3F0502-05, Part 3 of 7, Crystal River Unit 3 - 2001 Annual Financial Reports

Part 3 of 7, Crystal River Unit 3 - 2001 Annual Financial Reports

ML021400184
Person / Time
Site:	Crystal River
Issue date:	05/02/2002
From:	Bernhoft S Florida Power Corp
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
3F0502-05
Download: ML021400184 (62)

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1 23 4 5 6 7 8 9 10 If that was all that we did, it would be plenty. But we are more. Much more.

More than Energy"'

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1 234567 89 10 From the general manager Through a revenue sharing agreement with our shareholders, the City of Gainesville, we fund nearly 40 percent of the City's General Fund -

dollars that help pay for services such as police and fire protection. In 2001, this General Fund Transfer increased by 4.4 percent to $24.4 million.

Driving this increase was our customer growth, which resulted in an increase in revenue in all systems. But in spite of this growth, there was still a need to increase gas prices.

Several factors drove the need for an increase.

Unseasonably warm weather in previous years caused lower than normal gas usage, and we also experienced increases in costs. For example, we began an environmental cleanup of land pur-chased when the assets of the privately owned Gainesville Gas Company were acquired by GRU in 1990. To help compensate for the decline in gas sales and increased costs, we implemented a 4.5 percent rate increase effective October 1, 2001. Even with this increase, we still boast the lowest gas rates in the state of Florida.

An important milestone occurred when we brought two new water wells on line prior to the beginning of irrigation season. Because of the severe drought conditions that have plagued Florida, we took aggressive steps to bring these wells online sooner than planned. Two more wells will be added in the coming year, and these four wells will give us enough capacity to meet water demand through 2017.

But, we didn't feel that simply adding more supply was enough. So, to further encourage water conservation and more equitably assign costs, we instituted a third tier seasonal block price step in our water rates.

On the electric front, electric deregulation and fuel prices continued to dominate our think-ing in 2001. However, thanks in large part to the California deregulation failure, retail electric deregulation discussions in Florida were delayed.

The Governor's Energy 2020 Study Commission recommended that retail deregulation discussions be postponed until 2004, but continued develop-ment of a legislative proposal for wholesale elec-tric deregulation. The proposal would allow the construction of merchant plants in Florida, some-thing that is currently prohibited under the Power Plant Siting Act, but is supported by GRU and other municipal utilities throughout the state.

Despite the slowdown in retail electric deregula-tion, we are continuing our involvement in dereg-ulation discussions both in Florida and around the nation, and we are continuing to prepare for competition.

This has been most evident in our ongoing efforts to control costs and decrease electric rates. One major factor in our cost cutting has been our employee attrition program. While sys-tem growth and the Consumer Price Index (CPI) have increased 30 percent or more since 1989, the number of employees at GRU has remained about the same. This has allowed us to minimize cost increases. We are planning a series of elec-tric rate decreases in 2002.

In anticipation of our participation in a Regional Transmission Organization (RTO), we began to look at "unbundling" our rates. In the future we must be able to clearly delineate between generation, transmission and distribu-tion facilities, and their associated costs. In Florida, no decision regarding the structure of an RTO had been determined.

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Our most difficult issue in 2001 was the huge spike in natural gas prices experienced across the nation this past winter. While many utilities struggled, we were pleased with our han-dling of this brief, but none-the-less critical situa-tion, communicating with our customers and employing the same fuels strategy that we've found to be successful in the past. Our strategy is to minimize sharp price spikes as much as possi-ble through quarterly fuel adjustments for electric, but still send the appropriate price signals to our customers. By doing this, our customers can then make energy use decisions that are best for them based on the true cost of energy.

In the generation arena, we reached a major milestone with the completion of the Kelly Generating Station Combined Cycle Unit 1. This

$42 million unit came in on time and on budget, and is helping reduce energy costs to our cus-tomers while also reducing emissions.

In our telecommunications division, GRUCom, revenues increased 56 percent from 2000. One contributing factor in this increase was the growth in the number of GRU.Net Internet customers from nearly 3,000 at the end of 2000 to 4,500 at the end of 2001. We will con-tinue to expand our telecommunications business with additional offerings such as residential broadband in large apartment complexes. So far, this has proven to be a successful strategy since the nearly 45,000 University of Florida students are required to have computers.

In the wastewater area, we completed 2001 by finalizing the design of an expansion at our Kanapaha Water Reclamation Facility. The first phase of the upgrade begins construction in early 2002. The originally proposed cost for the upgrade was $13.2 million, but the projection has been brought down to $10.5 million. The expan-sion will improve system reliability and give us adequate treatment capacity through 2010, Our most important measure of success, however, is the satisfaction of our customers. Our Business Partners Program offers personal serv-ice for our commercial customers. This retention strategy builds alliances with our Business Partners by helping them improve their efficiency.

Low pricing, in exchange for long-term contracts, is also a key component of the program.

Today, 91 percent of the revenue from our Top 100 customers is signed to a 10-year Business Partners agreement.

And while competitive prices are important, our customers want more. We are delivering it through value-added services like energy and water use surveys, high-efficiency lighting retro-fits and rebates for gas cooling. We also provide tips on the use of heat pumps and which source of energy, electric or gas, is the best for a partic-ular application. We have also developed several proposals to provide distributed generation to some of our largest electric customers. We are seeing the payoff of these efforts. Of our Top 400 customers, 98 percent indicated satisfaction with GRU, and 68 percent indicated that they were very satisfied.

We continued to receive verification of our excellent financial strength. Both Moody's Investors Services and Standard and Poor's Corporation affirmed our Double A bond rating, And our ability to pay our debt was evident in our strong balance sheet and our Coverage Ratio, which was three times greater than our annual debt service requirement.

We are proud to present this report as a tes-timony to our vigorous growth and continued financial strength.

Sincerely, Michael L. Kurtz General Manager eixpasi(n

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1 234 5678910 public relations > loyalty > trust > branding >

Connecting with our customers At GRU, we understand the importance of building customer loyalty, and we have a long-standing commitment to forming relationships with our customers based on trust and value-added service.

Faith Popcorn, author of the best selling book, The Popcom Report, calls this business strategy "Marketing the Corporate Soul," declar-ing that "companies that do good and are good will inspire trust." And consumer trust, she con-cludes, is great for business.

We display our corporate soul and citizenship in daily practice every chance we get -

from protecting our community's drinking water supply to sponsoring community outreach programs.

Positioning the GRU brand - To enhance the relationship between the GRU brand and our con-sumers, we've adopted the slogan, "More than Energy,'M" to emphasize that we're much more than a power company. And we've launched an informational campaign to help people in the Gainesville community learn more about the many services and benefits we provide.

The "More than EnergyT'"

tagline is woven into a series of radio and television commercials and print ads to help distinguish us from our growing number of competitors.

The purpose of this "brand-positioning" effort is to bring desired words, phrases and images to mind when a person comes in contact with the GRU brand. The informational campaign not only touts our multitude of services and civic involve-ment, it also tells the story of how our revenues help fund essential municipal services such as police and fire protection.

"We provide several services, such as natural gas and telecommunications, that face stiff competition in the marketplace. We are seeing many more competitors from out of town adver-tising in our market, so it's even more important to get out our message and demonstrate how we're different and better than our competition,"

said Kathy Viehe, Director of Marketing and Communications. "The benefits we provide make Gainesville a better place to live, and our cus-tomers tell us that this is important to them."

Customer-friendly online services> Besides spreading our message through conventional advertising media, we're also reaching out to Internet users who log on to our Web site, www.gru.com. Through surveys and focus groups, we're using customer feedback to make our existing Web site more interactive and useful.

"Most customers do business with us over the phone. Our new Web site takes convenience one step further so they can just log on to www.gru.com and perform most transactions online, from turning on services and checking their bills to reporting a street light out or tracking their energy consumption," Viehe said. "Very soon, customers will be able to pay their bills online."

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1 2 3 4 5 6 1 8 'M 10 Commitment to community involvement > Our informational campaign allows us to share the many things we do for the community and recog-nize our employees who make it all happen.

We support local schools through our Mini-grants program and our donation of refurbished computers.

Gator sports are important to our community, so we support the UF teams in men's and women's basketball, volleyball, baseball, softball and soccer as the Official Energy Sponsor of the Florida Gators. And we share the Gator excite-ment with area school children and their families through our Game Day with the Gators program.

Viehe calls the Gator Sponsor program "one of the most affordable, cost-effective marketing tools in our area when you consider how many people we reach." It definitely pairs us with another established winner -

for 18 consecutive years, UF has ranked among the top 10 athletic programs in the nation.

Electrifying event illuminates> Thousands of customers joined us at our 5th annual Electrifying Celebration at Gainesville's Downtown Plaza. UF cheerleaders, the Dazzlers dance team, bucket truck rides, clowns, live musical performances and plenty of sunshine helped us light up the day.

The popular customer appreciation event gives us a chance to say "thank you" to customers and Gainesville citizens in a celebration of their own-ership of GRU.

You gotta have corporate soul> Community outreach is just one more example of how GRU is More than Energy." We're working, cheering and sharing side by side with our customers and the citizens we serve. We've learned first-hand that good citizenship really is good business -

and it makes you feel good, too.

Gainesville is Gator country, and we show support for our community's favorite sports program as the Official Energy Sponsors of the University of Florida Gators. We involve local schoolchildren by taking them to sports events through our Game Day with the Gators program. Becky Burleigh, coach of the renowned Lady Gators soccer team, autographs posters for future stars.

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11 1213 14 1 1817 18 19 20 p1a rtI n rs h i)s

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Poised at her office computer inside Shands Hospital at the University of Florida medical cen-ter, a UF cancer specialist draws closer to the computer screen as it fills with the downloaded image of a patient's chest X-ray. Pressing the telephone to her ear, she studies the radiograph for a few moments, nods and smiles before announcing the good news -

"no signs of a tumor" -

into the phone to another UF physi-cian sharing the same view on his monitor at an affiliated hospital in Lake City.

GRU gave tele-medicine, including long-distance physician consultations like this, a shot in the arm locally when we partnered with Shands HealthCare in 1994 to install a "fiber-optic ring" around Gainesville. The 171-mile network of fiber-optic cables provides high band-width transmission for voice, data and video communications, which allows Shands HealthCare to electronically share document-processing and medical imaging with its many community clinics and affiliated hospitals.

Our GRUCom telecommunications division now is a popular provider of low-cost, high-quality telecommunications services for many local businesses, government agencies, schools, emergency service groups and other telecommu-nications providers.

The formation of GRUCom continued our evolution as a diversified, multi-service utility, while our growth heightened the need to form even closer ties with our customers.

"The positive working relationships we have with developers and our large energy customers are really paying off, since these same compa-nies are major users of our telecommunications service," said Director of Telecommunications Ed Hoffman. "A close working relationship with customers and understanding their needs is paramount."

For example, we provide electric, gas, water, wastewater and advanced telecommunications services for the University of Florida Hotel and Conference Center. We've also installed high-speed, dedicated Internet connections at six Gainesville apartment complexes, along with some 30 high-speed digital links between Alachua County's public schools and GRUCom's fiber-optic network.

Projects like these helped GRUCom generate 56 percent more revenue in 2001 than in 2000.

As we prepare for inevitable deregulation of the utility industry and increased competition, GRUCom is helping us provide new services that increase our value to our customers and the com-munity and enhance our business success.

GRU.Net: The Internet service provider of choice > Our reliable Internet service, GRU.Net, has quickly become one of the largest local Internet Service Providers. GRU.Net's key selling point, along with low cost and a friendly support staff, is "no busy signals." This year, GRU.Net's customer base increased by 53 percent, helped partially by our purchase of Gator.Net, another local Internet provider. Along with our regular dial-up Internet service, our high-speed, dedi-cated service is the area's plan of choice for larger Internet access needs.

When opportunity knocks, we answer> We always seek ways to turn potentially costly activ-ities, initiated to meet pressing community needs, into revenue-producing opportunities. That savvy business strategy extends to GRUCom's other lines of business such as tower space leas-ing and trunked radio.

We lease antenna space on our 11 communi-cation towers and two water towers to several wireless telephone service providers, expanding the area's communication services while reduc-ing the number of new towers needed to provide those services. These same wireless providers use the GRUCom fiber-optic network to transport calls from these cellular sites to their telephone switches.

We've also constructed a Trunked Radio System for use by city, county and University of Florida law enforcement agencies, fire depart-ments and other public service agencies, and by year's end had activated more than 1,160 radios.

Our Trunked Radio System replaces the existing outdated system and provides both voice and mobile data communications. Trunked radio tech-nology also produces radio frequencies with more versatility, better reception and greater security.

"All public agencies in Alachua County are benefiting from the economies of scale and rea-sonable rates offered by the new Trunked Radio service," Hoffman said.

We liold our OWII againslt iational compeptitiol - To meet our commitment to pro-vide More than EnergyT' to our customers, we often find ourselves competing with some pretty big corporate names such as Bell South, AOL and other Florida utilities. But, as Gainesville's community-owned utility, we tailor our services specifically to our customers -

our neighbors and our friends.

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11 12 13 14 15 16 17 18 19 20 Creating a powerful neighborhood focus When Joe and Cindy Montalto gaze out the window of their fourth-floor reading loft of their 1885 "French Second Empire" house, GRU's Kelly Generating Station dominates the treetop view.

From this neighborhood in Gainesville's Southeast Historic District, the power plant cranks out much-needed energy to a sizable chunk of the city.

And the Montaltos like what they see.

The electric generating station, Gainesville's first public power plant, has been a defining land-mark in the downtown district since 1914, and the Montaltos and their neighbors have had a hand in planning the design and landscaping of a major "repowering" project at the Kelly station.

The project involved rebuilding existing equipment and adding cleaner technology to create a super-efficient electric generating unit.

The $42 million upgrade included several hundred thousand dollars worth of landscaping and a painted-aluminum fence around the perimeter with red-brick columns and an elegant arched gate. GRU held public meetings to gather input to help design the new plant campus.

"Oh yeah, we love the new fencing and iron-work, and the landscaping. It really adds a lot to the neighborhood," Joe Montalto said. "We had put similar fencing around our property, so it's neat how well they go together."

The Montaltos bought their house in 1990 as a fix-me-up project and restored it into the Magnolia Plantation Bed and Breakfast Inn -

Gainesville's first bed and breakfast. Magnolia Plantation, located two blocks northeast of the Kelly station, has since been selected twice by Florida Living magazine as the state's best bed and breakfast. So GRU's effort to keep up neigh-borhood appearances is doubly important to the innkeeping Montaltos.

The Kelly station's new generator produces five times more energy with half the air emis-sions of older gas-fired units, and is now the sec-ond largest generating unit in our system. To resi-dents living near the Kelly station, the refurbished power plant is the focal point for the neighbor-hood improvement effort going on in downtown Gainesville.

"The generating station has been part of our neighborhood for almost a century and it's an important part of Gainesville's history. These improvements are a real boost to the revitaliza-tion of the historic downtown area," Montalto said. "The plant's actually a neat landmark, espe-cially when it's all lit up at night."

Find the 'hidden' substations> With new development in Gainesville fueling increasing demand for electricity, we have built the first of four planned electric substations to distribute energy to the rapid-growth areas. If you blink while driving past the substations, though, you may miss them -

or you may want to stop and admire their landscaping.

Unlike most large electric substations, which occupy considerable acreage, the new substa-tions will sit on land parcels no larger than most suburban backyards.

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16 i ill 19 ;' Ij A runner passes our Rocky Point substation on her way through Gainesville's urban forest. These compact substations are the wave of the future in Gainesville.

They fit unobtrusively into our com-munity's famous tree canopy, occupying less room than traditional substations while efficiently delivering power to our growing customer base.

"Our compact substations need only a frac-tion of space by comparison, so they'll be buffered by the landscape and less conspicuous from the road," said Reid Rivers, Engineering Manager for Energy Delivery. "We want our sub-stations to leave very small footprints."

The new substations will lessen the power drain from our six larger distribution substations, and they deliver electricity more efficiently by reducing distribution line losses.

Reclaimed water provides a new park>

Chapman's Pond Nature Trails in southwest Gainesville is one place we're extremely proud to leave our footprint.

We supply Chapman's Pond with high-quality reclaimed water from our Kanapaha Water Reclamation Facility, attracting dozens of bird species and transforming the surrounding woods into an enhanced habitat for wildlife. The commu-nity park offers gently winding nature trails along shallow creeks and ponds for walking, jogging and biking, plus a picnic area, recreational fields and a bird observation platform created in coop-eration with the Alachua County Audubon Society.

About one million gallons of reclaimed water are recycled each day at Chapman's Pond in a way that benefits our community by creating a pristine nature park that welcomes visitors. And it benefits our customers by saving us over one million dollars in comparison with any other treat-ment option available. Surrounded by chirping birds, butterflies, turtles and other wildlife, this park demonstrates that we're More than Energy."

lanidscapinig > efficiericy

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11 12 13 14 15 16 11 18 19 20 solutions > ininlovation > conservatiorn > success >

Solving problems with gas -

naturally Our commitment to superior customer serv-ice and innovative problem-solving is one of the traits that makes GRU the natural utility choice just as natural gas is the right energy choice for many of our customers.

"Building positive working relationships with our customers is key to our success, and we're always trying to come up with new options to meet their energy needs," said Mike Brown, Senior Sales Representative for Gas Marketing, whose customers are mainly developers, contrac-tors and builders.

A new option is exactly what local home-builder Lucian Kragiel sought while considering fuel choices for the planned homes in a 125-acre pool-and-park community his company was build-ing just outside of southwest Gainesville.

Kragiel, co-owner of Atlantic Design &

Construction, was building the 340 homes of the new Mentone subdivision with smart design and energy efficiency in mind. He wanted a clean energy source for heating the air and water of his homes. He sought a system that was affordable, but didn't detract from the homes' attractive designs. Finally, he wanted the Mentone homes to qualify for the coveted "Energy Star'M" label -

a designation from the U.S. Environmental Protection Agency and the Department of Energy to recognize homes built with superior energy performance.

For solutions, Kragiel turned to GRU, which had been recognized as the EPA's National "Outstanding Utility Ally."

"GRU worked with us in getting gas heat instead of electric for the first phases of construc-tion in Mentone," Kragiel said, "and they came up with something new for the 100 homes in our final construction phase that was even more energy-efficient."

GRU staff convinced Kragiel to go with hydronic gas heating. The system, also called "combo heating," uses a gas-fired water boiler and coils, instead of a gas furnace, for space and water heating of buildings.

"Hydronics essentially is gas heat without a gas furnace," Brown explained. "It's not new, but it's just now catching on with builders and devel-opers. It has great potential as an alternative energy option."

Combo heaters are simple and uncompli-cated compared with heat pumps and gas furnaces, and also offer aesthetic and practical advantages over standard gas furnace installation.

Kragiel is having no problem selling prospec-tive homebuyers on the advantages of hydronic heat and the Energy Star' features.

"We sell the Energy Star'M package, includ-ing hydronic gas heat, as an option, but 100 per-cent of the 175 or so homebuyers we've sold to over the past three years have chosen the Energy Star'M features," Kragiel said.

Atlantic Design and GRU both take pride in the fact that Mentone was recognized as the Best Community in the Southeastern United States for 2001 by the National Association of Homebuilders.

"Hydronic technology has been used mainly for residential use, but GRU is promoting it for both single and multi-family applications," Brown said. "It's helping us expand our Gas System and penetrate building markets, including apartments."

Virtually every new subdivision within our service area is served by natural gas from GRU, giving homeowners greater energy options.

Local builder-developer Howard Wallace, owner of HKW Enterprises Inc., chose hydronic heat in 1997 when he built Florida's first-ever Energy StarTM home in one of his northwest Gainesville subdivisions. GRU installed the required gas line connections.

"I made a decision a few years ago to only build Energy Star' homes, and we decided hydronic gas would be the best and most energy-efficient heating system for our homes," said Wallace, who has made hydronic heating systems a standard feature in three new single-family subdivisions, totaling 134 homes, and in his new 11 2-unit apartment complex.

"For new construction, GRU offers a rebate for the use of gas appliances that helps absorb some of the higher equipment expenses for hydronic systems and other energy-efficient features," Wallace said.

Another Gainesville builder, Allen Stine of All America Homes, is making hydronic heat a stan-dard feature of all 62 homes in his new Granite Park development in southwest Gainesville.

"Every home is an Energy Star'M home.

We're one of the first subdivisions in the country to require that," Stine said. "The GRU (natural gas) reps are great to builders. They watch after me and make sure my gas service installations are on time."

Innovative problem solving, it seems, comes naturally to GRU. As natural as gas energy.

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21 22 23 24 25 26 27 28 29 30 Protecting our water As summer 2001 drew to a close, you'd have never known from the many lush lawns and green woodlands that an ongoing drought that has parched North Central Florida was still with us.

Green lawns or not, Betty Kellette knew the three-year drought was still around. Whenever she turned on a water faucet in her southwest Gainesville home, the pipes spewed forth a trickle of rusty-red water with the spigot "spitting and sputtering" -

sure signs the water in her private well had dropped to dangerously low levels.

GRU acted swiftly on Kellette's distress call, dispatching a crew to her southwest Gainesville home for emergency service.

"We have a code that means we need to solve the problem immediately, before it can get worse," said Bob McVay, Assistant General Manager for Water and Wastewater. "People in Betty's situation are placed in an emergency cat-egory and GRU water service must be provided in record time."

For Kellette, 74, GRU-to-the-rescue meant installing a new water pipe connection to hook up her home's plumbing to the City water system.

The work was completed within two days.

"I couldn't have asked the GRU people to be any nicer than they were," Kellette said. "When you don't have anyone else to take care of things, you really appreciate their help on something like this."

We've handled many problems like Betty Kellette's over the past three years. Some of the driest weather in memory forced Gainesville into first-ever mandatory watering restrictions in the spring of 2000. Although summer showers in 2001 restored lawns and reduced the threat of forest fires, groundwater levels by summer's end were still about 7 to 8 feet below normal.

But, we were able to avoid mandatory water restrictions in 2001. We drilled two deep wells last spring that together add another 10 million gallons to the city's daily water capacity. We also installed a 20-inch water pipeline to improve water pressure in the rapidly growing southwest-ern portion of our service area.

"This three-year drought has forced all neigh-boring counties in our water management district to implement watering restrictions," said David Richardson, Senior Utility Engineer in Strategic Planning. "Without these improvements, we'd probably be observing mandatory irrigation restrictions now."

Water from the two new wells -

the 12th and 13th at our Murphree Water Treatment Plant wellfield -

increased daily capacity by 30 per-cent to 44 million gallons a day, and additional wells are proposed. These measures will give GRU the capacity of providing up to 60 million gallons per day, which is enough to supply pro-jected needs until 2017.

Our goal is to provide a plentiful, safe water supply to all GRU customers, and we're continu-ally designing new solutions to ensure that high-quality water is available on demand. One of the ways we do that is to reduce the demand for water pumped out of the ground by offering reclaimed water for irrigation purposes.

At our state-of-the-art Kanapaha Water Reclamation Facility, the reclaimed water is so pure that it's one of only two plants in the state permitted to return treated effluent directly into a drinking water aquifer. But, because it's treated to such high standards, we also reuse the water for public benefit. For example, the treated wastewater is piped to nearby Kanapaha Botanical Gardens to create natural looking spring boils, waterfalls, streams and bog gardens.

Reclaimed water is used to supply two other water gardens, as well as irrigation for the Veterans Memorial, the GRU-created Chapman's Pond Nature Trails, soccer fields, golf courses and nearby residential and commercial areas.

As a complement to GRU's latest water sys-tem improvements, we are extremely grateful for our customers' willing observation of voluntary water conservation efforts. Customers also have been receptive to a new three-tier system of water rate charges -

the more you use the more you pay. But, average water customers see no rate increase and our rates remain consist-ently among the lowest in the state.

"We wanted to send the right price signals to our customers," Richardson said. "The cost of providing large amounts of water now is being borne by customers who impose the greatest demand on our water system. This encourages water conservation."

Through innovative reuse projects, continual improvements to our water system and promo-tion of community-wide conservation efforts, GRU is committed to protecting the clean water of our community now and for future Gainesville residents.

modcer<tion > vigilanice > roculain ation > preservation >

21 22 23 24 25 26 27 28 29 30 Easier to be green Every time Mark Spiller visits the Alachua County Southwest Landfill, his eyes fixate on the olympic-sized flame flaring into the atmosphere through a giant torch -

the product of landfill gas created by a mountain of rotting garbage.

And every time, the same thought crosses his mind: What a terrible waste!

"Whenever I drive past the landfill, I see a renewable energy resource going up in flames,"

said Spiller, an analyst in our Strategic Planning department with a strong background in energy conservation.

Spiller transforms his environmental con-cerns into passion for his work as one of the architects of a plan to convert the landfill gas to electricity. GRU has joined forces with the Alachua County Public Works Department to install four generators at the landfill and obtain other essential equipment. GRU will generate enough energy to power about 2,000 homes in the first year. The project is a race against time, though. Since the landfill closed last year and no longer receives garbage, the amount of gas being produced will decline each year. In 15 years, there will be enough gas for only 200 homes. We hope to douse the landfill flame and start power-ing homes and businesses with the converted landfill gas by mid-2002.

GRU and the County both expect to recover all costs and actually generate revenue during the life of the project. Marketing Manager Rosemary Fagler says we will sell this green electricity to residential and commercial customers. Because it costs slightly more to produce, customers who want green electricity will pay a little more for it.

"People in Alachua County are so environ-mentally conscious. I think there are plenty of customers who will want green electricity if it helps the environment. And it won't affect the utility bills of people who don't want it," Fagler said.

More green energy options are on the way.

Because our customers say it's important to them, we're promoting additional Green Energy programs to encourage energy conservation and promote efficient use of renewable energy resources such as the sun.

We're part of a community-wide effort to develop a green building program for the city of Gainesville. We're working with a diverse group of people -

representing construction, city government, conservation advocates includ-ing the University of Florida Conservation Clinic, local utilities and real estate -

to develop an incentive program for building homes and commercial buildings with superior energy performance.

Incentives being considered include reduced filing and permitting fees, priority status in the development and construction review process and density bonuses.

"Green-building involves reducing energy use, using a common-sense approach that should appeal to both builders and conservationists,"

said Steve Stagliano, Manager of Energy and Business Services.

Green building advocates not only stress water and energy efficiency, but also encourage considerations such as indoor air quality, natural lighting and chemical-free and earth-friendly building materials.

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Selling or renting a building or home with green building certification can be a valuable mar-keting advantage for developers and apartment complex managers. For homeowners and ten-ants, lower energy consumption can translate into real savings on the utility bill and a higher home-resale value.

Two novel green-pricing programs in the works would give our many environmentally-minded customers new options for demonstrating their commitment to renewable energy sources.

A student-interactive Solar for Schools program would outfit local middle schools with solar elec-tric panels to generate green power. We're also planning to provide a similar system at the City-owned passenger terminal of Gainesville Regional Airport.

Solar electricity generated from the panels would be exported into our main power grid and paid for by any customers who wish to con-tribute to the program. We'd provide the solar equipment and develop interactive teaching tools for students to monitor and even modify energy output when needed.

"The most effective way to promote large-scale use of renewable energy technology is through our children," Spiller said. "This will give students a tangible demonstration of green energy technology at their schools."

As a multi-service utility, we're committed to green energy programs like these that help us meet the growing energy needs of our commun-ity and foster loyalty to GRU -today and for our next generations of customers.

Our conservation analysts look for ways to save energy and water. Here, the homeowner has taken advantage of our solar powered water heater rebate program with a roof mounted solar array.

21 22 23 24 25 26 27 28 29 30 Financial Statements Gainesville Regional Utilities Years ended Septenmber 30, 2001 and 2000 Report of Independent Certified Public Accountants The Honorable Mayor and Members of the City Commission City of Gainesville We have audited the accompanying balance sheet of Gainesville Regional Utilities (the Combined Utility Funds of the City of Gainesville, Florida) as of September 30, 2001 and the related statements of revenue and expense and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Gainesville Regional Utilities' management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Gainesville Regional Utilities for the year ended September 30, 2000, were audited by other auditors whose report dated December 14, 2000, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with audit-ing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant esti-mates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, the financial statements present only Gainesville Regional Utilities (the Combined Utility Funds of the City of Gainesville, Florida) and are not intended to present fairly the financial position of the City of Gainesville, Florida, and the results of its operations and the cash flows of its proprietary fund types in conformity with accounting principles generally accepted in the United States.

In our opinion, the 2001 financial statements referred to above present fairly, in all material respects, the financial position of Gainesville Regional Utilities, as of September 30, 2001 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Financial statements for the years ended September 30, 2000, 1999, 1998, and 1997, were audited by other auditors. The supplementary information included in the accompanying sched-ules is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that per-taining to the years ended September 30, 2000, 1999, 1998 and 1997, on which we express no opinion, has been subjected to the auditing proce-dures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

4t4 4t t LP Ernst E Youn LLP l Orlando, Florida November 21, 2001 As discussed in Note 6 to the financial statements, in 2001 Gainesville Regional Utilities changed its method of Accounting for certain capital contributions.

21 22 23 24 25 20 2? 28 29 30 Balance Sheets September 30, 2001 anid 2000 (in thousands)

Assets 2001 2000 Utility plant:

Utility plant in service

$ 846,624 811,442 Plant held for future use 6,054 60,574 Plant unclassified 62,143 20,298 Construction in progress 76,672 102,707 991,493 940,501 Less accumulated depreciation and amortization (349,136)

(324,627)

Net utility plant 642,35 615,87 Current assets:

Cash and short-term investments 13,098 7,688 Accounts receivable, net of allowance for uncollectible accounts of $817,000 in 2001 and $537,000 in 2000 28,501 28,590 Futures contracts 4,037 2,284 Prepaid rent -

lease/leaseback 10,687 10,687 Deferred fuel charges 4,405 Inventories:

Fuel 5,033 3,977 Materials and supplies 5,683 4,869 Total current assets 67,039 62,50 Long-term investments 592 1,660 Restricted assets -

cash and investments 175,176 170,207 Prepaid rent -

lease/leaseback 172,772 183,459 Deferred charges 16,588 17.272 Total assets

$ 1,074.524 1,050,972 (see accompanying notes to financial statements)

V

21 22 23 24 25 26 27 28 29 30 Balance Sheets Septemnlber 30, 2001 anid 2000 Liabilities and fund equity 2001 2000 Long-term debt and fund equity:

Long-term debt:

Utilities system revenue bonds

$ 330,395 341,380 Utilities system commercial paper notes 95,533 75,10 425,928 416,489 Less unamortized loss on refinancing (27,573)

(29,503)

Less unamortized bond discount (3,957)

(4,253)

Total long-term debt 394,398 382,73 Fund equity:

Contributions in aid of construction 98,320 102,231 Retained earnings 305,319 276,78 Total fund equity 403,639 379,013 Total long-term debt and fund equity 798,037 761,746 Current liabilities:

Fuel payable 5,178 10,484 Accounts payable and accrued liabilities 6,607 7,214 Deferred fuel charges 143 Operating lease -

lease/leaseback 12,462 12,461 Due to other funds 1,920 3,24 Total current liabilities 26,310 33,40 Payable from restricted assets:

Utility deposits 3,693 3,932 Long-term debt payable -

current 10,985 10,190 Accrued interest payable 9,736 9,948 Construction fund:

Accounts payable and accrued liabilities 394 1,805 Total payable from restricted assets 24,80 25,87 Operating lease -

lease/leaseback 201,453 213,916 Other liabilities and deferred credits 23,916 16,03 Total liabilities and fund equity

$1,074,524 1_050.972 (see accompanying notes to financial statements)

21 22 23 24 25 26 27 28 29 30 Statements of Revenue and Expense and Retained Earnings Years ended September 30, 2001 and 2000 (in thousands) 2001 2000 Operating revenue:

Sales and service charges

$213,780 187,076 Other operating revenue 5,734 5,63 Total operating revenue 219,514 192,715 Operating expenses:

Operation and maintenance 117,017 95,273 Administrative and general 19,287 18,588 Depreciation and amortization 24,96 26,106 Total operating expenses 161,27 139.96 Operating income 58,241 52748 Nonoperating income (expense):

Interest income 9,468 11,234 Interest expense, net of AFUDC (23,447)

(24,097)

Gain (loss) on sale of investments 8

(770)

Total nonoperating expense i13.971)

(13,633)

Capital contributions 8.62 Net income 52,893 39,115 Retained earnings, beginning of year 276,782 261,007 Operating transfer to City of Gainesville General Fund (24,356)

(23,340)

Retained earnings, end of year

$305,319 276,782 (see accompanying notes to financial statements)

31 32 33 34 35 36 37 38 39 40 Statements of Cash Flows Years ended September 30, 2001 anid 2000 (in thousands) 2001 2000 Cash flows from operating activities:

Cash received from customers

$ 218,178 180,136 Cash payments to suppliers for goods and services (105,642)

(65,283)

Cash payments to employees for services (26,964)

(32,742)

Cash payments for operating transactions with other funds (4,065)

(4,449)

Other operating receipts 3,959 3,86 Net cash provided by operating activities 85,466 81,527 Cash flows from noncapital financing activities:

Transfers to other funds (24,356)

(23,340)

Net cash used in noncapital financing activities (24,356)

(23,340)

Cash flows from capital and related financing activities:

Principal repayments on long-term debt (14,778)

(12,845)

Proceeds from sale of property and equipment 56 34 Interest paid on long-term debt (23,363)

(24,051)

Capital grants 20 120 Acquisition and construction of fixed assets (including allowance for funds used during construction)

(56,492)

(66,108)

Proceeds from commercial paper issued 25,012 49,281 Cash received for connection charges 3,921 3,70 Net cash used in capital and related financing activities (65,624)

(49,860)

Cash flows from investing activities:

Interest received 7,333 6,574 Purchase of investments (513,043)

(506,050)

Investment in The Energy Authority (1,182)

(1,429)

Distribution from The Energy Authority 869 28 Proceeds from investment maturities 514,492 490,90 Net cash provided by (used in) investing activities 8,469 (9,969)

Net decrease in cash and cash equivalents 3,955 (1,642)

Cash and cash equivalents, beginning of year 4,348 5,99 Cash and cash equivalents, end of year 8,303 4,34 (continued)

31 32 33 34 35 36 31 38 39 '0 Statements of Cash Flows, continued Years ended Sepitember 30, 2001 and 2000 2001 2000 Reconciliation of operating income to net cash provided by operating activities:

Operating income

$58,241 52,748 Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation and amortization 23,194 24,332 Receivables 4,636 (6,260)

Prepaid expenses (1,753)

(2,284)

Inventories (1,870) 9,328 Deferred charges 11,618 (1,857)

Accounts payable and accrued liabilities (7,325) 3,403 Due to other funds (1,324)

(83)

Utility deposits (239)

(679)

Other liabilities and deferred credits 288 2,879 Net cash provided by operating activities

$85.466 81_527 Noncash, investing, capital and financing activities:

Utility plant contributed by developers in aid of construction was $4.7 million and $2.0 million in 2001 and 2000 respectively.

K Vi'Lr1; i

(see accompanying notes to financial statements)

31 32 33 34 35 36 37 38 39 40 Notes to Financial Statements Septemher 30, 2001 adtd 2000

1) Summary of Significant Accounting Policies Organization Gainesville Regional Utilities (GRU) is a combined municipal utility system operating electric, natural gas, water, wastewater, and telecommunications (GRUCom) utilities. GRU consists of the combined Utility Funds of the City of Gainesville, Florida (City).

GRU is a unit of the City and, accordingly, the finan-cial statements of GRU are included in the annual financial reports of the City.

Basis of Accounting The financial statements are presented on the accrual basis of accounting. Under this basis, revenues are recognized in the period earned and expenses are recognized in the period incurred.

GRU applies all applicable Financial Accounting Standards Board (FASB) pronouncements issued on or before November 30, 1989, in accounting for and reporting its operations. In accordance with govern-ment accounting standards, GRU has elected not to apply FASB pronouncements issued after that date.

In accordance with the Utilities System Revenue Bond Resolution (Bond Resolution), rates are designed to cover operating and maintenance expense, debt service and other revenue require-ments, which exclude depreciation expense and other noncash expense items. This method of rate setting results in costs being included in the deter-mination of rates in different periods than when these costs are recognized for financial statement purposes. The effect of these differences is recog-nized in the determination of net income in the period that they occur, in accordance with GRU's accounting policies. GRU has adopted the uniform system of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and sub-stantially all provisions of the National Association of Regulatory Utility Commissioners (NARUC).

Rates are approved at least annually by the City Commission.

Use of Estimates The preparation of financial statements in conform-ity with accounting principles generally accepted in the United States requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Investments GRU follows the provisions of Governmental Accounting Standards Board No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Statement No. 31 requires government entities to report investments at fair value in the balance sheet. All short-term commercial paper with maturities less than one year have been reported at cost which approxi-mates fair value, Futures Contracts GRU uses futures contracts to hedge a portion of its commodity natural gas price risk. Natural gas con-tracts are traded on the New York Mercantile Exchange (NYMEX) in fixed units of 10,000 mmBtu.

NYMEX requires both parties (buyers and sellers) to futures contracts to deposit cash or other assets (margins) with a broker at the time the contract is initiated. Brokers mark open positions to the market daily with the margin account requirements adjust-ed for market swings or changes in NYMEX require-ments. At September 30, 2001 and 2000, GRU had net deposits of $1.9 million and $642,000, respec-tively, with brokers for margin accounts, included in current assets and $4.0 million and $2.3 million, respectively, included in the futures contracts line of the balance sheet, At contract maturity date, gains or losses on hedging transactions are recog-nized into operations and maintenance. At September 30, 2001, there was $1.5 million in deferred losses from outstanding contracts and at September 30, 2000, there were $1.1 million in deferred gains from outstanding contracts.

Inventories Inventories are stated at cost using the weighted average unit cost method for materials, and the last-in, first-out (LIFO) method for fuel. Obsolete and unusable items are reduced to estimated salvage values. The cost of fuel used for electric generation is charged to expense as consumed.

Utility Plant Property and equipment are recorded at cost.

Maintenance and repairs are charged to operating expense as incurred. The average cost of depre-ciable plant retired is eliminated from the plant accounts, and such costs, plus removal costs less salvage, are charged to accumulated depreciation.

Plant unclassified includes property and equipment of capital projects placed into service that have not been classified in the related asset category within utility plant in service.

Depreciation and Nuclear Generating Plant Decommissioning Depreciation of utility plant is computed using the straight-line method over estimated service lives ranging from 6 to 50 years. Depreciation was equiv-alent to 2.99% and 3.17% of average depreciable property for 2001 and 2000, respectively. Depre-ciation expense includes a provision for decommis-sioning costs related to the jointly owned nuclear power plant. (see Note 5)

Amortization of Nuclear Fuel The cost of nuclear fuel, including estimated dispos-al cost, is amortized to fuel expense based on the quantity of heat produced for the generation of elec-tric energy in relation to the quantity of heat expected to be produced over the life of the nuclear fuel core. These costs are charged to customers through the fuel adjustment clause.

(continued)

31 32 33 34 35 35 37 383 9 40 Notes to Financial Statements Sppteniiher 30, 2001 anid 2000 Revenue Recognition Revenue is recorded as earned. GRU accrues for services rendered but unbilled, which amounted to approximately $8.4 million and $11.6 million for 2001 and 2000, respectively. Fuel adjustment rev-enue is recognized based on the actual fuel costs.

Amounts charged to customers for fuel are based on estimated costs, which are adjusted for any dif-ferences between the actual and estimated costs once actual fuel costs are known. If the amount recovered through rates exceeds actual fuel costs, GRU records deferred fuel as a liability. If the amount recovered through rates is less than the actual fuel costs, GRU records deferred fuel as an asset, for amounts to be collected through future rates. As of September 30, 2001 and 2000, deferred fuel charges were $(143,000) and $4.4 million, respectively.

Interfund Transactions Interfund balances between electric, gas, water, wastewater and GRUCom funds are offset for the combined utility funds. Interfund revenue and expenses are not eliminated in the combined utility funds. Additionally, there are interfund transactions between GRU and general government operations of the City, which do not bear interest.

Funds in Accordance with Bond Resolutions Certain restricted funds of GRU are administered in accordance with bond resolutions. These funds are as follows:

• Debt Service Fund

• Subordinated Indebtedness Fund

• Rate Stabilization Fund

• Construction Fund

• Utility Plant Improvement Fund The Debt Service Fund accounts for funds accumu-lated to provide payment of principal and interest on or redeem outstanding debt.

The Subordinated Indebtedness Fund, grouped in the Debt Service Fund for financial reporting purpos-es, accounts for funds accumulated to pay principal and interest on subordinated indebtedness.

The Rate Stabilization Fund accounts for funds accu-mulated to stabilize rates over future periods through the transfer of funds to and from operations as necessary.

The Construction Fund accounts for funds accumu-lated for the cost of acquisition and construction of the system.

The Utility Plant Improvement Fund accounts for funds used to pay for certain capital projects or debt service, the purchase or redemption of bonds, or otherwise provide for the repayment of bonds.

Allowance for Funds Used During Construction (AFUDC)

An allowance for interest on borrowed funds used during construction of $882,000 and $1 95,000 in 2001 and 2000, respectively, is included in con-struction in progress and as a reduction of interest expense. These amounts are computed by applying the effective interest rate on the funds borrowed to finance the projects to the monthly balance of proj-ects under construction. The effective interest rate was approximately 5.2%.

Contributions in Aid of Construction Utility plant in service for the water, wastewater and GRUCom funds includes assets received from contri-butions in aid of construction (CIAC) reported as a component of fund equity. Contributions in aid of construction are amortized on a straight-line method over the life of the related asset. The amount of amortization expense included in the statement of revenue and expense and retained earnings relating to the contributed assets is credited to depreciation and amortization expense and amounted to $4.0 mil-lion and $3.5 million in 2001 and 2000, respectively.

As discussed in Note 6, GRU changed its method of accounting for CIAC during the 2001 fiscal year, and as a result, contributions for the year ended September 30, 2001 were reported as revenues in the operating statement rather than additions to the CIAC account.

Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, bank demand accounts, and overnight repurchase agreements.

Unamortized Loss on Refinancing Losses resulting from advance refinancing of bonds are deferred and amortized over the life of the bonds.

2) Rates and Regulation GRU's rates are established in accordance with the Utilities System Bond Resolution and the Utilities System Subordinated Bond Resolution as adopted and amended. Under these documents, rates are set to recover Operation and Maintenance Expenses, Debt Service, Utility Plant Improvement Fund contributions and costs for any other lawful purpose such as the General Fund Transfer.

Each year during the budgeting process, and at any other time necessary, the City Commission approves rate changes and other changes to GRU's charges.

GRU's cost of fuel for the electric and natural gas systems is passed directly through to its cus-tomers. Each month, GRU staff estimates the cost of fuel and consumption for both the electric and natural gas systems. These estimates are com-bined with a true-up for actual costs from previous months into a current-month electric fuel adjust-ment and natural gas purchased gas adjustment.

Amounts overbilled or underbilled are passed along to customers and are either accrued or deferred at year-end.

The Florida Public Service Commission does not regulate rate levels in any of GRU's utilities. They do, however, have jurisdiction over rate structure for the electric system.

(continued)

31 32 22 34 35 36 37 38 39 40 Notes to Financial Statements September 30, 2001 and 2000 Currently, GRU prepares its financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, and records various regulatory assets and liabilities. For a company to report under SFAS No. 71, the company's rates must be designed to recover its costs of providing services, and the company must be able to collect those rates form customers. If it were determined, whether due to competition or regulatory action, that these standards no longer applied, GRU could be required to write off its regulatory assets and lia-bilities. Management believes that GRU currently meets the criteria for continued application of SFAS No. 71, but will continue to evaluate significant changes in the regulatory and competitive environ-ment to assess continuing applicability of the criteria.

3) Long-Term Debt GRU is required to make monthly deposits into sep-arate accounts for an amount equal to the required share of principal and interest becoming payable for the revenue bonds on the payment dates of April 1 and October 1.

The table at right lists the Debt Service require-ments (principal and interest) on the Long-Term Debt (excludes Utilities System Tax-Exempt Series C and Taxable Series D Commercial Paper) out-standing at September 30, 2001 (in thousands).

Under the terms of the Bond Resolution relating to the sale of the Utilities System Revenue Bonds, payment of the principal and interest is secured by an irrevocable lien on GRU's net revenue (exclusive of any funds which may be established pursuant to the Bond Resolution for decommissioning and cer-tain other specified purposes), including any invest-ments and income thereof.

The Bond Resolution contains certain restrictions and commitments, including GRU's covenant to establish and maintain rates and other charges to produce revenue sufficient to pay operation and maintenance expenses, amounts required for deposit in the debt service fund, and amounts required for deposit into the utility plant improve-ment fund.

(see next page for table of oustand-ing long term debt)

Period Ending October 1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total Debt Service Requirements

$ 29,763 29,770 29,192 28,036 28,032 32,224 34,634 34,635 34,634 34,634 34,626 34,642 20,426 18,653 18,442 18,251 11,605 9,507 9,509 9,512 9,509 3,950 3,947 3,951 3,950

$ 526,034 The 1983 Bonds mature on October 1, 2014. Those Bonds are subject to redemption at the option of the City as a whole at any time or in part on any interest payment date, at a redemption price of 100% plus accrued interest to the date of redemption.

The 1992 A Bonds mature at various dates through October 1, 2002. Those Bonds are not subject to redemption.

The 1992 B Bonds mature at various dates from October 1, 2001, to October 1, 2017. Those Bonds maturing on or after October 1, 2003, through October 1, 2007, amounting to $14.3 million are subject to redemption at the option of the City on and after October 1, 2002, as a whole at any time or in part on any interest payment date, at a redemption price of 102% in 2002, 101% in 2003 and 100% thereafter. The 1992 B Bonds maturing on October 1, 2017, amounting to $22.3 million, are subject to redemption at the option of the City on and after October 1, 2002, as a whole at any time or in part on any interest payment date, at a redemption price of 100%.

The 1993 A and B Bonds mature at various dates through October 1, 2013. Those Bonds maturing on or after October 1, 2004, amounting to $113.9 mil-lion are subject to redemption at the option of the City on and after October 1, 2003, as a whole at any time or in part on any interest payment date, at a redemption price of 102% in 2003, 101% in 2004 and 100% thereafter.

The 1996 A Bonds mature at various dates through October 1, 2026. Those Bonds maturing on or after October 1, 2010 are subject to redemption at the option of the City on or after October 1, 2006 as a whole or in part at any time at a redemption price of 102% in 2006, 101% in 2007, and 100%

thereafter.

(continued)

-J./.

', 36 / m,.! '!

Notes to Financial Statements September ;0, 2001 end 2000 Long-term debt outstanding at September 30, 2001 and 2000, consisted of the following (in thousands):

2001 2000 Utilities System Revenue Bonds:

Series 1983 (1983 Bonds) -

interest payable semi-annually to October 1, 2014 at a rate of 6.0%

4,675 4,675 1992 Series A (1992 A Bonds) -

interest payable semi-annually to October 1, 2002 at various rates between 5.9% and 6.1%

3,025 4,410 1992 Series B (1992 B Bonds) -

interest payable semi-annually to October 1, 2017 at various rates between 6.0% and 7.5%

61,920 61,920 1993 Series A (1993 A Bonds) -

interest payable semi-annually to October 1, 2006 at various rates between 4.75% and 5.3%

21,585 25,205 1993 Series B (1993 B Bonds) -

interest payable semi-annually to October 1, 2013 at various rates between 4.75% and 5.5%

114,085 117,720 1996 Utilities System Revenue Bonds -

1996 Series A (1996 Series A) -

interest payable semi-annually to October 1, 2026 at rates between 4.0% and 5.75%

136,090 137,640 Utilities System Commercial Paper Notes, Series C (C Notes):

Interest at various market rates 78,440 63,028 Utilities System Taxable Commercial Paper Notes, Series D (D Notes):

Interest at various market rates 17.093 12,081 436,913 426,679 Less current portion of long-term debt (10,985)

(10,190)

Less unamortized loss on refinancing (27,573)

(29,503)

Less unamortized bond discount (3,957)

(4,253)

Total long-term debt

$ 394_398 382_733 (continued)

31 32 33 34 35 36 37 38 39 40 Notes to Financial Statements September 30, 2001 and 2000 Utilities System Commercial Paper Notes, Series C Notes (tax-exempt) in a principal amount not to exceed $85.0 million may continue to be issued to refinance maturing Series C Notes or provide for other costs. Liquidity support for the Series C Notes is provided under a long-term credit agreement dated as of March 1, 2000 with Bayerische Landesbank Girozentrale.

The obligation of the bank may be substituted by another bank which meets certain credit standards and which is approved by GRU and the Agent. Under the terms of the agree-ment, GRU may borrow up to $85.0 million with same day availability ending on the termination date, as defined in the agreement. Series C Notes of $37.2 million were issued in May 2000. Series C Notes of $4.6 million and $2.7 million were redeemed during 2001 and 2000, respectively.

In June 2000, a Utilities System Commercial Paper Note Program, Series D (taxable) was established in a principal amount not to exceed $25.0 million.

Liquidity support for the Series D Notes is provided under a long-term credit agreement dated June 1, 2000 with SunTrust Bank. The obligation of the bank may be substituted by another bank that meets certain credit standards and is approved by GRU. Under the terms of the agreement, GRU may borrow up to $25.0 million with same day availabili-ty ending on the termination date, as defined in the agreement.

On February 13, 2001 the City of Gainesville d/b/a Gainesville Regional Utilities ("GRU") committed to enter into an interest rate swap in a notional amount of $37.3 million with Merrill Lynch Capital Services (the "Counterparty"', effective July 3, 2002.

Under the terms of the swap agreement, GRU will pay the Counterparty a fixed annual interest rate of 4.10% payable on April 1 and October 1 of each year, beginning October 1, 2002 and will receive a variable-rate payment each month beginning August 1, 2002. The variable-rate will be equal to the Bond Market Association (BMA) Municipal Swap Index.

The Counterparty has the right, but not the obliga-tion, to terminate the swap if the BMA Municipal Swap Index exceeds 7% for any immediate preced-ing rolling consecutive 180 calendar day period.

As of September 30, 2001, the termination value of the swap, if exercised, would have resulted in a payment to the Counterparty of approximately

$1.1 million.

Additionally, on or about July 3, 2002, GRU expects to issue approximately $37.3 million of Utilities System Variable-Rate Revenue Bonds to refund a portion of its 1992B Bonds at the October 1, 2002 call date.

4) Deposits and Investments Deposits are held in a qualified public depository institution insured by the Federal Depository Insurance Corporation and as required by the Bond Resolution in a bank, savings and loan association or trust company of the United States or a national banking association having capital stock, surplus and undivided earnings aggregating at least $10.0 million.

In accordance with state laws and the Bond Resolution, GRU is authorized to invest in obliga-tions which are unconditionally guaranteed by the United States of America or its agencies or instru-mentalities, repurchase agreement obligations unconditionally guaranteed by the United States of America or its agencies, corporate indebtedness, direct and general obligations of any state of the Untied States of America or of any agency, instru-mentality or local governmental unit of any such state (provided such obligations are rated by a nationally recognized bond rating agency in either of its two highest rating categories), public housing bonds, and certain certificates of deposit.

Investments in corporate indebtedness must be rated in the highest rating category of a nationally recognized rating agency and in one of the two highest rating categories of at least one other nationally recognized rating agency. (see table next page)

(continued)

31 32 33 3: 35 36 37 38 30 4 Notes to Financial Statements September 30, 2001 artIi 2000 Investments are categorized in the following table in accordance with Governmental Accounting Standards Board Statement No. 3. All of the GRU's investments fall under category 1, which include investments that are insured or registered or held by the Utility or its agent in GRU's name.

September 30, 2001 U.S. Government securities U.S. Government bonds Corporate commercial paper Total September 30, 2000 U.S. Government securities U.S. Government bonds Corporate commercial paper Total Cash and investments are contained in the following balance sheet accounts (in thousands):

Restricted assets:

Utility deposits Debt service fund Rate stabilization fund Construction fund Utility plant improvement fund Decommissioning reserve fund Investment in The Energy Authority Total restricted assets Current assets:

Cash and short-term investments Long-term investments Total cash and investments Less cash and cash equivalents Less accrued interest receivable Total investments Fair (Carrying)

Value (in thousands)

$ 70,940 22,820 82,913

$ 1 7 8-673

$ 78,108 21,299 74,04

$ 1 73,455 2001

$ 3,835 60,300 78,403 15,589 11,415 3,920 1,714 175,176 13,098 592 188,866 (8,303)

(1,890)

$ 178673

5) Jointly-Owned Electric Plant GRU-owned resources for supplying electric power and energy requirements include its 1.4079%

undivided ownership interest in the Crystal River Unit 3 (CR3) nuclear power plant operated by Florida Power Corporation. GRU's net investment in CR3 at September 30, 2001 and 2000, is approxi-mately $7.8 million and $8.9 million, respectively.

CR3 operation and maintenance costs, which represent GRU's part of expenses attributable to operation of CR3, are recorded in accordance with the instructions as set forth in the FERC uniform system of accounts. Payments are made to Florida Power Corporation in accordance with the CR3 participation agreement.

GRU, as a part of this participation agreement, is responsible for its share of future decommissioning costs. Decommissioning costs are funded and expensed annually and are recovered through rates charged to customers. The most recent decommis-sioning cost estimates provided by Florida Power Corporation in December 2000, estimated GRU's share of total future decommissioning costs to be

$7.8 million. At September 30, 2001, GRU has funded $3.9 million of this cost.

(continued)

I I

}1

-,0 2000 3,882 57,399 71,029 11,322 21,911 3,263 1,401 170,207 7,688 1,660 179,555 (4,348)

(1,752) 173,455

3132 33 34 35 36 37 38 39 40 Notes to Financial Statements September 30, 2001 al(d 2000

6) Contributions in Aid of Construction Contributions in aid of construction are as follows at September 30 (in thousands):

2001 2000 Contributions in aid of construction:

Utility plant, property and equipment contributed by municipality 3,982 3,982 Federal and state grants in aid of construction 22,892 22,892 Contributions from customers and developers:

Plant contributed by developers 59,016 59,016 Connection charges 63,256 63,256 149,146 149,146 Accumulated amortization (50.826)

(46,915)

Contributions in aid of construction

$ 98_320 102_231 During the year ended September 30, 2001, GRU implemented the applicable provisions of Governmental Accounting Standards Board (GASB) No. 33, Accounting and Financial Reporting for Nonexchange Transactions, which requires governments to recognize capital contributions as revenues instead of contributed capital. In previous periods, such capital contributions were recognized as additions to Contributions in Aid of Construction for GRU's water and wastewater funds. Implementation of this Statement did not affect the accounting for capital contributions to GRU's electric fund because the activities of this fund are accounted for under the FERC uniform system of accounts, pursuant to FASB Statement No. 71. This accounting change was implemented prospectively as required by Statement No. 33.

7) Retained Earnings Retained earnings reserved for debt service and unappropriated are as follows at September 30 (in thousands):

2001 2000 Reserved for debt service

$ 38,998 37,261 Unappropriated 266,321 239,521 Total retained earnings

$ 305,319 276,782 Retained earnings balances at September 30, 2001 and 2000, reserved in debt service accounts are as follows (in thousands):

2001 2000 Reserve account

$ 38,874 37,064 Debt service account 20,419 20,000 Subordinated indebtedness fund account 371 326 Commercial paper note payment account 55 9

59,719 57,399 Less amounts appropriated for current interest and principal payable (20,721)

(20,138)

$ 38,998 37_261 (continued)

21

- 9 ?

9 5

1.

1a 40 Notes to Financial Statements SupictfIJQ 30, 2001 andel 2000

8) Retirement Plans The City sponsors and administers one defined ben-efit pension plan and two defined contribution plans (collectively, the Plans) that include GRU and other City employees. The Plans do not make separate measurements of assets and pension benefit obliga-tions for individual units of the City. Such informa-tion is presented in the City of Gainesville, Florida, September 30, 2001, Comprehensive Annual Financial Report.

The General Employees Pension Plan (Employees Plan), a contributory defined benefit pension plan, covers all employees of GRU, except certain limited personnel who elect to participate only in a defined contribution plan.

The City accounts for and funds the costs of the Employee Plan as they accrue. Such costs are based on contribution rates determined by the most recent actuarial valuation. The total contributions by GRU, including amortization of prior service costs, for the years ended September 30, 2001 and 2000, were $1.8 million and $1.4 million, respectively.

Certain limited employees are eligible to participate in defined contribution plans managed by outside fiscal agents for the City. Under the first plan, the City contributes a percentage of an employee's annual salary and employees contribute a specified percentage. All employees have the option to par-ticipate in the second defined contribution plan. The total defined contribution cost for GRU for the years ended September 30, 2001 and 2000, was

$352,000 and $347,000, respectively.

9) Postretirement Benefits In addition to providing pension benefits, the City provides certain health care insurance benefits for retired employees of the City and GRU. The City also permits retirees to participate in the life insur-ance program. Most permanent full and part-time employees who are eligible for normal, early retire-ment, or disability are eligible for these benefits.

Individual benefits are the same for all employees, but the cost to the City may vary. Contributions by the City to fund these benefits are neither mandated nor guaranteed. Funds are appropriated annually to fund the actuarially determined costs of the health insurance program and to cover the costs of other programs. The City recognizes the cost of these benefits on a monthly basis by contributing a per-centage of active payroll costs. The cost of provid-ing these benefits for the GRU retirees for the fiscal years ended September 30, 2001 and 2000, was

$820,000 and $776,000, respectively.

10) Transfers to General Fund GRU makes transfers to the City's general govern-ment based on a formula that ties the transfer directly to the financial performance of the system.

The transfer to the general fund may be made only to the extent such moneys are not necessary to pay operating and maintenance expenses and to pay debt service on the outstanding bonds and subordi-nated debt or to make other necessary transfers under the Bond Resolution. The formula-based fund transfer to the general fund for the years ended September 30, 2001 and 2000, was $24.4 million and $23.3 million, respectively.

11) Deferred Charges Included in deferred charges at September 30, 2000 is the unamortized balance of $1.1 million remaining of the original payment of $27.4 million, in full set-tlement in connection with the City's cancellation of a contract for supply of coal to the Deerhaven II generating plant. The settlement payment was being recovered through future utility fuel adjust-ment revenue. That process was completed in fis-cal 2001 and at September 30, 2001 there was no remaining unamortized balance.

The remaining balance in deferred charges at September 30, 2001 and 2000, is comprised of unamortized bond issuance costs of approximately

$3.1 million and $3.2 million, respectively, amor-tized straight-line over the life of the bonds (which approximates the effective interest method), envi-ronmental costs of $10.1 million in 2001 and $7.3 million in 2000 (see Note 12), and deferred acquisi-tion cost of $3.1 million in 2001 and $3.3 million in 2000.

12) Environmental Liabilities GRU is subject to numerous federal, state and local environmental regulations. Under the Compre-hensive Environmental Response Compensation and Liability Act, commonly known as "Superfund,"

GRU has been named as a potentially responsible party at two hazardous waste sites. In addition, in January 1990, GRU purchased the natural gas dis-tribution assets of a company and pursuant to the related purchase agreement, assumed responsibility for the investigation and remediation of environ-mental impacts related to the operation of the for-mer manufactured gas plant. Based upon GRU's analysis of the cost to clean up these sites and other identified environmental contingencies, GRU has accrued a liability of $10.1 million and $7.3 mil-lion as of September 30, 2001 and 2000, respec-tively. Because GRU believes it is probable that it will recover the costs of environmental clean-up through future customer rates, a regulatory asset of equal amount has been reflected as a deferred charge in the accompanying balance sheet.

Although uncertainties associated with environmen-tal assessment and remediation activities remain, GRU believes that the current provision for such costs is adequate and additional costs, if any, will not have a material adverse effect on GRU's finan-cial position, results of operations or liquidity.

13) Lease/Leaseback On December 10, 1998, GRU entered into a lease/leaseback transaction for all of the Deerhaven Unit 1 and a substantial portion of the Deerhaven Unit 2 generating facilities. Under the terms of the transaction, GRU entered into a 38-year lease and simultaneously a 20-year leaseback. At the end of (continued)

41 42 43 44 45 46 47 48 49 50 Notes to Financial Statements September 30, 2001 and 2000 the leaseback period term, GRU has an option to buy out the remainder of the lease for a fixed pur-chase option amount. Under the terms of the trans-action, GRU continues to own, operate, maintain and staff the facilities.

The proceeds received by GRU from this transaction were approximately $249.0 million. From these pro-ceeds, GRU deposited $142.0 million as a payment undertaking agreement and a second deposit of

$72.0 million in the form of a collateralized Guaranteed Investment Contract (GIC), both with an AAA rated insurance company. The Deposit instru-ments will mature in amounts sufficient to meet the annual payment obligations under the leaseback including the end of term fixed purchase option if elected by GRU.

The net benefit of this transaction, after payment of transaction expenses, was approximately $35.0 million and resulted in a deferred gain, which will be amortized as income on a straight-line basis over the leaseback period of 20 years. Of the $35.0 mil-lion net benefit, approximately $5.0 million was transferred to the City of Gainesville's General Fund with the remainder being used, along with other funds on hand, to pay off approximately $43.0 mil-lion of tax-exempt commercial paper.

GRU accounted for the lease/leaseback transaction as an operating lease in 2000. Amortization of the net benefit was $1.8 million in 2001 and 2000, and was reported as a component of other operating revenue.

14) Investment in The Energy Authority In May 2000, GRU became an equity member of The Energy Authority (TEA), a power marketing joint venture. As of September 30, 2001, this joint venture was comprised of six municipal utilities across the nation. GRU's ownership interest was 7.14% and it accounted for this investment using equity accounting.

To become a member, GRU paid an initial capital contribution of $1.0 million and a membership fee of $867,360. The membership fee is to be amor-tized over 24 months. Included in deferred charges at September 30, 2001, is the unamortized balance of $252,980. GRU has reflected the capital contribu-tion as an investment in TEA. The investment bal-ance has been adjusted for GRU's subsequent share of TEA's net income or loss. In calculating GRU's share of net income or loss, profit on transactions between GRU and TEA have been eliminated. Such transactions primarily relate to purchases and sales of electricity between GRU and TEA. GRU had pur-chase transactions with TEA of $13.3 million and

$2.8 million and sales transactions of $7.9 million and $2.4 million in fiscal years 2001 and 2000, respectively. TEA's profit on these transactions has been reflected as a reduction to GRU's reported rev-enue or expense. As of September 30, 2001, GRU's investment in TEA was $1.7 million. Additionally, in accordance with the membership agreement between GRU and its joint venture members, GRU has provided TEA with guarantees of $9.6 million to secure power marketing transactions. Of this amount, $8.6 million is represented by a trade guar-antee with the balance through a TEA letter-of-credit supported by a cash deposit of $428,571.

(continued)

The following is a summary of the unaudited financial information of TEA for the twelve month periods ended September 30, 2001 and 2000 (in thousands):

2001 Condensed statement of operations:

Total revenue Total cost of sales and expenses Operating income Net revenue Condensed balance sheet:

Current assets Noncurrent assets Total assets Current liabilities:

Current liabilities Noncurrent liabilities Members' capital Total equity and liabilities

$ 542,249 425,277 1 16,972 11 807 6 81,757 11,730

~93,487 57,874 10,000 25,613

~9348 306,953 221305 85,648 86.459 86,943 22,377 1 ~093 20 75,906 20,510 12,904

_O ~3 2000 TEA issues separate audited financial statements on a calendar-year basis.

4 i 42 43 44 456 4/ 418 49 50 Notes to Financial Statements Septebnber 30, 2001 and 2000

15) Segment Information Segment information for GRU's Enterprise Funds for the fiscal years ended September 30, 2001 and 2000 is as follows (in thousands):

Electric Gas Water W.

Operating Revenues

$163,904 21,627 12,888 Depreciation and Amortization 19,675 1,200 1,345 Operating Income 43,042 3,456 4,442 Operating Transfers Out (15,917)

(1,064)

(3,043)

Net Income 35,588 2,182 6,532 Property, Plant and Equipment:

Additions 31,792 1,935 7,919 Deletions (599)

(103)

(773)

Working Capital 38,817 3,119 (2,065)

Total Assets 749,450 42,240 109,050 Fund Equity 276,361 3,542 51,988 Long Term Debt 220,634 27,769 51,728 Electric Gas Water We Operating Revenues

$146,286 15,180 12,361 Depreciation and Amortization 20,115 1,268 1,825 Operating Income 40,714 2,282 3,903 Operating Transfers Out (15,422)

(1,058)

(2,821)

Net Income 17,618 142 (623)

Property, Plant and Equipment:

Additions 46,388 2,355 5,905 Deletions Working Capital 34,915 (541)

(1,855)

Total Assets 731,952 41,754 105,366 Fund Equity 256,690 2,424 49,881 Long Term Debt 217,713 28,807 48,273

16) Risk Management GRU is exposed to various risks of loss related to theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters and insures against these losses.

GRU purchases plant and machinery insurance from a commercial carrier. The City is self-insured for workers' compensation, auto, and general liability.

Settlements have not exceeded insurance coverage for each of the last three years. These risks are accounted for under the City of Gainesville's General Insurance Fund. GRU reimburses the City for premiums and claims paid on its behalf, record-Fiscal Year Beginning Balance 7,615 (2,343) 24,444 (264) 18,881 ing the appropriate expense. However, GRU does maintain its own insurance reserve, for the self-insured portion, in the amount of $3.2 million, based on an actuarially computed liability. This reserve is recorded as a deferred credit, and has been fully amortized. Changes in the claims liability for the last two years are as follows (in thousands):

Claims Payments 2000-2001

$3,152 2001-2001 3,152 Ending Balance 499 499 3,152 542 542 3,152 GRUCom 5,1 51 1,546 829 (273) 118 3,834 1,049 22,994 (550) 23,441 GRUCom 3,305 956 476 (224)

(628) istewater 15,944 1,203 6,472 (4,059) 8,473 7,073 (84)

(191) 150,647 72,298 70,826 istewater 15,583 1,943 5,372 (3,815)

(734) 5,816 (1,080) 147,456 70,281 69,059 N

i

41 42 43 44 45 46 47 48 49 50 Schedules of Combined Net Revenues in Accordance with Bond Resolution Years ended September 30, 2001, 2000, 1999, 1998 and 1997 (in thousands) 2001 2000 1999 1998 1997 Revenue:

Electric fund:

Sales of electricity

$159,398 142,078 135,626 132,144 126,466 Lease/leaseback revenue 249,221 Other electric revenue 2,730 2,433 2,420 2,715 2,259 Transfers to rate stabilization (6,311)

(6,791)

(12,199)

(6,441)

(2,200)

Interest income 5,71 5,107 6,405 6,706 4,991 Total electric fund revenue 161,530 142.827 381,472 135,125 131,515 Gas fund:

Gas sales 21,638 15,276 12,310 14,422 14,712 Other gas revenue (expenses)

(11)

(96)

(6) 3 68 Transfers from (to) rate stabilization (954)

(181) 306 (263) 642 Interest income 463 483 456 561 310 Total gas fund revenue 21,136 15,483 13,067 14,724 15,73 Water fund:

Sales of water 12,879 12,356 12,184 11,521 10,646 Other water revenue 1,763 2,085 1,775 1,539 1,210 Transfers from (to) rate stabilization 1,084 43 (436)

(301)

(15)

Interest income 1,26 1,280 1,265 1,169 862 Total water fund revenue 16,992 15,765 14.788 13,928 12,703 Wastewater fund:

Wastewater billing 15,697 15,364 15,116 14,155 14,146 Other wastewater revenue 2,414 1,968 2,371 1,924 1,558 Transfers from rate stabilization 1,893 1,673 468 593 239 Interest income 1,73 1,915 1,85 1,893 1,46 Total wastewater fund revenue 21,73 20,919 19.809 18,565 17,411 GRUCom fund:

Sales to customers 4,168 2,002 1,226 556 966 Other GRUCom revenue 983 1,304 1,058 729 387 Transfers from (to) rate stabilization (139) 62 728 Interest income 183 27 8

86 98 Total GRUCom fund revenue 5,195 3,333 2,293 1,433 2,180 Total revenue

$ 226_590 198_326 431_429 183_774 1L79542 (continued) i

41 42 43 44 45 46 47 48 49 50 Schedules of Combined Net Revenues in Accordance with Bond Resolution, continued Years ended September 30, 2001, 2000, 1999, 1998 and 1997 2001 2000 1999 1998 1997 Operation, maintenance and administrative:

Electric fund:

Fuel expense

$ 67,451 53,478 44,565 45,762 46,004 Operation and maintenance 23,256 22,541 19,121 19,426 18,648 Administrative and general 10,48 9.43 11476 11.80 10,897 Total electric fund expense 101,187 85,457 75,162 76,99 75,54 Gas fund:

Fuel expense 13,658 7,724 5,801 7,503 8,077 Operation and maintenance 484 730 542 574 556 Administrative and general 2,82 3,17 2,94 3,07 Total gas fund expense 16,971 11,63 9,27 11,020 11,706 Water fund:

Operation and maintenance 4,693 4,142 3,631 3,605 3,438 Administrative and general 2,40 2.491 2,73 2,62 2,63 Total water fund expense 7,101 6.63 6,36 6,23 6,071 Wastewater fund:

Operation and maintenance 5,442 5,239 4,628 4,712 4,965 Administrative and general 2,82 3,02 3,53 3,38 3,15 Total wastewater fund expense 8,26 8,26 8,16 8.09 8,117 GRUCom fund:

Operation and maintenance 2,033 1,419 656 543 419 Administrative and general 743 453 650 615 134 Total GRUCom fund expense 2,77 1.873 130 1,15 552 Total operation, maintenance and administrative

$136,304 113_861 100_273 103_501 101,995 Net revenue in accordance with bond resolution:

Electric

$ 60,343 57,370 306,309 58,129 55,966 Gas 4,165 3,853 3,788 3,704 4,026 Water 9,891 9,131 8,423 7,696 6,632 Wastewater 13,468 12,652 11,647 10,468 9,295 GRUCom 2,41 14,560 987 275 1,62 Total net revenue in accordance with bond resolution

$ 90_286 84466 331.155 80.273 77_547 Aggregate bond debt service

$ 29.765 29.459 29.900 30.783 30.745 Aggregate debt service coverage ratio 3.03 2.87 11.08 2.61 2.52 Total debt service

$ 37_677 34.905 33I892 3 9470 44.196 Total debt service coverage ratio 2.40 2.42 9.77 2.03 1.75 (see note on page 51)

41 42 43 44 45 46 41 4 44 5[0 Schedules of Net Revenues in Accordance With Bond Resolution -Electric Utility Fund Years endr/ed September 30, 2001 and 2000 (in thousands) 2001 2000 Revenue:

Sales of electricity:

Residential sales

$ 45,604 44,289 General service and large power 38,592 37,921 Fuel adjustment 45,036 38,975 Street and traffic lighting 2,992 2,888 Utility surcharge 3,330 3,198 Sales for resale 6,398 5,347 Interchange sales 17,446 9,461 Total sales of electricity 159,398 142,078 Other electric revenue:

Service charges 1,880 1,935 Pole rentals 724 124 Miscellaneous 126 374 Total other electric revenue 2,730 2,433 Transfers to rate stabilization (6,311)

(6,791)

Interest income 5,71 5,107 Total revenue 161530 142827 Operation, maintenance and administrative expense:

Operation and maintenance:

Fuel expense:

Retail and purchased power 58,456 48,450 Interchange 8.995 5,02 Total fuel expense 67.451 53478 Power production 16,728 16,171 Transmission 483 658 Distribution 6,04 5,71 Total operation and maintenance 90,70 76,01 Administrative and general:

Customer accounts 3,569 3,054 Administrative and general 6,911 6,384 Total administrative and general 10,48 9.43 Total operation, maintenance and administrative expense 101,187 85,45 Net revenue in accordance with bond resolution:

Retail 51,891 52,937 Interchange 8,45 4,43 Total net revenue in accordance with bond resolution

$ 60.343 57,370 (see note on page 51)

I

• 1

41 42 43 44 45 46 47 48 49 50 Schedules of Net Revenues in Accordance With Bond Resolution -Gas Utility Fund Years ended Septemher 30, 2001 and 2000 (in thousands) 2001 2000 Revenue:

Sales of gas:

Residential

$ 11,697 7,957 Interruptible/commercial 9,301 6,686 Other sales 640 633 Total sales of gas 21,638 15,276 Other gas revenue (expense)

(11)

(96)

Transfers to rate stabilization (954)

(181)

Interest income 463 483 Total revenue 21136 15483 Operation, maintenance and administrative expense:

Operation and maintenance:

Fuel expense 13,658 7,724 Operation and maintenance 484 730 Total operation and maintenance 14,142 8,453 Administrative and general:

Customer accounts 1,792 1,585 Administrative and general 1,037 1,592 Total administrative and general 2,829 3 177 Total operation, maintenance and administrative expense 16.971 11630 Total net revenue in accordance with bond resolution

$ 4,165 3_853 (see note on page 51) i

41 4243 44 45 46 47 48 49 50 Schedules of Net Revenues in Accordance With Bond Resolution -Water Utility Fund Years ended Septenmber 30, 2001 and 2000 (in thousands) 2001 2000 Revenue:

Sales of water:

General customers

$10,140 9,700 University of Florida 617 623 Fire protection 995 990 Generating stations 27 43 Utility surcharge 1100 1,001 Total sales of water 12879 12356 Other water revenue:

Connection charges 1,754 2,080 Miscellaneous 9

5 Total other water revenue 1,763 2,085 Transfers from rate stabilization 1,084 43 Interest income 1,266 1.280 Total revenue 16992 15765 Operation, maintenance and administrative expense:

Operation and maintenance:

Source of supply 10 7

Pumping 1,274 1,002 Water treatment 2,106 1,963 Transmission and distribution 1.303 1.170 Total operation and maintenance 4,693 4,142 Administrative and general:

Customer accounts 946 878 Administrative and general 1,462 1.613 Total administrative and general 2,408 2,491 Total operation, maintenance and administrative expense 7,101 6,633 Total net revenue in accordance with bond resolution

$ 9 891 9 131 (see note on page 51)

41 42 43 44 45 46 47 48 49 50 Schedules of Net Revenues in Accordance With Bond Resolution -Wastewater Utility Fund Years ended Septenm/ber

30. 2001 and 2000 (in thousands) 2001 2000 Revenue:

Wastewater billings:

Billings

$14,363 14,100 Utility surcharge 1.334 1,263 Total wastewater billings 15697 15 Other wastewater revenue:

Connection charges 2,167 1,748 Miscellaneous 247 219 Total other wastewater revenue 2.414 1.967 Transfers from rate stabilization 1,893 1,673 Interest income 1,733 1 915 Total revenue 21737 20918 Operation, maintenance and administrative expense:

Operation and maintenance:

Collection 1,214 1,392 Treatment and pumping 4.228 3,847 Total operation and maintenance 5.442 5,239 Administrative and general:

Customer accounts 846 769 Administrative and general 1.981 2,260 Total administrative and general 2,827 3 029 Total operation, maintenance and administrative expense 8,269 8,268 Total net revenue in accordance with bond resolution

$13.468 12_652 (see note on page 51)

41 42 43 44 45 4C 4 48 43 50 Schedules of Net Revenues in Accordance With Bond Resolution-GRUCom Utility Fund Years enlded September 30, 2001 and 2000 (in thousands) 2001 2000 Revenue:

Sales to customers

$ 4,168 2,002 Other GRUCom revenue 983 1,304 Transfers to rate stabilization (139)

Interest income 183 27 Total revenue 5,195 3333 Operation, maintenance and administrative expense:

Operation and maintenance 2,033 1,419 Total operation and maintenance 2,033 1.419 Administrative and general:

Customer accounts 224 125 Administrative and general 519 328 Total administrative and general 743 453 Total operation, maintenance and administrative expense 2 776 1,873 Total net revenue in accordance with bond resolution

$ 2 419 1 460 (See note on page 51)

51 52 53 54 55 56 57 58 59 60 Notes to Schedules of Net Revenues in Accordance With Bond Resolution September 30, 2001 "Net revenue in accordance with bond resolution" differs from "Net income," which is determined in accordance with generally accepted accounting principles. Following are the more significant differences:

- Interest income does not include interest earned on construction funds.

• Transfers to the general fund are excluded.

• Other revenue includes transfers (to) from the rate stabilization fund.

• Revenue from leaseAeaseback transaction.

(see Note 13)

• Operation and maintenance expense do not include depreciation, amortization or interest expense.

51 5253 54 5556 5G7 558 59 G0 Combining Balance Sheet September 30, 2001 (in thousands)

Assets Electric Utility plant:

Utility plant in service Plant held for future use Plant unclassified Construction in progress

$ 521,468 6,054 57,178 47,333 632,033 Less accumulated depreciation and amortization Net utility plant 401,375 Current assets:

Cash and short-term investments Accounts receivable, net Futures contracts Prepaid rent -

lease/leaseback Inventories:

Fuel Materials and supplies Total current assets Long-term investments 12,138 23,244 4,037 10,687 5,033 3,896 59,036 Gas 35,698 729 2,085 38,512 21 250 3,355 1,221 261 4,837 Water Wastewater 117,635 1,933 9,749 129,317 (41,345) 87,972 (2,233) 1,436 561 (236) 153,846 1,933 11,75 167,536 (55,191) 112,345 384 1,947 2,331 GRUCom 17,977 370 5,748 24,095 Combined 846,624 6,054 62,143 76,672 991,493 (4,680)

(349,136) 19415 642,357 (546) 653 965 1,072 592 13,098 28,501 4,037 10,687 5,033 5,683 67,039 Restricted assets:

Utility deposits:

Cash and investments Debt service fund:

Cash and investments Rate stabilization fund:

Cash and investments Construction fund:

Cash and investments Utility plant improvement fund:

Cash and investments Decommissioning reserve fund:

Cash and investments Investment in the Energy Authority:

Cash and investments Total restricted assets 3,835 41,158 46,917 8,814 883 3,920 1,714 107,241 592 3,835 3,356 3,037 1,806 1,566 6,294 11,917 (185) 2,713 8,429 16,532 4,368 5,913 1,063 60,300 78,403 786 1 5,589 340 11,415 3,920 9,765 1,714 2,189 175,17 20,739 Prepaid rent -

lease/leaseback Deferred charges Total assets 172,772 8,578

$ 7 4 9,593 6,388 42,240 575 109,050 729 150647 318 22,994 172,772 16,58 1,074,524~

51 52 53 54 55 56 57 58 59 60 Combining Balance Sheet September 30, 2001 Liabilities and Fund Equity Long-term debt and fund equity:

Long-term debt:

Utilities system revenue bonds Utilities system commercial paper notes Less unamortized loss on refinancing Less unamortized bond discount Total long-term debt Fund equity:

Contributions in aid of construction Retained earnings Total fund equity Total long-term debt and fund equity Electric

$ 194,913 48,552 243,465 (20,397)

(2,434) 220,634 Gas 25,827 3.119 28,946 (865)

(312) 27,769 3,542 3,542 31311 Water Wastewater 48,016 7,472 55,488 (3,266)

(494) 51,728 38,496 13,492 51,98i 103,716 61,639 12,949 74,588 (3,045)

(717) 70,826 59,185 13,114 72,298 143,124 Current liabilities:

Fuel payable Accounts payable and accrued liabilities Deferred fuel charges Operating lease -

lease/leaseback Due (from) to other funds Total current liabilities Payable from restricted assets:

Utility deposits Long-term debt payable -

current Accrued Interest payable Construction fund:

Accounts payable and accrued liabilities Total payable from restricted assets Operating lease -

lease/leaseback Other liabilities and deferred credits Total liabilities and fund equity 4,882 4,240 143 12,462 (1,509) 20,218 3,693 7,712 5,694 307 17,406 201,453 13,521

$ 749,5 93 296 471 775 954 951 1,718 323 780 1,103 8,108 42,240 1,227 1,380 13 2,620 884 109050 1,723 1,882 4

3,609 1,392 1 50,647 5,178 167 6,607 143 12,462 (144) 1,92 23 Zug 3,693 10,985 9,736 70 394 70 24,808 10 22,994 201,453 23,914 1,074,524 Cembined 330,395 95,533 425,928 (27,573)

(3.957) 394,398 98,320 305,319 403,639 798,037 GRUCom 23 441 23,441 23,441 639 (1,189)

(550) 22891

51 52 53 54 55 55 57 58 55' 60 Combining Statement of Revenue and Expense and Retained Earnings Year enided September 30, 2001 (in thousands)

Electric Gas Water Wastewater GRUCom Combined Operating revenue:

Sales and service charges

$159,398 21,638 12,879 15,697 4,168 213,780 Other operating revenue 4,506 (11) 9 247 983 5,73 Total operating revenue 163,904 21,627 12,888 15,944 5,151 219,51 Operating expenses:

Operation and maintenance 90,707 14,142 4,693 5,442 2,033 117,017 Administrative and general 10,480 2,829 2,408 2,827 743 19,287 Depreciation and amortization 19,675 1,200 1,345 1,203 1,546 24,96 Total operating expenses 120,862 18,171 8,446 9,472 4,322 161,273 Operating income 43,042 3,456 4,442 6,472 829 58.241 Non-operating income (expense):

Interest income 5,928 435 1,216 1,630 259 9,468 Interest expense, net of AFUDC (13,390)

(1,709)

(3,180)

(4,198)

(970)

(23,447)

Gain (loss) on sale of investments 8

8 Total non-operating expense (7,454)

(1,274)

(1,964)

(2,568)

(711)

(13,971)

Capital contributions 4,054 4,569 8,62 Net income 35,588 2,182 6,532 8,473 118 52,893 Retained earnings, beginning of year 256,690 2,424 10,003 8,699 (1,034) 276,782 Operating transfer to City of Gainesville General Fund (15,917)

(1,064)

(3,043)

(4,059)

(273)

(24,356) i

A.

Retained earnings, end of year 3,542 13,49 (1,189) 305,319

51 52 53 54 55 56 57 58 59 60 Schedule of Utility Plant Properties -

Combined Utility Fund Septeniber 30, 2001 (in thousands)

Balance Sales, Retirements Balance Plant in service September 30, 2000 Additions and Transfers September 30,2001 Electric utility fund:

Production plant

$282,102 407 (231) 282,278 Nuclear fuel 6,669 6,669 Transmission and distribution plant 186,101 4,972 (368) 190,705 General and common plant 38,067 3,749 41,816 Plant unclassified 10570 54383 (7.775) 57,17 Total electric utility fund 523,509 63.511 (8.374) 578,64 Gas utility fund:

Distribution plant 26,841 2,573 (103) 29,311 General plant 1,411 325 1,736 Plant acquisition adjustment 4,651 4,651 Plant unclassified 959 2,562 2792) 729 Total gas utility fund 33.2 52895) 36,427 Water utility fund:

Supply, pumping and treatment plant 18,164 2,396 20,560 Transmission and distribution plant 89,083 4,573 (773) 92,883 General plant 3,698 494 4,192 Plant unclassified 3,04 6,216 7323) 1,93 Total water utility fund 113,985 13,679(8,096) 119,568 Wastewater utility fund:

Pumping and treatment plant 57,413 3,398 60,811 Collection plant 81,471 3,598 (84) 84,985 Reclaimed water plant 2,085 35 2,120 General plant 5,257 673 5,930 Plant unclassified 4,88 (7,729) 1,93 Total wastewater utility fund 151,110 12,482 (7,813)155,77 GRUCom utility fund:

Distribution plant 8,139 9,354 17,493 General plant 290 194 484 Plant unclassified 846 9,073 (9,549) 370 Total GRUCom utility fund 9,272 (9,549) 18,347 Total plant in service

$831_741 113_753 (36_727) 908_767 Plant held for future use-electric

$ 6,054 6,054 Construction in Progress Electric utility fund

$ 71,278 30,438 (54,383) 47,333 Gas utility fund 2,819 1,828 (2,562) 2,085 Water utility fund 8,186 7,779 (6,216) 9,749 Wastewater utility fund 9,437 7,098 (4,778) 11,757 GRUCom utility fund 10,98 383 (9,073) 574 Total construction in progress

$ 102707 50_977 (77_012) 76_672

5,1 52 53'!' 4 5 5 55 51 I8 5S 6O Schedule of Accumulated Depreciation and Amortization

-Combined Utility Fund Septemiber 30, 2001 (in thousands)

Balance Sales, Retirements Balance September 30, 2000 Additions and Transfers September 30, 2001 Electric utility fund:

Production plant

$ 146,022 8,059 (249) 153,832 Nuclear fuel 5,862 307 6,169 Transmission and distribution plant 46,702 5,177 (560) 51,319 General and common plant 16,070 3 200 68 19,338 Total electric utility fund 214,65 16743 (741) 230,658 Gas utility fund:

Distribution plant 12,006 817 (130) 12,693 General plant 910 163 1,073 Plant acquisition adjustment 3,19 300 3,496 Total gas utility fund 16,112 1,280 (130) 17,262 Water utility fund:

Supply, pumping and treatment plant 7,970 573 (124) 8,419 Transmission and distribution plant 28,310 2,102 (846) 29,566 General plant 3,09 261 3

3,360 Total water utility fund 39.376 2,936 (967) 41,345 Wastewater utility fund:

Pumping and treatment plant 21,797 1,779 (125) 23,451 Collection plant 25,144 1,638 (115) 26,667 Reclaimed water plant 219 42 261 General plant 4,31 496 1

4,812 Total wastewater utility fund 51,47 3,955 (239) 55,191 GRUCom utility fund:

Distribution plant 2,915 1,648 (18) 4,545 General plant 92 43 135 Total GRUCom utility fund 3,007 1,691 (18) 4,680 Total

$324,626 26,605 (2,095) 349.136

NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES BUSINESS REPLY MAIL lFIRST CLASS MAIL PERMIT NO. 00146 GAINESVILLE, FL POSTAGE WILL BE PAID BY ADDRESSEE Gainesville Regional Utilities P.O. Box 147117 Gainesville, Florida 32614-9969

Gainesville Regional Utilities

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Kim Simpson, Utility Finance Director

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