Title: State of Florida v. JEA
Citation: N/A
Docket Number: SC00-2183
State: Florida
Issuer: Florida Supreme Court
Date: April 12, 2001

Supreme Court of Florida
 
____________
No. SC00-2183
____________
STATE OF FLORIDA,
Appellant,
vs.
JEA,
Appellee.
[April 12, 2001]
PER CURIAM.
The State of Florida appeals a circuit court judgment validating a proposed
bond issue.  We have jurisdiction.  See art. V, § 3(b)(2), Fla. Const.  We affirm.
I.  FACTS
In 1997, the JEA (formerly known as the Jacksonville Electric Authority), a
body politic and corporate of the City of Jacksonville created pursuant to chapter
92-341, Special Acts, Laws of Florida, entered into a Strategic Alliance (“Alliance”)
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with two municipal utilities, the Municipal Electric Authority of Georgia (“MEAG”)
and the South Carolina Public Service Authority (“Santee Cooper”).  The purpose
of the Alliance was to allow its members to compete more effectively in the
changing electric utility market.  Through the Alliance,  JEA, MEAG, and Santee
Cooper (“original members”) have coordinated the operation of their electric
generating facilities and the purchase and sale of electric capacity and energy.
To implement their undertaking, the original members organized The Energy
Authority, Inc. (“TEA”), a Georgia nonprofit membership corporation which does
not issue capital stock.  Under TEA’s articles of incorporation and bylaws, TEA
has the following marketing options:  (a) TEA may buy surplus electric capacity
and energy from one or more of its members for sale to one or more of its
members; (b) TEA may buy electric capacity and energy from one or more third
parties for sale to one or more of its members; (c) TEA may buy electric capacity
and energy from one or more of its members for sale to one or more third parties;
and (d) TEA may buy electric capacity and energy from one or more third parties
for sale to one or more third parties.
After TEA’s formation, several other utilities, which are either municipally
owned or are themselves political subdivisions, have become members.  It is
contemplated that only municipally owned utilities and utilities that are political
1.  Article 3 of TEA’s bylaws provides, in pertinent part:
As a condition of membership in the corporation, an
organization must be a governmental instrumentality which is (i) a
political subdivision or (ii) a public utility described in Section 115 of
the Internal Revenue Code of 1986, as amended; and any member of
the corporation which ceases to be such a governmental
instrumentality shall cease to be a member of the corporation.  
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subdivisions will become members of TEA.1  Additionally, TEA has entered into
what it terms “resource management arrangements” with other municipally owned
or political subdivision utilities, and TEA is exploring the possibility of entering into
resource management arrangements with non-municipal or non-political subdivision
utilities.
Each utility that enters into a resource management arrangement with TEA is
termed a “resource management partner” and  TEA acts as the exclusive agent for
that partner in purchasing needed capacity and energy from members or third
parties and in selling excess capacity and energy to other members or third parties. 
These services, which TEA renders for a fee, are similar to the services TEA
provides for its members.  Resource management partners have a contractual
relationship with TEA with no voting or other membership rights.  It is anticipated
that arrangements with non-municipal or non-political subdivision utilities will
represent only a limited portion of TEA’s business, i.e., no more than twenty
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percent of annual revenues.  
To provide financial support for TEA and entice third parties to trade with
TEA, each of the current members has signed a trade and bank guarantee (“TEA
guarantee”) pursuant to which the member is obligated to pay amounts owed by
TEA to the extent not paid by TEA.  The TEA Guarantees embrace transactions
entered into on behalf of TEA’s members and resource management partners.  To
the extent that non-municipal or non-political subdivision utilities may become
resource management partners, the original and other members would be obligated
to pay amounts owed by TEA with respect to transactions entered into on behalf of
such partners.
On June 6, 2000, JEA adopted a resolution authorizing issuance of Electric
System Subordinated Revenue Bonds in an amount not to exceed $15,000,0000 to
finance JEA’s obligations under the TEA Guarantees.  The circuit court validated
issuance of the bonds, finding that JEA’s obligations under its TEA Guarantees did
not run afoul of article 7, section 10, Florida Constitution.  The State appealed and
argues that JEA’s agreement to guarantee amounts arising from transactions entered
into on behalf of non-municipally owned or non-political subdivision utilities belies
the circuit court’s characterization of TEA as a mere instrumentality of the state. 
We disagree.
2.  See State v. Osceola County, 752 So. 2d 530, 533 (Fla. 1999). 
3.  Osceola County, 752 So. 2d at 533; see also State v. Inland Prot. Fin.
Corp., 699 So. 2d 1352, 1355 (Fla. 1997); Poe v. Hillsborough County, 695 So. 2d
672, 675 (Fla. 1997).
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A trial court’s ruling in a bond validation proceeding comes to this Court
clothed with a presumption of correctness as to all fact-based issues.2  Our review
in such cases is limited to three issues: “(1) whether the public body has the
authority to issue bonds; (2) whether the purpose of the obligation is legal; and (3)
whether the bond issuance complies with the requirements of the law.”3  In the
instant case, only the second issue, i.e., whether the purpose of the obligation is
legal, is in dispute by the parties.
II.  “SECTION 10"
Article 7, section 10, Florida Constitution, sets forth circumstances under
which the state may not pledge its credit:
SECTION 10.  Pledging credit.–Neither the state nor any
county, school district, municipality, special district, or agency of any
of them, shall become a joint owner with, or stockholder of, or give,
lend or use its taxing power or credit to aid any corporation,
association, partnership or person . . . .
Art. VII, § 10, Fla. Const. (emphasis added).
In the present case, the circuit court ruled as follows on the State’s section
10 claim:
4.  See  Op. Att’y Gen. Fla. 77-113 (1977).
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A.  Plaintiff’s obligations under its TEA Guarantees to
guarantee TEA’s obligations to third parties (including those arising
out of transactions entered into for non-municipally-owned or non-
political subdivision utilities) to the extent amounts owed by TEA are
not paid by TEA when due are not violative of the prohibition
contained in Article VII, Section 10 of the Florida Constitution since,
although TEA is not a political subdivision of any state it should, for
purposes of Article VII, Section 10 of the Florida Constitution, be
viewed as an instrumentality of its members, all of whom are political
subdivisions and, therefore, TEA is not included within the terms
“corporation, association, partnership or person” within the meaning
of Article VII, Section 10 of the Florida Constitution.
In support of its argument that TEA does not come within the terms of
section 10, JEA points to a published opinion of the Florida Attorney General
advising the City of Lakeland that it could enter into a reciprocal insurance
association.4  Under the proposed arrangement there, the reciprocal insurance
association was to consist entirely of municipalities and would transact business as
a legal entity.  The members of the association (i.e., the municipalities) were to
agree to indemnify each other for designated risks of loss.  The Attorney General
found no impediment under section 10 to Lakeland’s participation in the
association:
The statement of facts submitted in your request indicates that
membership in the proposed reciprocal association will be limited to
Florida municipalities.  In view of that, it is my opinion that no
violation of s.10, Art. VII, State Const., would result from the joinder
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of such municipalities in a reciprocal insurance association or from the
contribution of city funds to the required surplus of the insurance
fund.
Political subdivisions of the state, including municipalities, are
not associations, persons, or corporations to which the proscription
of s.10, Art. VII . . . applies.
Likewise, the fact that the cities will contribute to the required
expendable surplus of the reciprocal insurance association and, in
effect, become joint owners of an association which is not itself a
municipality would not constitute a violation of s.10, Art. VII . . .
under the facts presented in your inquiry.  The proposed association
would not constitute a private association, one having no official
duties or concern with the affairs of government and organized
primarily for the personal emolument of its members.  Rather, the
association would be in the nature of a public or quasi-public entity
organized primarily to discharge duties to the public or to provide a
governmental benefit.  
Op. Atty. Gen. Fla. 77-113 (1977) (emphasis added) (citations omitted).
In the present case, TEA appears to be analogous to the above reciprocal
insurance association.  All TEA’s members are municipal utilities and no utility that
is a non-municipal or non-public subdivision utility will be permitted to become a
TEA member.  Although TEA is authorized to enter into resource management
arrangements with non-municipal or non-political subdivision utilities, resource
management partners have no voting or membership rights in TEA.  Further, these
resource management arrangements are expected to comprise only a fraction of
TEA’s business.  While JEA’s obligations under the TEA guarantees could be
called upon by third parties, the vast majority of those guarantees involve municipal
5.  See also Poe v. Hillsborough County, 695 So. 2d 672, 676-77 (Fla. 1997)
(“[I]f an undertaking is for public purposes, Article IX, §10 of the Constitution is
not violated even though some private parties may be incidentally benefited.”);
N. Palm Beach County Water Control Dist. v. State, 604 So. 2d 440, 442 (Fla.
1992) (“If either [the District’s taxing power or pledge of credit] is involved, then
the improvements must serve a paramount public purpose.”).  
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or political subdivision utilities.  Finally, the guarantees are promulgated in
furtherance of TEA’s public purposes.
Based on the foregoing, the circuit court reasonably concluded that TEA is
more appropriately characterized as an “instrumentality of its members,” all of
whom are municipally owned or political subdivision utilities, rather than a
“corporation, association, partnership or person” within the terms of section 10.  
III.  “PARAMOUNT PUBLIC PURPOSE”
Even if TEA did fall within the section 10 prohibition as a “corporation,
association, partnership or person,” the bonds still could be validated if they serve
a paramount public purpose.  This Court explained:
If the County has not exercised its taxing power or pledged its credit,
the obligation must merely serve a public purpose.  On the other hand,
if the County has used either its taxing power or pledge of credit to
support the issuance of the bonds, the purpose of the obligation must
serve a paramount public purpose and any benefits to a private party
must be incidental.
State v. Osceola County, 752 So. 2d 530, 536 (Fla. 1999) (emphasis added).5
We consistently have held that an incidental private benefit is not sufficient to
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negate the public character of a project:
Running throughout this Court’s decisions on paramount public
purpose is a consistent theme.  It is that there is required a paramount
public purpose with only an incidental private benefit.  If there is only
an incidental benefit to a private party, then the bonds will be validated
since the private benefits “are not so substantial as to tarnish the
public character” of the project.  If, however, the benefits to a private
party are themselves the paramount purpose of a project, then the
bonds will not be validated even if the public gains something
therefrom.
Orange County Ind. Dev. Auth. v. State, 427 So. 2d 174, 179 (Fla. 1983) (citations
omitted).
In the present case, the circuit court found that TEA issued its guarantees to
entice third parties to trade with TEA so that TEA will be better equipped to
compete in the wholesale energy market and to ensure access to a larger supply of
energy and capacity for its members, all of whom are municipally owned or
political subdivision utilities.  Further, as previously noted, JEA’s obligations under
its TEA Guarantees apply to all the transactions entered into by TEA.  Of those
transactions, the resource management arrangements with non-municipally owned
or non-political subdivision utilities would account for only a fraction of TEA’s
revenues.  Accordingly, to the extent that private entities are benefitted by these
guarantees, such a benefit is incidental to the paramount public purpose served by
6.  Cf.  Orange County Indep. Dev. Auth. v. State, 427 So. 2d 174 (Fla.
1983) (finding a paramount private purpose in the county’s issuance of bonds to
purchase and construct a television station for a private corporation where the
corporation would enjoy substantial benefits over the life of the bonds with only
incidental benefits to the public); O’Neill v. Burns, 198 So. 2d 1 (Fla. 1967)
(finding bonds to be issued by State for the creation of headquarters for nonprofit
corporation did not serve paramount public purpose as the purported benefits to
be derived by the public from the expenditure, i.e., promotion of tourism, were
incidental); State v. Town of North Miami, 59 So. 2d 779 (Fla. 1952) (affirming the
circuit court’s invalidation of bonds issued by town to purchase lands and
construct a manufacturing to be leased to private corporation where the renewal
and options to buy granted the corporation in the lease essentially granted the
corporation a substantial benefit).
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TEA.6
IV.  CONCLUSION
Based on the foregoing, we agree with the trial court’s conclusion that TEA
constitutes an instrumentality of its members, all of whom are municipally owned or
political subdivision utilities.  TEA thus is not a “corporation, association,
partnership or person” within the meaning of article 7, section 10, Florida
Constitution.  We further agree that issuance of the JEA bonds serves a paramount
public purpose.  Accordingly, we affirm the trial court’s decision validating the
bond issue.
It is so ordered.
WELLS, C.J., and SHAW, HARDING, PARIENTE and LEWIS, JJ., concur.
ANSTEAD and QUINCE, JJ., concur in result only.
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NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
An Appeal from the Circuit Court in and for Duval County - Bond Validations
L. Haldane Taylor, Judge - Case No.  00-05198-CA Div. B
Harry L. Shorstein, State Attorney, and Michelline Haynes and Tom Kimbrel,
Assistant State Attorneys, Jacksonville, Florida,
for Appellant
Richard A. Mullaney, General Counsel and Edward C. Tannen, Assistant General
Counsel, Office of General Counsel of the City of Jacksonville, Jacksonville, Florida;
and Paul R. Regensdorf of Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale,
Florida,
for Appellee