Transcript How To Give An Effective Rating Agency Presentation

APPA Business & Financial
Conference
Strategies for Effective
Rating Agency Presentations
Helen Kehrt
Director, Treasury Services
JEA, Jacksonville, Florida
September 19, 2006
Hilton Minneapolis
Strategies for Effective Rating Agency Presentations
Overview
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Proper upfront planning
Timeliness of information
The “right” individuals presenting
Format of presentation material
Content
Follow up after presentations
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Strategies for Effective Rating Agency Presentations
Proper Upfront Planning
• Schedule meeting with analysts early (date, time, location)
– At rating agency offices in New York
– At the utility offices
– At a third party location (i.e. hotel conference room,
consultant facility)
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Strategies for Effective Rating Agency Presentations
Proper Upfront Planning
• Develop outline of topics
– Determine what the rating agencies think is important
• From your utility’s rating agency reports and other utility’s rating
reports
• From rating agency general summary pieces on Ratings Criteria
– Review strengths and weaknesses of your credit
• Highlight strengths
• Explain your strategy to improve weaknesses
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Strategies for Effective Rating Agency Presentations
Proper Upfront Planning
• Review presentation materials
– Look for errors or inconsistencies
– Missing or duplicate pages
– Check quality of material
• Coordinate or “practice” with presentation team
– Each presenter should know their role and understand the
information that they are presenting
– Smooth transition between presenters
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Strategies for Effective Rating Agency Presentations
Proper Upfront Planning
• For presentations at utility home offices
– Arrange to meet wider group of key management staff,
governmental and business leaders
– Arrange for tours of large facilities and service territory
(ask analysts for recommendations)
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Strategies for Effective Rating Agency Presentations
Timeliness of Information and Meeting
• Annual update meeting shortly after year end and audit
completion
• Update meeting mid-year if necessary
• Any major changes, communicate immediately
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Strategies for Effective Rating Agency Presentations
The “Right” Individuals Presenting
• Key utility managers, Board members, Mayor and City
Council
• Show support of the Board, City Council
• Do not rely on consultants (financial advisor, underwriters),
the rating agencies want utility managers that understand
the business.
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Strategies for Effective Rating Agency Presentations
Format of Presentation Material
• Determine type of presentation material – books, power
point, etc
• All charts with same standard format for headings and fonts
• Make a point with each chart or page
• Have backup version of presentation
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Strategies for Effective Rating Agency Presentations
Content
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Overview and Governance
Management, Strategy and Competitive Strengths
Electric System Operations
Water and Sewer Operations
Pricing Philosophy and Rates
Enterprise Risk Management
Financial Performance
Service Territory Demographics
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Strategies for Effective Rating Agency Presentations
Content
• Overview and Governance
– Summary and interconnection of key business units
– Members and background of board of directors or oversight
body
– Relationship to other governmental units in local area
– Legal restrictions
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Strategies for Effective Rating Agency Presentations
Content Example: JEA Overview
Corporately organized independent agency of the City of Jacksonville, FL.
Governing body consists of a seven member Board appointed by the Mayor and confirmed by the City Council.
Established in 1968 to own and operate the electric utility which had been owned by the City since 1895.
Effective June 1, 1997, the City transferred to JEA the City’s combined water and sewer utility system.
Effective October 1, 2004, the District Energy System was formed.
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Electric System
397,000 customers
900 square miles of service area
5,300 miles distribution
730 miles transmission
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Electric Generation
St. Johns River Power Park
Northside Generating Station
Brandy Branch
Kennedy
Scherer
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Water and Sewer System
287,000 water customers
214,000 sewer customers
903 square miles of service area
3,600 miles distribution
3,200 miles collection
Water and Sewer Treatment Plants
• 18 Major water plants
282 MGD max daily capacity
• 6 Regional sewer plants
238 MGD max daily capacity
3,275 MW net capacity
District Energy System
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Three Chilled Water Plants
20,700 tons capacity
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Strategies for Effective Rating Agency Presentations
Content Example: Board of Directors
Current members of the JEA Board, their occupations and the commencement
and expiration of their current terms are as follows:
Ernest Isaac, Jr.
Chair
President/Owner
Ernie Isaac Electric Co., Inc.
September 17, 1996 – February 28, 2007
Julian E. Fant
Vice Chair
President & CEO
First Guaranty Bank
March 24, 2004 – February 28, 2008
Dr. Leroy R. Polite
Secretary
Medical Doctor - Dentistry
January 29, 1996 – February 28, 2007
J.D. Collins
Owner-Real Estate Developer
The Collins Group
May 23, 2000 – February 28, 2008
William P. Foley
Chairman & CEO
Fidelity National Financial, Inc.
March 1, 2005 – February 28, 2009
Cynthia B. Austin
Attorney
Austin & Austin
May 19, 2006 – February 28, 2010
Cathy B. Whatley
Realtor
Buck & Buck, Inc.
June 19, 2006 – February 28, 2010
The Board’s primary responsibilities include strategy, policy and rate making
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Strategies for Effective Rating Agency Presentations
Content
• Management, Strategy and Competitive Strengths
– Organization Chart
– Experience of Management Team
– Management participation in industry issues
– Utility strategies (succession planning and workforce
development, environmental issues, safety, community
growth)
– Key competitive strengths
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Strategies for Effective Rating Agency Presentations
Content Example: Management Team
CEO – Jim Dickenson
Market
Strategy
Utility Service
Capacity
Operations &
Maintenance
Customer
Relationships
Organizational
Services
Financial
Services
Electric System
Generation
Transmission
Technology
Services
Environmental
Services
Government
Relations
Water & Sewer System
Distribution
Treatment
Reclaimed
Water
Distribution &
Collection
District Energy System
JEA is unique in its integrated process oriented management structure,
which has led to lower costs and higher levels of customer satisfaction.
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Strategies for Effective Rating Agency Presentations
Content Example: Strategic Focus
1980
1990
2000
2010
Building Community
Integrated Utility
Water, Sewer, Reclaimed, District Energy
Strategic Partnerships
North Florida, Colectric, TEA, SJRWMD, WSEA
Fuel Diversity
Coal, pet coke, wind, biomass
Generation Debt
Scherer, Kennedy, BB1 and SJRPP
Operational Excellence
Dependability
Environmental Stewardship
Community Growth
Risk Management (ERM) 2008 Target
Integrated Resource Plan 2006-2024
Customer Satisfaction
Workplace Environment
Strategies for Effective Rating Agency Presentations
Content
• Electric System Operations
– Growth – peak demand, capacity, reserve margins
– Power resource and fuel mix
– Transmission assets
– Electric distribution reliability
– Environmental issues
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Strategies for Effective Rating Agency Presentations
Content Example: Electric System Growth – Peak Demand
Peak Demand (MW)
4000
3% demand
growth
3500
3000
2500
2000
1500
1994
1996
1998
2000
2002
2004
2006
2008
Winter Actual
Winter Normalized
Winter Forecast
Summer Actual
Summer Normalized
Summer Forecast
JEA has experienced an annual 3% peak demand growth over the last ten years
2010
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Strategies for Effective Rating Agency Presentations
Content Example: Electric Generation Unit Age Analysis
Including Peak Demand versus Capacity
Capacity Age 0-10
Capacity Age 11-20
Capacity Age 21-30
Capacity Age 30+
Firm Purchases
Firm Peak Demand + 15% Reserve
Firm Demand Peak
4,000
3,500
MW
3,000
2,500
2,000
1,500
1,000
500
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
• JEA owns and operates an electric generating fleet which is significantly
younger, more efficient and environmentally friendly than industry norms.
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Strategies for Effective Rating Agency Presentations
Content
• Pricing Philosophy and Rates
– Rate structure (fuel recovery, base rates)
– Rate planning and approval process
– Recent rate actions
– Rate comparisons
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Strategies for Effective Rating Agency Presentations
Content Example: Electric System Residential Rates
Comparison
Florida Residential Electric Rates
140.00
120.00
$124.0
$118.8
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$118.7 $115.5
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$113.1
$109.5
0
6
107.97 $107.8
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$107.6 $107.55
6
$102.41 $101.28 $100.34
$99.95 $99.70
100.00
$97.90 $93.07
80.00
60.00
40.00
20.00
November, 2005
JEA
Northwest
Florida
Ft. Pierce
Clay County
Orlando
Jacksonville
Beach
Kissimmee
Gainesville
Miami
Bartow
Vero Beach
Tampa
St. Petersburg
Key West
Ocala
Tallahassee
Ft. Meade
0.00
Lakeland
$/1,000 kWh
$89.15
Proposed January, 2006
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Strategies for Effective Rating Agency Presentations
Content
• Enterprise Risk Management
– Fuel supply and price
– Interest rates
– Disaster recovery
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Strategies for Effective Rating Agency Presentations
Content Example: Electric System: Fuel Mix and Expense
Actual Fiscal Year 2005
Proforma Fiscal Year 2006
10%
9%
32%
10%
5%
1%
13% 32%
12%
7%
Proforma Fiscal Year 2010
32%
2%
6%
1%
10%
5% 5%
1%
16%
1%
2%
1%
3%
5%
26%
27%
26%
Energy Generated and Purchased
SJRPP (Coal/Petcoke)
Gas: Steam
N/S (Petcoke)
Scherer 4 (Coal)
Gas: Comb. Cycle
Oil & Diesel
Southern (Coal)
Gas: CTs
Other Purchased Power
Fuel diversity reduces risk while providing opportunity
and flexibility to effectively manage fuel costs.
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Strategies for Effective Rating Agency Presentations
Content Example: Enterprise Risk Management: Risk Inventory
Financial
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Accounting Services
Accounts Payable
Budget Services
Bulk Power
Corporate Planning
Customer Contact Management
Customer Order Management
Electric Production
Employee Benefits
Environmental Services
JEA Fuels
Material Distribution & Recovery
Meter, Billing & Collections
Payroll
Procurement Services
Rates
Real Estate
Reliability Engineering
SJRPP Fuels
SJRPP Production Services
Talent Acquisition
Technology Services
Treasury Services
USC
Water, WW & Reuse Delivery/Collection
Water, WW & Reuse Treatment
Strategic and Operational
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Market/Price
Credit/default
Modeling/valuation
Business continuity
Operational
Volumetric
Staffing/organization
Financing/financial
Legal
Regulatory
Environmental
Political
Strategic/franchise
Technological
Financial/documentation reporting risk
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Strategies for Effective Rating Agency Presentations
Content
• Financial Performance
– Coverage levels (historical and projections)
– Liquidity
– Debt burden and mix
– Capital requirements
– Financial or debt policies
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Strategies for Effective Rating Agency Presentations
Content Example: Electric System
Projected Capital Expenditures by Major Category
Total Capital Expenditures
Actual
2005
2006
2007
2008
2009
2010
$226
$253
$218
$203
$361
$569
Distribution
44%
35%
44%
37%
21%
11%
Substation & Transmission
10%
18%
17%
19%
10%
8%
New Generation
10%
--
4%
17%
51%
68%
Generation
13%
29%
21%
13%
9%
7%
Other
23%
18%
14%
14%
9%
6%
100%
100%
100%
100%
100%
100%
Total
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Strategies for Effective Rating Agency Presentations
Content Example: Electric System – Funding Plan
Fiscal
Year
Capital
Plan
Internal
Funds
Construction
Funds
2005
Debt
Financing
2006-2010
Principal
Repayment
2006
$253
$93
$41
$119
$82
2007
218
85
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133
87
2008
203
124
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79
112
2009
361
133
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228
118
2010
569
146
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423
123
Total
$1,604
$581
$41
$982
$522
(In millions)
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Strategies for Effective Rating Agency Presentations
Content
• Service Territory Demographics
– Population statistics (growth, income, housing)
– Workforce (unemployment, industry sectors)
– Key customers
– Residential and commercial development
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Strategies for Effective Rating Agency Presentations
Content Example: Service Territory Demographics
Jacksonville’s Population and Labor Statistics
Jacksonville MSA Population
Year
Labor
Force
Labor
Force
Growth
Rate
1991
468,987
1993
1990
2004
Change 1990 to 2004
912,708
1,204,659
32%
Employment
Annual
Employment
Growth
Rate
Jacksonville
Unemployment
Rate
National
Unemployment
Rate
1.5%
438,159
0.4%
6.1%
6.8%
480,401
2.1%
453,345
3.7%
5.5%
6.8%
1995
502,782
1.7%
484,139
3.2%
3.7%
5.6%
1997
532,507
2.8%
515,612
2.9%
3.6%
4.4%
1999
560,954
3.9%
544,342
3.6%
3.0%
4.1%
2001
567,164
1.5%
543,181
3.2%
4.2%
4.8%
2002
601,466
6.0%
569,726
3.9%
5.3%
5.8%
2003
605,174
0.6%
572,880
0.6%
5.2%
6.1%
2004
616,526
1.9%
587,322
2.5%
5.4%
6.0%
2.9%
4.7%
5.6%
Average
2.3%
Jacksonville’s seasonally adjusted MSA unemployment rate at June 2005 was 4.09%.
Sources: Florida Research and Economic Database , US Census Bureau 2000 and Bureau of Labor Statistics. And DemographicsNow
*2004 Labor force and employment data is year-to-date as of June, 2005. Metropolitan Statistical Area (MSA)
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Strategies for Effective Rating Agency Presentations
Content Example: Customer Base – Growth
Electric System Customers
Commercial and Industrial
Public Street Lighting
400, 000
350, 000
300, 000
250, 000
200, 000
150, 000
100, 000
2005
2004
2003
2002
2001
2000
1999
1998
Fi sc a l Ye a r
1997
50, 000
1996
Average Number of
Accounts by Type
Residential
450, 000
10 Year Average
Annual Rate of
Growth = 1.92%
Water & Sewer System Customers
Commercial and Industrial
Irrigation
Reuse
250,000
200,000
150,000
100,000
2005
2004
2003
2002
2001
2000
1999
1998
Fiscal Year
1997
50,000
1996
Average Number of Accounts
by Type
Residential
300,000
10 Year Average
Annual Rate of
Growth = 5.93%
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Strategies for Effective Rating Agency Presentations
Follow Up After Presentation
• Follow up with answers to any open questions as quickly as
possible after presentation
• Continue ongoing communication throughout the year
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Strategies for Effective Rating Agency Presentations
Summary
• Develop close working relationship with rating analysts
• Top three items for consideration:
– Proper upfront planning
– Timely communication
– Relay key information for ratings analysis
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