JEA CEO: 'No foregone conclusion' on what utility could look like in future
Aaron Zahn speaks on camera after board votes to investigate privatizing
JACKSONVILLE, Fla. – The head of JEA sat down with News4Jax reporter Jim Piggott on Monday afternoon, nearly a week after the city-owned utility's board of directors voted to explore privatization.
In the one-on-one interview, JEA Chief Executive Officer Aaron Zahn, who had been tight-lipped since the vote Tuesday and avoided questions that day about the future of the utility, said there are a number of scenarios being looked at -- not just privatization or selling. Another one could be what Zahn called a traditional utility response, which would include cutting costs and raising rates.
Zahn said the board wants to explore each of the options of what the future could look like.
"I think the first point is that there is no foregone conclusion. We're still continuing our scenario strategic planning. That being said, what the board has authorized us to do is evaluate all the different constructs of JEA," he said. "3A, for example, is community ownership much like a co-op, like Clay County Cooperative Electric. The second is potentially an IPO, initial public offering, which could be quite exciting for our city."
He insisted nothing is set in stone and everything is on the table.
"I ask that the community engage in an open-minded conversation about the future of JEA and how we remain relevant to all of our customers," Zahn told Piggott. "At the end of the day, if you look at our May board meeting and you understand the issues that we're facing related to distributed generation and electrification and even distributed water systems, our business has changed to a competitive market environment. And so all we're doing is having a very open and transparent conversation about what the potential futures of JEA might be."
The JEA leader believes people who watch closely could not have been shocked to hear the board ask for information on a variety of scenarios.
After the board meeting last week, a news release was issued, saying JEA had hired high-powered consultants. Zahn said they were already working for JEA in other capacity and staff had informed them that this was a possibility, which is why they were ready to move so quickly.
Zahn said the next step in the coming months is to get more detailed reports from the consultants and then make decisions as to what to do next. He said the board and public will be informed.
And if JEA does undergo major changes or is sold, the public will have to vote on it before that happens. Even though a straw ballot in November showed voters wanted a say in the sale, it was not binding. But recent changes by the City Council will now allow for a public vote for approval if more than 10% of the utility is sold.
Zahn told News4Jax he agrees that voters should have a say in what JEA looks like in the future. In the meantime, his view is that it’s prudent to consider all the options and gather information so the board, and potentially voters, can make a decision.
"I think there are some other alternative paths that would provide a bright and remarkable transformation for our entire region,” he said.
Piggott also asked Zahn -- who was hired from outside the utility as interim leader and then selected to become CEO after previous CEO Paul McElroy's surprise resignation -- about his salary, which the board approved at more than $500,000 a year. Zahn said he understands the scrutiny, but said the salary was directly taken from the previous CEO's contract in 2018.
Here are some of the Zahn's answers to the questions Piggott asked him during the 14-minute interview:
News4Jax reporter Jim Piggott: A lot of reaction to this one when the board passed it. It seemed like a done deal. You know, they had discussions before. I know it's been discussed for some time after being in the meetings that you were looking for ways JEA could stay ahead of the curve, but it does appear that this just, sort of, came out of the blue.
JEA CEO Aaron Zahn: "Sure. So, strategic planning started in January of 2019 and it's been progressive, as you talked about, all the way through May and June and July board meetings, really looking at the multiple stages, or multiple iterations, of what JEA could look like in the future."
Piggott: People are wondering, too, how this would actually benefit JEA? Since we're talking and it really does look like this scenario is going toward getting away from government, privatizing or even a possible sale. How could that benefit us?
Zahn: I think the first point is that there is no foregone conclusion. We're still continuing our scenario strategic planning. That being said, what the board has authorized us to do is evaluate all the different constructs of JEA. 3A, for example, is community ownership much like a co-op, like Clay County Cooperative Electric. The second is potentially an IPO, initial public offering, which could be quite exciting for our city. What we really should be looking at is the minimum requirements that the board also set forth because I think that's something that could benefit not only JEA, but the community at large. The ability to provide our customers with over $400 million in rebates. As opposed to today, we don't have that capacity. To be able to have stable rates, as opposed to not have stable rates. The ability to give the city $3 billion of cash compared to the $2 billion that it currently has from JEA over the next 20 years. And that would be a guaranteed payment. The ability to give employees guaranteed pension acceleration, plus retention capabilities and three-year employment guarantees, which we don't actually have today for all of our employees. And that would be extended to all 2,000 employees equally. The ability to be able to fully fund and be able to provide the city of Jacksonville and Duval County Public Schools 100% of renewable power by 2030. That's pretty exciting. Actually, it's game-changing in a way. As well as be able to commit to 40 million gallons a day of alternative water. I think what the board's minimum requirements really do set forth is that in the event that you are going to stray from the construct of JEA’s 125-year-old past, you need to be able to deliver results that are extraordinary into themselves."
Piggott: I guess when you were talking with employees -- and already you’ve been meeting with them, talking about what their future is going to be -- that it seems like that is what's going to happen. You know, their guaranteed pension. You know, if this comes down, you're guaranteed at least three years. So it does seem like this is a done deal.
Zahn: I don't think so. You've got to remember we have 2,000 employees who come to work no matter what happens. And if there's uncertainty on the horizon, then they start worrying about their future. So all the board did was put in place protections so that employees who are doing dangerous work, both on the electric and the water side, can come to work with peace of mind of whatever happens in the future that their future is being taken care of. And that's not a guarantee that something happens. That's just saying that if it happens, it's like an insurance plan.
Piggott: Do you think there's a lot of misinformation coming out about what's happening here? How do you think this is being perceived?
Zahn: I think people that pay close attention to our board meetings for the last year aren't surprised at all. They see a very deliberate, methodical conversation that's being had by an executive team and board about the future of JEA and what's best for our customers, our employees, our community and the environment of Northeast Florida. For those who perhaps haven't been playing as close attention or they've been focused elsewhere, I can certainly understand how they need to be further informed and we welcome that. We certainly welcome any City Council member who would like to come sit down with us and talk to us about the work we've done with McKenzie. We've actually given a lot of updates to City Council members. I gave a presentation to the City Council at the education session at JU (Jacksonville University) not only a month ago and literally talked to them about this exact issue. I also gave a presentation at City Council chambers, you know, Captain Bowman had asked each one of the authorities to come in and give a mid-year update -- gave a very similar update, you know, this is what we're looking at, the challenges that are ahead of JEA in terms of the changes in the market. We really need to be thinking about how do we remain relevant to the customer. And so, no, I disagree that it came out of the blue. But it is certainly a complex issue that requires a studious mind.
Piggott: With the referendum that passed and the changes that Council made that it will take a vote if it's going to be over 10%, do you think the public is ready for this if it comes to that choice of privatizing or making major changes in the way it's run -- going away from government? Will they go for that?
Zahn: That's not my choice, but I do think it's important that the public has a vote if it ever gets to that situation. That being said, look, the reality is we have a lot of work left to do to be able to present all the facts and data for you, as an informed constituency, to be able to make your own decision. So by hiring Morgan Stanley and J.P. Morgan and Pillsbury and Foley, our goal is to be able to gather all the facts so that we can come back and present that at a board meeting and, ultimately, to City Council and if need be to the voter
Piggott: Is there anything else I didn't ask you that you'd like to get across?
Zahn: That's a great question. I’d ask that the community engage in an open-minded conversation about the future of JEA and how we remain relevant to all of our customers. At the end of the day, if you look at our May board meeting and you understand that the issues that we're facing related to distributed generation and electrification and even distributed water systems, our business has changed to a competitive market environment. And so all we're doing is having a very open and transparent conversation about what the potential futures of JEA might be. And one of the things that everyone should know is that we are still a government institution. And so the prospect of designing to shrink is still on the table. We have the ability, if this is what the community wants us to do, to implement a traditional utilities response whereby we shrink as our services are less consumed by you the customer. That being said, I think there are some all other alternative paths that would provide a bright and remarkable transformation for our entire region.
News4Jax photographer Randy Sell: After they [the voters] say yes or no, would JEA and the government officials follow what their thoughts are? Or do you think, because you know better than they do, that you may have to override them?
Zahn: I'm a big believer that when the voters vote, you have to listen to their vote. At the end of the day, the onus is on the community to speak and when you cast a vote, just like in any election, you may not like who got elected, but they're the person who got elected. At the end of the day, I think community officials need to follow how voters vote. But that's my opinion.
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