* JEA, Jacksonville, Fla.’s city large electric and water utility is pondering selling itself to an investor-owned utility.
* Puerto Rico’s PREPA electric utility, staggering before hit by Hurricane Maria in September, further disabling the utility, is on the auction block.
* The Trump administration, with strong support from investor-owned utilities, wants Congress to approve privatizing the giant Tennessee Valley Authority, the Bonneville Power Administration in the Northwest, and other federally-owned electric utilities.
* The city of Vero Beach, Fla., is selling its municipal electric system to Florida Power & Light, a NextEra subsidiary, with the $185 million sale expected to close this year.
For Sue Kelly, CEO of the American Public Power Association, all this activity is familiar territory, not a new assault on public power. “It’s just the same thing that always goes on,” Kelly told The Quad Report, “just this year there are some higher profile utilities involved than normal.”
“In any one-year period,” Kelly said, “we see chatter in both directions,” investor-owned utilities going after munis and cities seeking to oust an IOU in favor of a city-owned system, as has been going on for several years in Colorado, where Boulder is trying to evict Xcel Energy. There are even cases of municipal systems and rural electric cooperatives, public power brethren, looking to merge. That’s now going on in Anchorage, Alaska.
According to Ursula Schryver, who tracks the issue for APPA, “Each one is unique, and most have been small.” She added that munis “don’t tend to sell their systems,” and it’s difficult to achieve.
NextEra has been particularly aggressive. NextEra was poised to buy Hawaiian Electric in 2016, until the state regulators killed the $4.3 billion deal as “not in the public interest.” NextEra, said APPA’s Kelly, “clearly has a fat wallet. They’ve got a hot credit card.”
Credit rating agencies are well aware of the difficulties of taking over a muni. Moody’s said it was doubtful that NextEra would be able to take over Santee Cooper and its $7 billion in tax-free debt.
Fitch Ratings recently put out a report headlined: “Credit Impact of Proposed Utility Sales Generally Limited.” Fitch said that “few utility sales persist through to completion in the public sector.” Among the problems is that such transactions are “time consuming and often expensive” as the buyer and seller have to “unwind power purchase contracts and debt obligations.” Looking at the JEA sale, which was prompted by the utility and not in response to an outside offer, Fitch said it “believes the exercise is in a very preliminary state but that any ultimate sale would involve the full retirement of its over $4 billion in outstanding debt obligations as of Sept. 30, 2017.”
As for the sale of the federal assets, that’s been a long-running political failure. Every president since Ronald Reagan, of both parties, has at one time or another proposed it in budget presentations. None have succeeded. APPA’s Kelly told the Washington Examiner, “We keep seeing this over and over again, but it’s frustrating to me because every new administration has to learn the lesson that, one, it’s a political third rail. And two, it doesn’t get them where they want to go.”
— Kennedy Maize