ML061380660

Submittal of Crystal River, Unit 3 - 2005 Annual Financial Reports

ML061380660
Person / Time
Site:	Crystal River
Issue date:	05/10/2006
From:	Infanger P Progress Energy Florida
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
3F0506-06
Download: ML061380660 (186)

Text

a4 Progress Energy Crystal River Nuclear Plant Docket No. 50-302 Operating Ucense No. DPR-72 Ref: 10 CFR 50.71(b)

May 10, 2006 3F0506-06 U.S. Nuclear Regulatory Commission Attn: Document Control Desk Washington, DC 20555-0001

Subject:

Crystal River Unit 3 - 2005 Annual Financial Reports

Reference:

Progress Energy to NRC letter dated April 20, 2006

Dear Sir:

Pursuant to 10 CFR 50.71(b), Florida Power Corporation, doing business as Progress Energy Florida, Inc., hereby submits the annual financial reports for five (5) of the nine (9) participating co-owners of the Crystal River Unit 3 (CR-3) Nuclear Station. The Progress Energy Annual Report 2005 was submitted in the above referenced correspondence.

Due to delays in printing production, annual financial reports for the City of Leesburg, the City of Ocala, Seminole Electric Cooperative, Inc. and the Utilities Commission, City of New Smyrna Beach are not yet available. These outstanding annual financial reports will be submitted to the Nuclear Regulatory Commission as soon as they are provided to Progress Energy Florida, Inc.

If you have any questions regarding this submittal, please contact me at (352) 563-4796.

Sincerely, Paul E. Infan er Supervisor Licensing & Rilatory Programs PEI/ff Attachments xc:

NRR Project Manager (w/o att.)

Regional Administrator, Region II (w/o att.)

Senior Resident Inspector (w/o att.)

Progress Energy Florida, Inc.

Crystal River Nuclear Plant 15760 W. Powerline Street Crystal River, FL 34428

PROGRESS ENERGY FLORIDA, INC.

CRYSTAL RIVER UNIT 3 DOCKET NUMBER 50-302/LICENSE NUMBER DPR-72 2005 ANNUAL FINANCIAL REPORTS

• Orlando Utilities Commission and City of Orlando

• Gainesville Regional Utilities

• City of Alachua

• City of Bushnell

• Kissimmee Utility Authority

ANNUAL FINANCIAL REPORT OF THE CITY OF ALACHUA, FLORIDA For the Fiscal Year Ended September 30, 2005

CITY OF ALACHUA, FLORIDA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT............................................................................

1 MANAGEMENTS DISCUSSION AND ANALYSIS................................................

3 BASIC FINANCIAL STATEMENTS:

Government-Wide Financial Statements:

Statement of Net Assets.........................................................................

21 Statement of Activities.........................................................................

22 Fund Financial Statements:

Balance Sheet - Governmental Funds.........................................................................

24 Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Assets.........

25 Statement of Revenues, Expenditures, and Change in Fund Balance -

Governmental Funds.............................................................................................................................

.26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds to the Statement of Activities.................

27 Statement of Net Assets - Proprietary Funds.................................

28 Statement of Revenues, Expenses, and Changes in Fund Net Assets -

Proprietary Funds...........

31 Statement of Cash Flows - Proprietary Funds............................................................................

32 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds............................

34 Notes to the Financial Statements............................................................................

35 REQUIRED SUPPLEMENTARY INFORMATION:

GASB Statement 34:

Schedule of Revenues, Expenditures, and Changes in Fund Balances, Budget and Actual - General Fund............................................................................

55

L COMBINING STATEMENTS Nonmajor Governmental Funds Combining Balance Sheet - Nonmajor Governmental Funds.......................................................................

58 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -

Nonmajor Governmental Funds.59 Combining Balance Sheet - Nonmajor Special Revenue Funds.60 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -

Nonmajor Special Revenue Funds..62 Combining Balance Sheet - Nonmajor Capital Project Funds.64 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -

Nonmajor Capital Project Funds.....................................................................

66 FiduciarM Funds Combining Statement of Changes in Fiduciary Net Assets.......................................................................

68 OTHER INDEPENDENT AUDITOR REPORTS Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.71 Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133.73 Schedule of Expenditures of Federal Awards.75 Notes to Schedule of Expenditures of Federal Awards.76 Schedule of Findings and Questioned Costs.77 i Auditor's Management Lettr

.79 iL City Responses to Management Letter.83

i CPA ASSOCIATES Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT Honorable Mayor, City Commissioners, and City Manager City of Alachua, Florida L

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Alachua, Florida, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as L

listed in the table of contents. These financial statements are the responsibility of City of Alachua's management.

Our responsibility is to express opinions on these financial statements based on our audit.

L We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain L

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 estimates made by management, as well as i

evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for L our opinions.

In our opinion, based on our audit, the financial statements referred to above present fairly, in all material L

respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Alachua, Florida, as of September 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended ii in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2005 on L

our consideration of the City of Alachua's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the L

results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

L The management's discussion and analysis and budgetary comparison information on pages 3 through 18 and on page 55 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted L

principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

1 Members:

• American Institute of CPA

• Center for Public Company Audit Firms

• Private Companies Practice Section

• Florida Institute of CPA

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively L

comprise the City of Alachua, Florida's basic financial statements. The combining statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional L

analysis as required by the U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures 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.

Bradenton, Florida December 15, 2005 L

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 The City of Alachua's (the "City") discussion and analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City's financial activity, (c) identify changes in the City's financial position (its ability to address the next and subsequent year challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns.

Since the Management's Discussion and Analysis (MD&A) is designed to focus on the current year's activities, resulting changes and currently known facts, it should be read in conjunction with the City's financial statements (beginning on page 21). Please note the City provides prior year comparative financial information as required by GASB 34.

Financial Highlights The following graph is provided to assist in understanding the component parts of the financial statements:

Required components of City's Annual Financial Report Management's Discussion and Analysis l

Basic Financial Statements Government-wide Fund Financial Statements Financial Statements Notes to Financial Statements I

Required Supplementary Information Government-Wide Statements

• The City of Alachua's assets exceeded its liabilities at September 30, 2005 by $11.3 million (net assets). Of this amount, $8.2 million may be used to meet the government's ongoing obligations to citizens and creditors.

• The City of Alachua's total long-term debt decreased by $493,524 (-3.18%) during the current fiscal year. The key factor in this decrease was the scheduled principal retirements of its debt.

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 L

Total net assets ($11.3 million) are comprised of the following:

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1) $2.0 million of capital assets, net of related debt, include property and equipment, net of accumulated depreciation, and reduced for outstanding debt related to the purchase of L

construction of those capital assets,

2) $1.1 million of net assets are restricted by constraints imposed from outside of the City such L

as debt covenants, grantors, laws, or regulations,

3)

$8.2 million of unrestricted net assets represent the portion available to maintain the City's continuing obligations to citizens and creditors.

Fund Statements w

• At September 30, 2005, the City's governmental funds reported combined ending fund balances of $1.73 million, an increase of $261,385, in comparison with the prior fiscal year. This increase is due primarily to an increase in operating revenues collected during the year.

• At September 30, 2005, unreserved fund balance for the General Fund was $1.3 million or 24%

L of General Fund operating revenue. This is within the Government Finance Officers Association's Best Practices guidelines for fund balance levels.

l Governmental funds revenues increased to $7.3 million, $1.4 million more than the previous fiscal year.

L1 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City's basic financial L

statements. The City's basic financial statements consist of three components:

(1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

L Government-Wide Financial Statements L

The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private sector business, and consist of the following two statements:

The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net L

assets may serve as a useful indicator of whether the financial position of the City is strengthening or weakening.

L The statement of activities presents information showing how the City's net assets changed during the most recent fiscal year, focusing on both the gross and net costs of various activities, L

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 both governmental and business-type, that are supported by the government's general tax and other revenues. This is intended to summarize and simplify the user's analysis of the cost of various governmental services and/or subsidy to various business-type activities.

Both of these financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities).

The governmental activities of the City include administration, police, parks and recreation, fire, transportation (streets and roads), physical environment (solid waste), and planning and development. The business-type activities of the City include physical environment (electric, water, and wastewater utilities).

The government-wide financial statements include not only the City itself (known as the primary government), but also the following legally separate component unit: the City of Alachua Public Finance Authority for Affordable Housing. There have been no financial transactions for the Authority; therefore, no amounts related to its operations are reported in the accompanying financial statements. The City has a Community Redevelopment Agency, which was determined not to be a separate legal entity. Thus the Agency is presented in the basic financial statements of the City as a nonmajor governmental fund (page 58-59).

The government-wide financial statements can be found on pages 21-23 of this report.

Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All City funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.

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CITY OF ALACHIUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 L

U Fund Financial Statements Governmental Funds Proprietary Funds Fiduciary Funds Scope Includes the Citys basic Services provided by Funds for which the services such as police, the City that are City is the trustee or cultural activities, traffic operated similar to agent for someone control, and parks private businesses and else's resources for which the City charges a fee Examples Police, street maintenance, Electric, water, Citys retirement parks, recreational wsstewater, and funds activities mosquiuto control Reqiired'fiuiancial-Balance sheet; Statement-Statement of net assets; Statement of statements of revenues, expenditures, Statement of revenues, fiduciary net assets; and changes in fuind expenses and changes Statement of changes balances in net assets; Statement in fiduciary net assets of cash flows Accounting basis and Modified accrual Accrual accounting and Accrual accounting measurement focus accounting and current economic resources and economic financial resources fo~cus focus resources focus Type of asset/liability Only assets expected to be All assets and All assets and information used up and liabilities that liabilities, both liabilities, both short come due during the year financial and capital, and long-term or soon thereafter, no and short and long-term capital assets included Type of inflow/

Revenues for which cash is All revenues and All revenues and outflow information received during or soon expenses during the expenses during the after the end of the year, year, regardless of year, regardless of expenditures when goods when cash is received when cash is or services have been or paid received or paid received and payment is due during the year or soon thereafter IU U

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a governments near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for the governmental funds with similar information presented for -governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Because of the different measurement focus (current financial resources versus total economic resources) a reconciliation of both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances is provided (see pages 25 and 27) to facilitate the comparison between governmental funds and governmental activities. The flow of current financial resources will reflect debt proceeds and interfund transfers as other financial sources as well as capital expenditures and bond principal payments as expenditures. The reconciliation will eliminate these transactions and incorporate the capital assets and long-term obligations (bonds and others) into the governmental activities column (in the government-wide statements).

The City maintains fifteen (15) individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, which is considered a major fund. Data from the other fourteen (14) governmental funds are combined into a single aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements in the combining statement section of this report.

The City adopts an annual budget for its general, special revenue, debt service, and capital projects funds. A budgetary comparison statement has been provided for the General Fund to demonstrate budgetary compliance.

The basic governmental fund statements can be found on pages 24 and 26 of this report.

Proprietary Funds The City maintains two different types of proprietary funds. Enterprise funds are used to report business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its Public Utilities System (Electric, Water, Wastewater, and Mosquito Control). Internal service funds are used to accumulate and allocate costs internally among the City's various functions.

The City uses internal service funds to account for its Utility Billing, Utility Administration, Utility Operations, and postage services. These services have been included within the government-wide financial statements as business type activities.

Proprietary funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Proprietary fund statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund 7

CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 L

financial statements provide separate information for the Public Utility System. The internal service fund L

is also presented in the proprietary fund financial statements. The basic proprietary fund financial statements can be found on pages 28 through 33.

L Fiduciary Funds L

Fiduciary funds are used to account for resources held for the benefit of parties outside the government.

Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City's own programs. The accounting used for fiduciary funds is similar to proprietary funds.

The basic fiduciary fund financial statements can be found on page 34 of this report.

Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 35 through 52 of this report.

L Other Information L

The combining statements referred to earlier present a more detailed view of the nonmajor governmental funds. Also included are statements for the pension trust funds. Combining statements can be found on pages 58 through 68 of this report.

Infrastructure Assets L

Fiscal year ended September 30, 2005 has been the third full year since the City implemented all portions of GASB Statement No. 34. Historically, a government's largest group of assets (infrastructure, roads, bridges, traffic signals, underground pipes not associated with a utility) have not been reported nor L

depreciated in the governmental financial statements. The new standard requires that these assets be valued and reported within the governmental activities column of the government-wide statements.

The City is now depreciating its infrastructure assets in conformity with GASB Statement No. 34.

Government-Wide FinancialAnalysis L

Net assets may serve over time as a useful indicator of a government's financial position. In the case of the City, assets exceeded liabilities by $11.3 million at the close of the fiscal year ended September 30, L

2005.

At the end of fiscal year 2005, the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities.

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 A portion of the City's net assets, $1,121,662, represents resources that are subject to external restriction on how they may be used. The balance of unrestricted net assets $8,183,643, may be used to meet the government's ongoing obligations to citizens and creditors.

The second largest portion of the City's net assets ($2,048,944 or 18%) reflects its investment in capital assets (e.g., land, infrastructure, buildings and equipment) less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

Net Assets As of September 30, 2004 and 2005 Current and other assets Capital Assets 1W Total Assets Long-term liabilities outstanding kw Other liabilities Total Liabilities Net Assets Invested in capital assets, net of related debt L Restricted Unrestricted Total Net Assets Governmental Activities 2004 2005

$1,803,617

$2,611,102 4,158,076 4,311,713

$5,961,693

$6,922,815

$3,543,712

$3,667,926 288,628 879,751

$3,832,340

$4,547,677

$1,026,647 1,006,106 51,490 175,489 1,051,216 1,193,543

$2,129,353

$2,375,138 Business-type Activities 2004 2005

$9,419,547

$10,916,115 12,853,141 11,719,927

$22,272,688

$22,636,042

$11,614,912

$11,135,739 1,441,524 2,521,192

$13,056,436

$13,656,931

$1,641,488 1,042,838 918,000 946,173 6,656,764 6,990,100

$9,216,252

$8,979,111 Total 2004 2005

$11,223,164

$13,527,217 17,011,217 16,031,640

$28,234,381

$29,558,857

$15,158,624

$14,803,665 1,730,152 3,400,943

$16,888,776

$18,204,608

$2,668,135 2,048,944 969,490 1,121,662

$7,707,980 8,183,643

$11,345,605

$11,354,249

-- Total%

I Change 2004-2005 20.5%

-5.8%

4.7%

-2.3%

96.6%

7.8%

-23.2%

15.7%

6.2%

0.1%

For more detailed information see the Statement of Net Assets on page 21.

Normal Impacts There are six (6) basic normal transactions that will affect the comparability of the Statement of Net Assets summary presentation.

• Net Results of Activities: which will impact (increase/decrease) current assets and unrestricted net assets.

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Borrowing of Capital: which will increase current assets and long-term debt.

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• Spending Borrowed Proceeds on New Capital: which will reduce current assets and increase capital assets. There is a second impact, an increase in invested in capital assets, and an increase in related net debt, will not change the invested in capital assets, net of debt.

• Spending of Non-Borrowed Current Assets on New Capital: which will reduce current assets, L

increase capital assets, reduce unrestricted net assets, and increase invested in capital assets, net of debt.

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• Principal Payment on Debt: which will reduce current assets and reduce long-term debt, reduce unrestricted net assets, and increase invested in capital assets, net of debt.

• Reduction of Capital Assets through Depreciation:

which will reduce capital assets and invested in capital assets, net of debt.

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 City of Alachua Changes in Net Assets Governmental Activities Business-type Activities 2004 2005 2004 2005 Revenues:

'3rograrn Revenues:

Charges for Services Operating Grants and Contributions Capital grants and Contributions 3eneral Revenues:

Property Tax Other Tax Franchise Tax 6i Utility Tax Intergovernmental Other Total Revenues Expenses:

6 General Government Public Safety Parks and Recreation Transportation 6

Physical Environment Economic Environment Electric, Water, and Sewer L

Interest on long-term debt Total Expenses L

Increase (decrease) in net assets before transfers Transfers L

Increase (decrease) in net assets Net assets - beginning (restated)

Net assets - ending

$1,000,349 58,699 887,298

$1,124,128 1,388,772 231,662

$10,475,296

$12,244,591 2,172,994 348,775 173,241 543,939 632,298 2,389,945 361,772 226,439 643,971 615,007 79,821 313,523 70,531

$253,111.00

$5,897,414

$7,295,219

$10,545,827

$12,497,702

$1,977,611

$2,193,976 2,227,148 3,202,102 494,500 564,972 644,394 772,815 629,191 1,004,761 699,843 82,049 9,249,502 11,742,368 246,730 197,744

$6,919,417

$8,018,419

$9,249,502

$11,742,368

($1,022,003)

($723,200)

$1,296,325

$755,334 955,329 992,475 (955,329)

(992,475)

($66,674)

$269,275

$340,996

($237,141)

$2,196,027

$2,105,863

$8,875,256

$9,216,252

$2,129,353

$2,375,138

$9,216,252

$8,979,111 Totals 2004 2005

$11,475,645

$13,368,719 58,699 1,388,772 887,298 231,662 2,172,994 2,389,945 348,775 361,772 173,241 226,439 543,939 643,971 632,298 615,007 150,352 566,634

$16,443,241

$19,792,921

$1,977,611

$2,193,976 2,227,148 3,202,102 494,500 564,972 644,394 772,815 629,191 1,004,761 699,843 82,049 9,249,502 11,742,368 246,730 197,744

$16,168,919 $

19,760,787

$274,322

$32,134 0

0

$274,322

$32,134

$11,071,283

$11,322,115

$11,345,605

$11,354,249 Totals %

change 2004-2005 16.50%

2265.92%

-73.89%

9.98%

3.73%

30.71%

18.39%

-2.73%

276.87%/

20.37%

10.94%

43.78%

14.25%

19.93%

59.69%

-88.28%

26.95%

-19.85%

22.21%

-88.290/%

0.000/0

-88.29%

2.27%

0.1%

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Governmental Activities The City's total net assets increased $32,134 over the previous year with an increase of $269,275 resulting from governmental activities and a decrease of $237,141 resulting from business-type activities.

Major changes in revenues were caused by the following:

Capital Grants and Contributions decreased by 74%. In fiscal year ending September 30, 2004 considerably more grants and private contributions had been awarded to renovate City parks, renovate sub-standard housing, and to finance infrastructure for economic development activities.

• Operating Grants and Contributions increased by 1809%. In fiscal year ending September 30, 2005, the City was awarded several large grants (FEMA and NRCS) related to hurricane recovery.

Major changes in expenses were caused by the following:

I Public Safety expenses increased by 43%. This increase is due to expenses related to hurricane recovery effort and additional costs related to traffic enforcement.

I Physical Environment increased by 59%. This increase is due to expenses related to the rehabilitation of watershed areas damaged by the 2004 hurricanes.

Expenses and Program Revenues - Governmental Activities

$3,500,000

$3,000,000 v

$2,500,000

$2,000,000 si oovooo I

_lH

$1,000,000 Reenues (excluding tax

$50000 sup Ex Olt)r

$00 aQ E

da a a ie e

o O E o3 v

Programs 12

CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Revenue by Source - Govenunental Activities Operating Grants &

Contributions 17%

Unrestricted Investment Earnings 1%

Transfers

/

12%

Miscellaneous /

3%

Charges for Services 14%

Capital Grants &

A-Contributions 3%

h Taxes 43%

, Taxes 0 Intergovernmental o Charges for Services o Miscellaneous a Transfers a Unrestricted Investment Earnings a Operating Grants & Contributions l Capital Grants & Contributions V Intergovernmental 7%

Business-Type Activities Business-type activities decreased the City's net assets by $237,141. A key element for this decrease was due to an increase in the expenditures incurred in the Electric, Water, Wastewater, and Mosquito Control utilities brought about by increased cost of wholesale electricity, the replacement of multiple aging vehicles and equipment, and the funding of renewal and replacement projects in accordance with the City's Capital Improvement Program.

The Electric Utility of the City operates at 7.2/12.47kV. The City purchases power from Gainesville Regional Utilities (GRU) at two different locations. The majority of the customers are supplied from the Alachua No.1 Substation, which is connected to GRU's 138 kV transmission system. The second point of services, identified as the Hague Point of Service, exists as a distribution source supplied by GRU.

The Water Utility obtains its water supply from the upper portion of the Florida Aquifer. Three wells with depths of approximately 365 feet withdraw water from the Ocala limestone and discharge it into the City's distribution system. The quality of the City's water supply is such that chlorination and fluoridation are the only treatments, which the water requires prior to distribution.

The system's wells range in age from 15 to 38 years old.

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I CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 I

Wastewater generated through the utility is collected through a gravity sewer system and pumped to the City's wastewater treatment plant. The collected wastewater is treated in an activated sludge treatment facility, which has a current capacity of 600,000 gallons per day. The effluent from the treatment facility is chlorinated and disposed of by spray irrigation.

I I-Expenses and Program Revenues - Business-Type Activities

$12,000,000

$10,000,000 I

I WI 0

$8,000,000

$6,000,000

$4,000,000

• Revenues I

• Expenditures I

$2,000,000

$0 I

Electric Water Wastewater Mosquito Control Programs I

Program Revenue by Source - Business-Type Activities I

Unrestri I

Capital Grants &

t ne Contributions

,amnings 0

1%

0%

Miscellaneous

/

I I

Charges for Services

• Miscellaneous o Unrestricted Investment Earnings o Capital Grants & Contributions I

Charges for Services 98%

I I

Fund Financial Analysis The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

I 14 I

coQ?>I

CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Governmental Funds The primary purpose of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources, available for spending, at the end of the fiscal year.

CITY OF ALACHUA RESERVED AND UNRESERVED FUND BALANCE FOR GOVERNMENTAL FUNDS Total %

9/30/2004 9130/2005 Change Total fund balance

$1,493,457

$1,731,351 15.93%

Less reserved find balance:

Debt Service

$48,039

$144,995 201.83%

Other Purposes

$3,451

$175,489 4985.16%

Unreserved fund balance

$1,441,967

$1,410,867

-2.16%

As of the end of fiscal year 2005, the City's governmental funds reported combined ending fund balances of $1.73 million, an increase of $237,894 in comparison with the prior year. Of the approximately $1.73 million total fund balance, unreservedfind balance is $1.41 million and is available for spending (depending on fund restrictions) at the City's discretion.

Major Funds The General Fund is the only major governmental fund.

The General Fund is the chief operating fund of the City. The General Fund had an increase in fund balance of $274,715. The total fund balance was $1,343,868 of which $1,337,690 was unreserved. The cash balance at the end of the year was $827,270. As a measure of the General Fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund revenues.

Unreserved fund balance represents 24% of total General Fund operating revenue, while total fund balance also represents 24% of that same amount. The Government Finance Officers Association's Best Practices guidelines calls for an unreserved fund balance level of 5%-15% of General Fund operating revenues.

Proprietary Funds The City's business-type activities in the proprietary fund statements provide the same type of information found in the government-wide financial statements, but in more detail. The Electric, Water, and Wastewater Funds, are reported as major funds.

15

CITY OF ALACHUA, FLORIDA L

MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 L

The various utility system funds are used to account for the operations of the City's electric, water, L

wastewater, and mosquito control utilities. Each utility operates like a business, where the rates established by the City generally generate sufficient funds to pay the costs of current operations and provide for long-term asset acquisitions. Total assets as of September 30 were $22.5 million, total liabilities were $13.6 million, and net assets were $8.9 million.

General Fund Budgetary Highlights with Variances L

The differences between the General Fund's original budget balances and final amended budget balances was an increase of $287,070 and was caused by the below listed amendments:

L Revenues:

• $45,434 - Increase in Charges for Services due to receipt of additional planning and zoning fees due to increased development in the City, receipt of additional recreation fees due to an increase in the number of children participating in the Summer Recreation program, and receipt of revenues related to City special events (i.e. July 4th celebration).

• $241,636 - Increase in Miscellaneous Revenues due to receipt of refund from the City's former retirement fund administrator when the City rejoined the Florida Retirement System, private L

donations, and COBRA reimbursements.

Expenditures:

L

$271,755 - Increase in General Government activities for expenditures related to the July 4th celebration, legal advertising for the Planning division, commissioner salary increases, and L

increasing the General Fund contingency account.

$15,315 - Increase in Culture and Recreation activities related to additional cost associated L

with bathroom renovations at the recreation center.

General Fund Actual Results Highlights with Variances L

At September 30, 2005, the City's General Fund experienced a positive variance between its final operating revenue budget and actual operating revenue in the amount of $187,125. This was due to the following:

L Additional franchise fees and utility taxes collected due to increased electric and water consumption by utility customers, as well as an increase in the City's utility customer base.

L Additional State Revenue Sharing and Half-Cent Sales Tax receipts due to an increase in the City's population.

Additional Planning and Zoning fees collected due to the increase in the number of development applications received for new subdivisions.

L L

16 L

CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 The City's General Fund experienced a positive variance between its final operating expenditure budget and actual operating expenditures in the amount of $893,249. This was due to the following:

• The positive variance in General Government activities is due to unspent contingency funds, and various vacancies in Planning, Code Enforcement, and Information Technology areas.

• The positive variance in Physical Environment activities is due to lower garbage collection rates from the City's new garbage hauler.

• The positive variance in Capital Outlay activities is due to the delay in start of several drainage projects to next fiscal year.

Capital Asset and Debt Administration The City's capital assets for its governmental and business-type activities as of September 30, 2005 totals

$16.0 million (net of accumulated depreciation) and includes land, buildings, improvements other than buildings, equipment, infrastructure, and construction in progress.

Major capital asset events during the current fiscal year include the purchase of machinery and equipment (vehicles, PCs, transformers, etc.) and construction planning expenses (wastewater treatment expansion).

Additional information on the City's capital assets can be found in Note G beginning on page 43 of this report.

Long-Term Debt At the end of fiscal year 2005, the City had total long-term debt outstanding of $15.0 million. The City's debt represents bonds or notes secured by specific revenue sources (i.e., revenue bonds/notes).

CITY OF ALACHUA OUTSTANDING DEBT GENERAL OBLIGATION, REVENUE BONDS/NOTES, AND LOANS Total %

2004 2005 Change Revenue Bonds

$12,874,000

$12,218,000

-5.10%

Revenue Notes

$475,775

$412,083

-13.39%

Loans

$2,167,657 S2,393,825 10.43%

$15,517,432

$15,023,908 TOTAL

-3.18%

The City's outstanding debt decreased by $493,524 during fiscal year 2005. This decrease was due to scheduled principal and interest payments. Additional information on the City's debt can be found in Note H beginning on page 44 of this report.

17

CITY OF ALACHUA, FLORIDA L

MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 L

Economic Factors and Next Year's Budgets and Rates

• The unemployment rate for the Gainesville MSA that includes the City of Alachua at U

September 30, 2005, was 2.7%, same as the previous fiscal year.

• The citywide taxable value of property increased to $493 million, representing a growth of L

13%.

• Population increased approximately 4.8% from the prior year to an estimate of 7,020 at L

September 30, 2005.

During the current fiscal year, unreserved fund balance in the General Fund increased to $1.3 million U

from $1.2 million. The ad valorem tax rate for the General Fund was the same as the 2005 fiscal year budget and is 5.700 Mills.

U Requests for Information This financial report is designed to present users with a general overview of the City's finances and to L

demonstrate the City's accountability. If you have questions concerning any of the information provided in this report or need additional financial information, contact the Finance Department, P.O. Box 9, Alachua, Florida 32615. Additional information can be found on our website at www.citvofalachua.com.

L LL L

L 18 L

BASIC FINANCIAL STATEMENTS 19

L

~I U L

L This page was intentionally left blank L

L C

20 L

CITY OF ALACHUA, FLORIDA STATEMENT OF NET ASSETS September 30, 2005 Primary Government Governmental Business-Type Activities Activities ASSETS Current assets:

Cash and cash equivalents Accounts receivable, net of allowance Internal balances Due from other governments Restricted assets:

Cash and cash equivalents Investments Inventories Prepaid expenses Deferred charges Bond issue cost Capital assets:

Land Buildings Improvements other than buildings Machinery and equipment Construction in progress Infrastructure Accumulated depreciation

$ 1,348,846 232,714

( 156,028) 918,774 5,918,373 1,728,339 156,028 177,928 2,094,590 359,303 263,556 88,868 1,695 246,966 147,265 226,980 2,228,697 1,481,347 6,943,544 1,217,765 2,284,929 1,502,270 11,433,556 478,631 176,086 4,954,246 (5,549,526)

( 11,346,885)

Total 7,267,219 1,961,053 918,774 2,272,518 359,303 263,556 90,563 246,966 147,265 2,455,677 8,424,891 3,502,694 12,935,826 654,717 4,954,246 (16,896,411)

Total assets

$ 6,922,815 22,636,042 29,558,857 LIABILITIES Current liabilities:

Account payable and accrued expenses Accrued interest payable Deferred revenue Current liabilities payable from restricted assets:

Accounts payable Deferred revenue Customer deposits Noncurrent liabilities payable from restricted assets:

Deferred credit - CR-3 decommissioning costs Other noncurrent liabilities:

Due within one year Due in more than one year Total liabilities 807,075 42,299 27,938 2,439 3,667,926 4,547,677 1,116,280 256,495 700,000 448,417 359,303 640,000 10,136,436 13,656,931 1,923,355 298,794 27,938 2,439 700,000 448,417 359,303 640,000 13,804,362 18,204,608 NET ASSETS Invested in capital assets, net of related debt Restricted for.

Debt service Capital projects Other purposes Unrestricted Total net assets 1,006,106 1,042,838 2,048,944 169,311 6,178 1,193,543 2,375,138 930,495 15,678 6,990,100 8,979,111 930,495 169,311 21,856 8,183,643 11,354,249 Total liabilities and net assets

$ 6,922,815 22,636,042 29,558,857 The notes to financial statements are an integral part of this statement 21

I 1

l, CITY OF ALACHUA, FLORIDA STATEMENT OF ACTIVITIES For the Year Ended September 30, 2005 L

L Program Revenues Operating Charges for Grants and Services Contributions Capital L

Grants and Capital Functions/Programs Expenses Governmental activities:

General government Public safety Physical environment Transportation Economic environment Parks and recreation Interest on long-term debt Total governmental activities 2,193,976 3,202,102 1,004,761 772,815 82,049 564,972 197,744 8,018,419 394,028 126,464 540,857 62,779 806,910 550,135 8,455 23,272 L

L I'

211,117 20,545 231,662 1,124,128 1,388,772 Business-type activities:

Electric Water and sewer Mosquito control Total business-type activities Total L

8,946,756 2,771,163 24,449 11,742,368

$ 19,760,787 10,105,732-2,097,604 41,255 12,244,591 13,368,719 1,388,772 231,662 L

L General revenues:

Ad valorem taxes Local option gas tax Franchise fee taxes Utility service taxes Communication service taxes State shared revenues Unrestricted investment earnings Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets - beginning of year (restated)

Net assets - end of year L

L L

L L

L L

The notes to financial statements are an integral part of this statement 22 L

Net (Expense) Revenue and Changes in Net Assets.

Primary Government Governmental Business-Type Activities Activities Total

( 1,799,948)

( 1,799,948)

( 2,268,728)

( 2,268,728) 86,231 86,231

(

764,360)

(

764,360) 129,068 129,068

(

458,376)

(

458,376) 197,744)

(

197,744)

( 5,273,857)

( 5,273,857) 1,158,976 1,158,976

(

673,559)

(

673,559) 16,806 16,806 502,223 502,223

( 5,273,857) 502,223

(

4,771,634) 2,389,945 140,829 226,439 643,971 220,943 615,007 61,391 252,132 992,475 5,543,132 269,275 2,105,863 2,375,138 89,647

- 163,464

(

992,475)

(

739,364)

(

237,141) 9,216,252 8,979,111 2,389,945 140,829 226,439 643,971 220,943 615,007 151,038 415,596 4,803,768 32,134 11,322,115 11,354,249 23

L CITY OF ALACHUA, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2005 L

General Fund Nomnajor Total L

Governmental Govermmental Funds Funds I l ASSETS Cash and cash equivalents Accounts receivable Due from other funds Due from other governments Prepaids Restricted assets - cash and cash equivalents 827,270 87,527 645,142 78,837 88,373 6,178 521,576 1,348,846 145,187 232,714 645,142 839,937 918,774 495 88,868 171,750 177,928 L

L TOTAL ASSETS 1,733,327 1,678,945 3,412,272 L

LIABILITIES AND FUND BALANCES L

Liabilities:

Accounts payable Accrued expenses Interest payable Deferred revenue Due to other funds Payable from restricted assets:

Accounts payable 159,014 35,565 27,938 166,942 568,121 44,375 42,299 634,228 727,135 79,940 42,299 27,938 801,170 L

L 2,439 2,439 389,459 1,291,462 1,680,921 L

Total liabilities L

Fund balances:

Reserved for:

Debt service Capital projects Other purposes Unreserved, undesignated General fund Special revenue funds Capital projects funds Total fund balances 144,995 169,311 144,995 169,311 6,178 6,178 L

L 1,337,690 1,337,690 212,809 212,809

(

139,632) (

139,632) 1,343,868 387,483 1,731,351 L

TOTAL LIABILITIES AND FUND BALANCES 1,733,327 1,678,945 3,412,272 L

L L

The notes to financial statements are an integral part of this statement 24 L

CITY OF ALACHUA, FLORIDA RECONCILIATION OF THE BALANCE SHEET FOR GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS September 30, 2005 Fund balance - total governmental funds 1,731,351 Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds.

Capital assets Less: accumulated depreciation 9,861,239 (5,549,526) 4,311,713 Noncurrent liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds.

1993 City of Arcadia Revenue Bonds 1995 First National Bank Note 2000 Sales Tax Revenue Note 2000 Tax Increment Road Improvement Note 2001A Section 108 Loan 2004 Caterpillar Loan 2005 Walmart Bridge Loan Compensated absences (725,000)

(163,604)

(45,259)

(203,220)

(2,010,000)

(30,202)

(297,633)

(193,008)

(3,667,926)

Net assets of governmental activities 2,375,138 The notes to financial statements are an integral part of this statement 25

IU CITY OF ALACHUA, FLORIDA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For The Year Ended September 30, 2005 1

L General Fund Nonmajor Governmental Funds Total Governmental Funds L

Revenues Taxes Licenses and permits Intergovernmental revenues Charges for services Fines and forfeitures Interest Miscellaneous S 3,622,127 303,955 623,461 702,875 126,064 57,150 239,526 1,415,171 4,241 168,538 3,622,127 303,955 2,038,632 702,875 126,064 61,391 408,064 L

L L

Total revenues 5,675,158 1,587,950 7,263,108 Expenditures Current General government Public safety Physical environment Transportation Economic environment Parks and recreation Debt service Principal Interest and fiscal charges Capital outlay i i

.2,122,279 2,212,752-429,025 494,320 440,902

-2,198 780,725 566,067 78,459 73,602 2,124,477 2,993,477 995,092 494,320 78,459 514,504 L

L 11,763 874 263,001 178,692 196,870 440,302 2,316,915

(

728,965) 190,455 197,744 703,303 8,291,831

(

1,028,723)

L Total expenditures 5,974,916 Deficiency of revenues under expenditures

(

299,758)

L Other financing sources (uses)

Proceeds from note Transfers in Transfers out 297,633 925,000 418,002

(

350,527) 297,633 L

1,343,002

(

350,527)

L 1,290,108 Total other financing sources (uses) 574,473 715,635 Net change in fund balances 274,715

(

13,330) 261,385 L

Fund balances - beginning of the year (restated) 1,069,153 400,813 387,483 1,469,966 1,731,351 L

Fund balances - end of the year S

1,343,868 L

L The notes to financial statements are an integral part of this statement 26

CITY OF ALACHUA, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For The Year Ended September 30, 2005 Net change in fund balances - total governmental funds 261,385 Amounts reported in the statement of activities are difference because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense in the current period.

Capital outlay expenditures Less: current year depreciation 703,303 (581,778) 121,525 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds.

Debt proceeds provide current financial resources to governmental funds, but issuing debt increases noncurrent liabilities in the statement of net assets.

Repayment of principal is an expenditure in the governmental funds, but the repayment reduces noncurrent liabilities in the statement of net assets.

This is the amount by which proceeds exceeded repayments.

32,111 Proceeds from Walmart Bridge Loan Principal payments on:

1993 City of Arcadia Bonds 1995 First National Bank Note 2000 Sales Tax Revenue Note 2000 Tax Increment Road Improvement Note 2001A Section 108 Loan 2004 Caterpillar Loan (297,633) 50,000 28,466 8,418 26,808 65,000 11,763 (107,178)

Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.

Change in compensated absences (38,568)

Change in net assets of governmental activities 269,275 The notes to financial statements are an integral part of this statement 27

L CITY OF ALACHUA, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS September 30, 2005 L

L Business-Type Activities-Enterprise Funds Nonmajor Business-Type Major Funds Fund Total Activities Electric Water Wastewater Mosquito Enterprise Internal Fund Fund Fund Control Fund Funds Service Fund L

L ASSETS Current assets:

Cash and cash equivalents Receivables Prepaids Due from other funds Due from other governments Inventories Deferred charges S

4,401,620 454,041 901,027 1,527,842 73,176 125,090 1,695 463 166,942 52,516 5,809,204 2,231 1,728,339 1,695 15,051 182,456 263,556 109,169 L

L 227,859 34,538 1,159 246,966 246,966 Total current assets 6,405,982 562,218 1,194,218 69,798 8,232,216 109,169 L

Noncurrent assets:

Restricted assets:

Cash and cash equivalents Investments 981,075 124,635 988,880 2,094,590 L

359,303 359,303 Total restricted assets 1,340,378 124,635 988,880 2,453,893 L

Capital assets:

Property, plant and equipment Construction in progress Less accumulated depreciation 8,360,180 5,225,975 9,245,901 7,200 22,839,256 51,470 88,602 87,484 176,086

( 4,566,165)

( 2,878,508)

( 3,868,918)

(

3,096) (11,316,687)

(

30,198)

L Net capital assets 3,882,617 2,347,467 5,464,467 4,104 11,698,655 21,272 L

Other assets:

Bond issue costs 101,272 7,336 38,657 147,265 L

TOTAL L

ASSETS S 11,730,249 3,041,656 7,686,222 73,902 22,532,029 130,441L L

L The notes to financial statements are an integral part of this statement.

28 L

CITY OF ALACHUA, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS September 30, 2004 Business-Type Activities-Enterprise Funds Nonmajor Business-Type Major Funds Fund Total Activities Electric Water Wastewater Mosquito Enterprise Internal Fund Fund Fund Control Fund Funds Service Fund LLABILTIES AND NET ASSETS Current liabilities:

Accounts payable Accrued expenses Due to other funds Accrued interest Payable from restricted assets:

Deferred revenue Customer deposits Current portion of long-term debt S

977,351 64,140 9,281 139,654 10,179 1,702 46,682 54,395 2,183 394 70,159 1,041,925 47 66,370 11,377 256,495 1,671 6,314 15,051 700,000 341,188 54,792 52,437 323,492 59,131 257,377 700,000 448,417 640,000 Total current liabilities 1,855,106 172,486 1,136,945 47 3,164,584 23,036 Other noncurrent liabilities:

Payable from restricted assets:

Deferred credit - CR-3 decommissioning cost Compensated absences Long-term debt t

359,303 31,631 11,967 20,054 5,977,343 1,158,990 2,900,756 359,303 63,652 35,695 10,037,089 Total noncurrent liabilities TOTAL LIABILITIES 6,368,277 1,170,957 2,920,810 10,460,044 35,695 8,223,383 1,343,443 4,057,755 47 13,624,628 58,731 Net assets:

Investment in capital assets, net of related debt Restricted for Debt service Other purpose Unrestricted

( 2,418,218) 1,129,346 2,306,334 4,104 1,021,566 21,272 639,887 69,843 220,765 15,678 5,285,197 499,024 1,085,690 69,751 930,495 15,678 6,939,662 50,438 Total net assets 3,506,866 1,698,213 3,628,467 73,855 8,907,401 71,710 TOTAL LIABILITIES AND NET ASSETS S 11,730,249 3,041,656 7,686,222 73,902 22,532,029 130,441 29

L

~*..

L 1A 2 t L

L Thi pag wa ineninal lef blank L

Thisageasinentonalyletb L

• L 30 L

CITY OF ALACHUA, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS Year Ended September 30, 2005 Business-type Activities-Enterprise Funds Nonrmajor Business-type Major Funds Fund Total Activities Electric Water Wastewater Mosquito Enterprise Internal Fund Fund Fund Control Fund Funds Service Fund 10,105,732 811,921 1,285,683 41,255 12,244,591 550 648,033 10,105,732 811,921 1,285,683 41,255 12,244,591 648,583 Operating revenues:

Charges for services Interfund charges Total operating revenues Operating expenses:

Electric power expenses:

Nuclear power Purchased power Personal services Contractual services ij Supplies Repairs and maintenance Billing and administration Depreciation Other expense 151,137 6,718,176 388,107 56,430 44,975 73,346 324,017 646,336 220,317 230,618 228,496 11,247 44,700 52,038 36,802 64,147 11,069 45,748 68,980 1,084 162,008 162,008 411,034 735,400 720 94,975 161,953 329 151,137 6,718,176 858,468 503,349 153,168 42,101 156,993 76,342 189,158 2,378 648,033 1,793,490 9,253 477,574 25,878 Total operating expenses Operating income (loss) 8,622,841 1,025,885 1,473,022 24,449 11,146,197 659,301 1,482,891

(

213,964) (

187,339) 16,806 1,098,394

(

10,718) ii Nonoperating revenues (expenses):

Interest income I

Interest and fiscal charges I

Amortization of bond issue costs Miscellaneous 73,969

(

321,889) (

111,276)

(

6,751)

(

489) 100,980 20,163 15,678

(

162,638)

(

2,577) 42,321 89,647

(

595,803)

(

9,817) 163,464 20,167 Total nonoperating revenues (expenses)

Income (loss) before transfers Transfers in Transfers out 153,6911 (

91,602) (

107,216)

(

352,509) 20,167 1,329,200

(

305,566) (

294,555) 16,806 745,885 9,449 14,000

( 925,000)

(

67,475)

(

14,000)

(

1,006,475)

Net income (loss) 404,200

(

305,566) (

362,030) 2,806

(

260,590) 23,449 Total net assets -beginning of year Total net assets - end of year 3,102,666 2,003,779 3,990,497 71,049 9,167,991 48,261 3,506,866 1,698,213 3,628,467 73,855 8,907,401 71,710 The notes to financial statements are an integral part of this statement.

31

L CITY OF ALACHUA, FLORIDA STATEMENT OF CASH FLOWS ENTERPRISE FUND For The Year Ended September 30, 2005 L

Business-Type Activities-Enterprise Funds Nonmajor Business-Type Major Funds Fund Total Activities Electric Water Wastewater Mosquito Enterprise Internal Fund Fund Fund Control Fund Funds Service Fund L

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers for goods and services Payments to employees for services Payments to other funds - internal activity Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Miscellaneous Transfers in Transfers out Net cash provided (used) by noncapital financing activities S

9,650,188 811,531 1,286,580

(

6,886,570) (

305,273) (

424,960)

(

394,879) (

230,660) (

224,066)

(

324,017) (

162,008) (

162,008) 2,044,722 113,590 475,546 100,980 20,163 42,321 41,276 11,789,575 648,583

(

12,435) (

7,629,238) (

151,638) 11,247) (

860,852) (

483,769)

(

648,033) 17,594 2,651,452 13,176 I

L L

163,464 20,167 14,000

(

925,000)

(

67,475)

(

14,000) (

1,006,475)

(

824,020) 20,163

(

25,154)

(

14,000) (

843,011) 34,167 L

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVIES Acquisition and construction of fixed assets Proceeds from loan Capital contribution Bond and loan principal payments Bond and loan interest payments Net cash provided (used) by capital and related financing activities

(

398,832) (

122,969) (

137,316) 5,298 700,000

(

307,188)

(

57,131) (

241,681)

(

296,961)

(

94,421) (

155,337)

(

1,002,981)

(

274,521) 170,964

(

659,117)

(

5,298 10,4112)

[

IL' 700,000

(

606,000)

(

546,719)

(

1,106,538) (

10,412) aw L

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of pooled investments Interest on pooled cash and investments Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents 39,599) 73,969 15,678 34,370 15,678

(

39,599) 89,647 50,048 252,091

(

140,768) 637,034 3,594 751,951 36,931 C

Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 5,130,604 719,444 1,252,873 48,922 7,151,843 72,238 S

5,382,695 578,676 1,889,907 52,516 7,903,794 109,169 L

Detail of cash at end of year.

Cash and cash equivalents - current Cash and cash equivalents - restricted S

4,401,620 454,041 901,027 981,075 124,635 988,880 S

5,382,695 578,676 1,889,907 52,516 52.516 5,809,204 2,094,590 7.903.794 109,169 109.169 L

L L

U The notes to ftands! statenents are an integral par of tis tatmn 32 L

CITY OF ALACHUA, FLORIDA STATEMENT OF CASH FLOWS ENTERPRISE FUND (CONTINUED)

For The Year Ended September 30, 2005 Business-Type Activities-Enterprise Funds Nonmajor Business-Type Major Funds Electric Water Wastewater Fund Fund Fund Fund Total Activities Mosquito Enterprise Internal Control Fund Funds Service Fund RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss)

Adjustments to reconcile operating income (loss) to net cash provided by operating activities:

L Depreciation expense (Increase) decrease in accounts receivable (Increase) decrease in due from other funds (Increase) decrease in inventories and other current assets (Increase) decrease in deferred costs Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in due to other funds Increase (decrease) in deferred revenue L

Increase (decrease) in customer deposits Increase (decrease) in accrued compensated absences S

1,482,891

(

213,964) (

187,339) 646,336 411,034 735,400 274,532) (

10,176) (

8,911) 16,449 13,428) (

15,281) (

1,159) 248,370) 413,596

(

55,148) (

4,187) 22,357) (

29,068) (

72,496) 39,599 27,759 9,786 9,808 6,772) (

42) 4,430 16,806 1,098,394

(

10,718) 720 1,793,490 9,253 21

(

293,598) 16,449

(

29,868)

(

248,370) 47 354,308

(

4,939)

(

123,921) 39,599 47,353 2,384).

19,580 S

2,044,722 113,590 475,546 17,594 2,651,452 13,176 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Amortization of Bond Costs Amortization of Discount Amortization of Loss on Refunding S

6,751 489 2,577 3,714 269 1,418 29,547 6,434 24,756 9,817 5,401 60,737 S

40,012 7,192 28,751 75,955 33

CITY OF ALACHUA, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS For The Year Ended September 30, 2005 Pension Trust Funds L

L Additions:

Contributions:

Employer Plan members Total contributions Investment earnings:

Total additions Deductions:

Distributions Administrative fees Total deductions Change in net assets Net assets held in trust for pension benefits:

Net assets - beginning of the year Net assets - end of the year 20,806 457 21,263 3,861 25,124 L

1,294,036 3,264 1,297,300 (1,272,176) 1,272,176 L

L The notes to financial statements are an integral part of this statement.

34

1f CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS NOTE A -

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Alachua, Florida (City) have been prepared in conformity with accounting principles generally accepted (GAAP) in the United States of America as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles.

1. The Financial Reporting Entity The City is a political subdivision of the state of Florida, established in 1908 under the legal authority of Chapter 165, Florida Statutues, and is located in Alachua County. The legislative branch of the City is composed of a five-member elected commission. The City Commission is governed by the City Charter and by state and local laws L

and regulations. The City Commission is responsible for the establishment and adoption of policy. The execution of such policy is the responsibility of the City Manager, who is appointed by the Commission.

L The City's major operations include various utility services - electric, water, and wastewater as well as police protection, road and street maintenance, parks, recreation, and other general government services. The City contracts with Alachua County for the provision of fire service at a fixed cost to the City which is renegotiated annually. The City leases the fire station and equipment to Alachua County at no cost. Sanitation services are provided by a private company, but billed by the City to its customers. The City retains an administrative fee on sanitation services.

L In accordance with the Codification of Governmental Accounting and Financial Reporting Standards, the accompanying financial statements include all funds for which the City is financially accountable. The City has also considered all other potential organizations for which the nature and significance of their relationships with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete.

GASB has set forth criteria to be considered in determining financial accountability. These criteria include appointing a majority of an organization's governing body and (1) the ability of the City to impose its will on that organization or (2) the potential for that organization to provide specific benefits to or impose specific financial burdens on the City. Other considerations are whether the organization is legally separate, whether the City holds the corporate powers of the organization, and whether there is fiscal dependency by the organization on the City.

Community Redevelopment Agencv The Community Redevelopment Agency (the Agency) was created by the City Commission in 1982. In evaluating this potential component unit, it was determined that the Agency is not a separate legal entity as it generally cannot transact business in its own name and, therefore, should be included as part of the primary government for reporting purposes. The Agency is blended in the basic financial statements of the City as a i

nonmajor governmental fund.

L Public Finance Authority For Affordable Housing The Public Finance Authority For Affordable Housing (the Authority) was created by the City Commission in 1992. The Authority is a separate legal entity capable of suing and being sued, and able to purchase property in its L

own name. By charter, the Authority's Board is composed of the City Commission and the City Commission has oversight over all financial activities. Accordingly, the Authority is a component unit of the City. However, there have been no financial transactions by the Authority during 2005, or since its creation; therefore, no amounts L

related to the Authority are reported in the accompanying basic financial statements.

(Continued) 35

CITY OF ALACHUA, FLORIDA L

NOTES TO FINANCIAL STATEMENTS

2. Government-Wide and Fund Financial Statements L

The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all the nonfiduciary activities of the City. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or L

segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and L

other items not properly included among program revenues are reported instead as general revenues.

Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are L

excluded from the government-wide financial statements. Major individual governmental funds and the major individual enterprise fund are reported as separate columns in the fund financial statements.

3. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are L

recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.

L Governmental fund financial statements are reported using the currentfinancial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers property tax revenues and all other governmental fund revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.

However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

In applying the susceptible to accrual concept to intergovernmental revenues, the legal and contractual requirements of the numerous individual programs are used as guidance. There are, however, essentially two types of these revenues. In one, such as in grants and similar items, monies must be expended on the specific purpose or project before any amounts will be paid to the City; therefore, revenues are recognized based upon the expenditures recorded and the availability criteria. In the other, monies are virtually unrestricted as to purpose of expenditure, and are usually revocable only for failure to comply with prescribed requirements. These resources are reflected as revenues at the time of receipt, or earlier if the susceptible to accrual criteria are met.

Licenses and permits, fines and forfeitures, charges for sales and services (other than utility), and miscellaneous revenues are generally recorded as revenue when received in cash, because they are generally not measurable L

until actually received. Utility services, investment earnings, franchise fees and utility taxes are recorded as earned, since they are measurable and available.

U Property taxes are recognized as revenue at the time an enforceable legal claim is established. This is determined to occur November 1 of each year. The assessment roll is validated July 1 and the millage resolution is approved (Continued) 36 6

iw CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS by September 30. The City's property tax becomes a lien on October 1 and the tax is levied by Alachua County each November 1 for real and personal property located in the City. Property taxes are due before April 1 with the maximum discount available if payment is made on or before November 30. If payment remains delinquent, a tax certificate for the full amount of any unpaid taxes is sold no later than June 1. Under this arrangement, there are no property tax receivables at the end of the fiscal year on September 30.

L; The government reports the following major governmental fund:

The general fund is the government's primary operating fund. It accounts for all financial resources of the L

general government, except those required to be accounted for in another fund.

The government reports the following major proprietary funds:

The electric fund accounts for the activities associated with the City's electric utility service.

The waterfund accounts for the activities associated with the City's water distribution system.

The wastewater fund accounts for the activities associated with the City's wastewater treatment plant, wastewater pumping stations, and collection system.

Additionally, the government reports the following fund types:

The internal servicefund accounts for the administrative services provided to the Electric Fund, Water Fund, and Wastewater Fund.

1 The two pension trust funds have been used to account for the activities of the City's police pension plan and general employees' plan. However, effective October 1, 2004, the City elected to reinstate their membership in the Florida Retirement System. As a result, all previous contributions made to the pension trust funds were A,

either refunded to the City or paid to the Florida Retirement System to purchase years of service for those employees previously enrolled in these plans. These fiduciary funds have been eliminated as of September 30, 2005.

Private-sector and financial reporting standards issued prior to December 1, 1989, are generally followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict LJ with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance.

L The effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.

Amounts reported as program revenues include (1) charges to customers or applicants for goods, services, or privileges provided, (2) operating grants and contributions, and (3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a (Continued) 37

CITY OF ALACHUA, FLORIDA L

NOTES TO FINANCIAL STATEMENTS proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are L

charges to customers for sales and services. The City's enterprise funds also recognize as operating revenues the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for the enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

4. Assets, Liabilities, and Net Assets or Equity a) Deposits and investments L

The City maintains a cash pool that is available for use by all funds. Each fund's portion of this pool is presented on the statement of net assets as "Cash and cash equivalents." Interest income earned as a result of pooling is distributed monthly to the appropriate funds based on average daily balances. In addition, L

cash and cash equivalents and investments are separately held by several of the City's funds.

The government's cash and cash equivalents are considered to be cash on hand, demand deposits, and L

highly liquid instruments with original maturities of three months or less from the date of acquisition.

Investments are held in the proprietary funds and consist of marketable securities reported at fair value.

Securities traded on a national or international exchange are valued at the last reported sales quote at current exchange rates. Investments that do not have an established market are reported at estimated fair value based on market indicators regarded as measures of equity or fixed income performance results.

Florida Statutes require state and local governmental units to deposit monies with financial institutions classified as "Qualified Public Depositories," a multiple financial institution pool whereby groups of securities pledged by the various financial institutions provide common collateral for their deposits of public funds. This pool is provided as additional insurance to the federal depository insurance and allows L

for additional assessments against the member institutions providing full insurance for public deposits.

The City had deposits only with qualifying institutions as of September 30, 2005, or with banks in which depository insurance was sufficient to cover the deposit balance.

b) Receivable and payables L

Outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances."

L All receivables are shown net of an allowance for uncollectibles.

c) Inventory Inventories relating to governmental activities are recorded as expenditures when purchased. For business-type activities, utility supplies and plant inventory are valued at cost as determined by the average unit cost method. The City's portion of nuclear fuel inventory at the CR-3 nuclear generating facility is recorded at amortized cost.

L d) Restricted assets Certain resources are set aside for debt reserves, customer deposits, power plant decommissioning costs, L

and other purposes. These resources are classified as restricted assets on the balance sheet because they L

(Continued) 38

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS are maintained in separate bank accounts and their use is limited by applicable bond covenants, ordinances, or regulations.

e) Capital assets Capital assets, which include property, plant, equipment, and infrastructure assets (i.e., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $500 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives:

Assets Years Buildings 15-40 Nuclear plant and equipment 28-37 Electric distribution plant 25-50 Water plant 10-33 Public domain infrastructure 15-50 Improvements 10-15 Equipment 5-10 f) Compensated absences Accumulated unpaid vacation time, compensatory time, and sick time amounts, including the related direct and incremental salary related payments, are accrued in the enterprise funds and appear as increases in salary expenses in the proprietary financial statements. In the governmental funds, these costs are recognized when payments are made to employees or when the costs mature as a result of employee resignation or retirement. All vacation, compensatory, and sick pay is accrued when incurred in the government-wide financial statements.

g) Long-term obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities and business-type activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount.

Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

(Continued) 39

CITY OF ALACHUA, FLORIDA L

NOTES TO FINANCIAL STATEMENTS h) Fund Equity/Net Assets In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.

Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by 'the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. Net assets invested in capital assets, net of related debt excludes unspent debt proceeds. Net assets are reported as restricted when there are limitations imposed L

on their use either through enabling legislation or through external restrictions imposed by creditors, grantors, laws, or regulations. All net assets not reported as net assets invested in capital assets, net of related debt and restricted net assets, are reported as unrestricted net assets.

When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed.

5. Accounting Estimates e

The preparation of-financial statements mn conformity with accounting principles generally accepted in the United States of America as applied to governmental units requires management to make estimates and assumptions 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 amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

L NOTE B - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY

1.

Budgetary Information L

The City's procedures in preparing and adopting the annual budget are as follows:

L The City Manager is responsible for preparing a proposed operating budget for the upcoming year prior to September 30 that includes estimated revenues, proposed expenditures, and other financing sources and uses.

• Public hearings are held to obtain taxpayer comments and suggestions. The budget is enacted through passage of a resolution, which sets spending limits by department.

• The City Manager is authorized to transfer budgeted amounts within any department in any fund, but may not revise total departmental expenditures without the approval of the City Commission.

• Budgets are adopted on a basis consistent with generally accepted accounting principles.

Appropriations lapse at the end of the year. Encumbrances are not recorded.

L L

L (Continued) 40 L

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS

2.

Deficit Fund Equity At September 30, 2005, the following funds had deficit balance fund balances.

Fund Public Assistance Cooperative Forestry Assistance Neighborhood Community Center Municipal Complex Natural Resource Conservation Service Type Nonmajor Governmental Nonmajor Governmental Nonmajor Governmental Nonmajor Governmental Nonmajor Governmental Deficit (116,176)

(4,375)

(17,142)

(111,198)

(11,556)

NOTE C - RESTATEMENT Beginning net assets for the governmental activities and beginning fund balances in the General Fund and Debt Service Fund have been restated to reflect prior period adjustments to properly record the balances for prepaid assets and debt reserves, respectively. Additionally, several restricted revenue sources and capital projects were combined into the General Fund in the prior period, but are presented as separate funds for fiscal year. ending September 30, 2005.

Net Assets/Fund Balance, October 1, 2004 Prior Period Adjustment New Funds for 2005 Donation Fund Public Assistance Fund Neighborhood Community Center Fund Municipal Complex Fund Restated Net Assets/Fund Balance, October 1, 2004 Governmental Activities 2,129,354 (23,491)

General Fund 1,214,080 (116,413)

Debt Service Fund 48,039 92,922 (5,747) 103,432 (34,000)

(92,199) 2,105,863 1,069,153 140,961 NOTE D - INVESTMENTS As of September 30, 2005, the City had the following investments:

Type of Investment Balance 9/30/05 359,303 Florida Municipal Power Agency (FMPA)

CR-3 Pooled Investment Account The FMPA account represents a 2.087% interest in an investment pool which invests primarily in commercial ii paper and U.S. Government obligations with maturities of three years or less. The investment pool is not rated and the securities in the pool are registered in the name of SunTrust, N.A., as trustee for the FMPA CR-3 participants.

(Continued) 41

L CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS L

NOTE E - RESTRICTED ASSETS Restricted cash and investments at September 30, 2005, are as follows:

Governmental Activities Business-Type Activities L

L Cash Debt Service Reserve UnSpent State appropriations Unspent Walmart bridge loan proceeds Customer Deposits Police Forfeiture Total Investments CR-3 Decommissioning 930,495 715,678 I

171,750 448,417 6,178 177,928 L

2,094,590 359,303 The CR-3 Decommissioning Account is required by state law to accumulate funds for the City's share of the decommissioning costs of the CR-3 nuclear power plant. The City's contribution to this account was $14,800 including interest during 2005. The required cash balance in the decommissioning accountjis offset by a deferred credit on the balance sheet.

NOTE F - INVENTORY Inventory related to the City's business-type activities at September 30, 2005, consists of the following:

L L

L Business-Type Activities Electric utility supplies Water!Wastewater supplies Nuclear fuel Nuclear plant materials inventory Total Balance 9/30/05 142,852 34,538 61,510 24,656 263,556 L

L L

L L

L (Continued) 42 L

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS NOTE G - CAPITAL ASSETS The following is a summary of changes in capital assets for the year ended September 30, 2005:

LW Governmental Activities Capital assets, not being depreciated:

Land LW Construction in progress Total capital assets not being depreciated Capital assets, being depreciated:

Ll Building Improvements other than buildings Infrastructure L

Machinery and equipment Total capital assets being depreciated Beginning Balance 226,980 25,689 252,669 1,383,373 1,193,482 4,954,246 1,344,279 8,875,380 Additions 452,942 452,942 Deletions Ending Balance 226,980 478,631 705,611 97,974 24,283 160,216 282,473 1,481,347 1,217,765 4,954,246 (2,225) 1,502,270 (2,225) 9,155,628 L

Less accumulated depreciation for:

Building Improvements other than buildings Infrastructure L

Machinery and equipment Total accumulated depreciation iW Total capital assets, being depreciated, net (737,971)

(37,034)

(928,119)

(121,777)

(2,237,380)

(122,513)

(1,066,503)

(300,454)

(4,969,973)

(581,778) 3,905,407 (299,305) 2,225 2,225 (775,0.05)

(1,049,896)

(2,359,893)

(1,364,732)

(5,549,526) 3,606,102 Governmental activities capital assets, net

$ 4,158,076 153,637 4,311,713 Business-Type Activities Capital assets, not being depreciated:

Land Construction in progress Total capital assets not being depreciated L

Capital assets, being depreciated:

Building Improvements other than buildings Machinery and equipment Total capital assets being depreciated Less accumulated depreciation for:

Building Improvements other than buildings Machinery and equipment L

Total accumulated depreciation

$ 2,228,697 62,064 2,290,761 125,706 125,706 257,455 56,236 241,817 555,508 (11,684)

(11,684) 2,228,697 176,086 2,404,783 6,686,089 2,228,693 11,191,739 20,106,521 6,943,544 2,284,929 11,433,556 20,662,029 (2,856,246)

(1,080,613)

(5,607,282)

(9,544,141)

(167,617)

(119,954)

(1,515,173)

(1,802,744)

(11,684)

(3,023,863)

(1,200,567)

(7,122,455)

(11,346,885) 9,315,144 11,719,927 Total capital assets, being depreciated, net 10,562,380 (1,247,236)

L; Proprietary activities capital assets, net

$ 12,853,141 (1,121,530)

(Continued) 43

L CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS L

Depreciation expense was charged to functions of the governmental activities as follows:

Governmental activities:

General government Public safety Physical environment Transportation Economic environment Parks and recreation L

54,971 191,414 9,669 274,749 3,590 47,385 581,778 L

L L

L NOTE H - LONG-TERM LIABILITIES Governmental Activities The following schedule summarizes the changes in the City's governmental long-term liabilities during the year ended September 30, 2005:

City of Arcadia, Florida, Dedicated Pool Local Government Revenue Bonds, Series 1993 Sales Tax Revenue Note, Series 1995 -

First National Bank of Alachua Sales Tax Revenue Note, Series 2000 First National Bank of Alachua Tax Increment Road Improvement Revenue Note, Series 2000 Section 108 Government Guaranteed Certificates, Series HUD 2001A Caterpillar Loan, 2004 Walmart Bridge Loan, 2005 Compensated Absences Totals Beginning Ending Due Within Balance Additions Reductions Balance One Year 775,000 50,000 725,000 50,000 L

L 192,070 53,677 230,028 28,466 163,604 30,378 L

8,418 45,259 8,849 26,808 203,220 28,697 L

2,075,000 65,000 2,010,000 70,000 41,965 11,763 30,202 11,654 297,633 297,633 154,440 38,568 193,008 3,522,180 336,201 190,455 3,667,926 199,578 L

City of Arcadia, Florida - Dedicated Pool Local Government Revenue Bonds, Series 1993 - On July 1, 1993, the City executed a loan agreement with the City of Arcadia, Florida (the Sponsor), and NationsBank of Florida, N.A. (the Trustee), to borrow $1,200,000 from the Sponsor's $45,455,000 Local Government Revenue Bonds, Series 1993, Dedicated Pool. The Sponsor issued the bonds on August 10, 1993, and deposited the proceeds with the Trustee to fund the pool, available to governmental entities for financing and refinancing certain qualified projects. During 1996, the Trustee was changed to Bank of New York.

L L

The City used the proceeds to refinance the balance due on a loan from the City of Gulf Breeze, originally issued to finance street and drainage improvements. The City of Arcadia loan is evidenced by a Governmental Unit Note, which is payable solely from the City's local option gas tax revenues and guaranteed entitlement revenues.

.L L

L (Continued) 44 L

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS Sales Tax Revenue Note, Series 1995 - On May 24, 1995, the City adopted Resolution R-95-9, authorizing the issuance of a $400,000 Sales Tax Revenue Note, Series 1995. The note was issued at the par amount of $393,000, and used to refinance the City's outstanding FLGFA loan, plus pay note issuance and loan redemption costs.

The note is secured by a lien upon the pledge of the City's local government half-cent sales tax. Principal and interest are payable on the first of each month in level monthly installments for fifteen years. Interest accrues at a L

fixed rate of 5.20% (based on a 360-day year) for the first five years of the note, and is reset on June 1, 2000 and June 1, 2005, to the five-year U.S. Treasury index on those dates. The City may prepay the note in whole or in part, at any time, without penalty.

Sales Tax Revenue Note, Series 2000 - On April 4, 2000, the City issued a $85,000 Sales Tax Revenue Note, Series 2000, to finance a capital project.

The note is secured by a lien upon the pledge of the City's local government half-cent sales tax, which is junior and subordinate to the lien and pledge in favor of the City's outstanding Sales Tax Revenue Note, Series 1995.

Principal and interest are payable on the first of each month for the ten-year term of the note. Interest accrues at a fixed rate of 6.00%.

Tax Increment Road Improvement Revenue Note, Series 2000 - On January 8, 2001, the City issued a $300,000 Tax Increment Road Improvement Revenue Note, Series 2000, to finance improvements and renovations to Main Street within the City's Community Redevelopment District.

The note is secured by the tax increment revenues of the Community Redevelopment District. Principal and interest are payable annually on the first day of February for ten years. Interest accrues at a fixed rate of 6.50%

until February 2, 2006, at which time it is reset to the five-year U.S. Treasury index at that date. The City may prepay the note in whole or in part, at any time, without penalty.

Section 108 Government Guaranteed Participation Certificates, Series HUD 2001A - On August 2, 2001, the City executed a loan agreement with the U.S. Department of Housing and Urban Development (the Sponsor) to borrow $2,250,000 from the Sponsor's $313,756,000 Section 108 Government Guaranteed Participation Certificates, Series HUD 2001A. The Sponsor guarantees timely payment of the notes issued by local L

governmental agencies. The City used the proceeds of the note to repay the outstanding balances on its Taxable Sales Tax Revenue Note, Series 1999A, and Sales Tax Revenue Note, Series 1999B and finance other costs related to economic development.

L The note is secured by the City's local government half-cent sales tax (subordinate to the City's Sales Tax Revenue Note, Series 1995), utility franchise fees and state revenue sharing. Principal is payable annually and interest semiannually for twenty years. Interest accrues at the certificates rates which vary from 3.66% to 6.67%

over the life of the note.

Caterpillar Loan, 2004 - In May 2004, the City agreed to enter into a loan agreement with Caterpillar Financial Services for the amount of $48,182. The City used these proceeds to purchase a new 2004 Caterpillar Model 416D backhoe to be used by the Streets and Roads Division.

iL The note is secured by the Caterpillar Model 416D backhoe. This is a four-year note with principal and interest payments due annually with the last payment due in October 2007.

Walmart Bridge Loan, 2005 - In January 2005, the City agreed to enter into a loan agreement with Walmart for the amount of $297,633. The City was approved to receive an Economic Development Transportation Fund Grant to construct a roadway upon which Walmart intends to build a distribution center. However, the Grant funds are (Continued) 45

L CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS L

not available until vertical construction has begun on the distribution center. These loan proceeds are being used to bridge the time lag until receipt of the grant funds.

The note is payable by the City within six (6) months from the date upon which Walmart commences vertical construction and the City has received the grant reimbursemets. Management expects vertical construction to begin during October 2007.

The following schedule summarizes the principal retirement of governmental long-term debt by fiscal year (excluding compensated absences):

L L

L Fiscal Year Ending September 30, 2006 2007 2008 2009 2010 Thereafter -.

Totals -

1995 2000 2000 2001A 2005 City of Sales Tax Sales Tax Tax Section 2004 Walmart Arcadia Revenue Revenue Increment 108 Caterpillar Bridge Total Loan Note Note Note Loan Loan Loan Principal

$ 50,000 30,378 8,849 28,697 70,000 11,654 199,578 55,000 32,419 9,403 30,588 75,000 12,024 297,633 512,067 55,000 34,580 9,987 32,604 80,000 6,524 218,695 55,000 36,920 10,616 34,732 90,000 227,268 60,000 29,307 6,404 37,041 95,000 227,752 450,000, -

39,558 1,600,000 2,089,558-

$725,000-163,604 45,259 203,220 2,010,000 30,202 297,633 3,474,918 L

L L

Business-Type Activities L

The following schedule summarizes the changes in the City's business-type long-term liabilities during the year ended September 30, 2005:

L Beginning Ending Due within Balance Additions Reductions Balance One year L

Utility Acquisition Bonds, Series 1993 Utility Revenue Bond of 1979 State Revolving Fund Loan - State of Florida Department of Enviromental Protection Utilities Refunding Revenue Note, Series 2002A Less deferred loss on refunding Utility Refunding Revenue Bonds, Series 2003 Less deferred discount on refunding Less deferred loss on refunding Compensated Absences Totals

$ 1,015,000 514,000 40,000 26,000 975,000 488,000 45,000 25,000 L

50,692 5,298 55,990 1,420,000 445,000 975,000 475,000 (40,051)

(10,013)

(30,038) 9,150,000 95,000 9,055,000 95,000 (86,400)

(5,400)

(81,000)

(811,587)

(50,724)

(760,863) 82,151 17,196 99,347

$11,293,805 22,494 539,863 10,776,436 640,000 L

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Utility Acquisition Bonds, Series 1993 - On October 18, 1993, the City adopted Resolution R-93-24 authorizing the issuance of $1,300,000 Utility Acquisition Bonds, Series 1993 to provide the necessary funds for the acquisition of the private water and wastewater systems in the Turkey Creek recreational residential community in the City. The bonds are secured by the gross revenues of the combined electric, water, and wastewater utility L

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CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS systems of the City, but are subordinate to the secured interests of the bondholders in the other outstanding revenue bonds of the City.

Li The bonds were issued without premium or discount and are payable at 7% interest, with interest payable semiannually beginning April 1, 1994, and principal payable annually beginning October 1, 1994.

L Utilities Revenue Bond of 1979 - On August 6, 1979, the City adopted a resolution to issue the Utilities Revenue Bond of 1979. The bond was issued on December 17, 1979, to partially finance the cost of the construction of additions to the utility system.

Net utility revenues and utilities service taxes are pledged as collateral for the revenue bond which has a coupon rate of 5%. The lien on revenues by the 1979 bond is equal to the Utilities Refunding Revenue Bonds of 1986 and LJ 1993.

State Revolving Fund Loan - State of Florida Department of Environmental Protection - This loan is to L

finance preconstruction wastewater control facility costs. The total loan available is $125,732, of which $55,990 had been drawn as of September 30, 2005. Repayment commences in June 2007, and is over a term of twenty years bearing a 2.70% interest rate.

L Utilities Refunding Revenue Note, Series 2002A - On April 2, 2002, the City issued the $2,235,000 Utilites Refunding Refunding Note, Taxable Series 2002A with an interest rate of 6.35% to refund $2,220,000 of L

outstanding Utility Revenue Refunding Bonds, Series 1986 with an average interest rate of 7%.

Utility Refunding Revenue Bonds, Series 2003 - On August 18, 2003, the City adopted Resolution R-03-3 1, authorizing the issuance of $9,180,000 Utility Refunding Revenue Bonds, Series 2003. The bonds were issued at L;

a par amount of $9,180,000 to provide the funds required to refund the City's outstanding Utility Revenue Bonds, Series 1993 and to pay certain expenses related to the issuance of the Series 2003 bonds.

L Gross revenues of the system, plus utilities service taxes are pledged as collateral for the revenue bonds which will rank on a parity with the City's outstanding Utility Revenue Bonds, Series 1979, and Utilities Taxable Refunding Revenue Note, Series 2002A (the "Parity Bonds"), as to lien upon and pledge of the pledged funds.

The Series 2003 Bonds are issued in the aggregate principal amount of $9,180,000 and dated September 1, 2003.

The bonds bear interest rates from 2% to 4.55% and mature on April 1 of the years 2004 through 2020. Interest is payable semi-annually on April 1 and October 1 of each year.

(Continued) 47

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CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS I

The following schedule summarizes the principal retirement of the business-type debt by fiscal year:

Fiscal Year Ending September 30, 2006 2007 2008 2009 2010 Thereafter Totals Utility Revenue Bond of 1979 25,000 26,000 27,000 29,000 30,000 351,000

$ 488,000 Utility Acquisition

Bonds, Series 1993 45,000 45,000 50,000 55,000 55,000 725,000 975,000 State Revolving Fund Loan 55,990 Utility Refundinj Revenue Note Series 2002 475,0(

140,0(

360,0(

Utilities PI Refunding Revenue Bonds

'A Series 2003 00

-95,000 00 460,000 00 270,000 555,000 570,000 7,105,000 00 9,055,000 L

Totals 640,000 726,990 707,000 639,000 655,000 8,181,000 11,548,990 L

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55,990 975,0(

The following schedule summarizes the requirements to pay principal and interest on the obligations of both the City's governmental activities and business-type activities as of September 30, 2005:

L Governimental Activities Business-Type Activities Fiscal Year Ending September 30, L

Principal Interest Total Principal Interest Total L

2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2022

$ 199,578 512,067 218,695 227,268 227,752 1,074,558 815,000 200,000

$3,474,918 187,925 176,805 164,880 152,149 138,663 517,943 234,334 13,340 1,586,039 387,503 688,872 383,575 379,417 366,415 1,592,501 1,049,334 213,340 5,060,957 640,000 726,990 707,000 639,000

.655,000 3,700,000 4,481,000 11,548,990 510,215 473,752 446,438 409,778 386,440 1,508,655 617,790 4,353,068 1,150,215 1,200,742 1,153,438 1,048,778 1,041,440 5,208,655 5,098,790 15,902,058 L

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Defeased Bonds - At September 30, 2005, the City has outstanding bonds that have been defeased by the purchase of qualifying securities in irrevocable trusts. The scheduled maturities and the interest earnings on the escrowed securities are sufficient to redeem these defeased bonds without further debt service costs to the City.

Both defeased bonds and the escrowed securities are, as required by accounting principles generally accepted in the United States of America, omitted from the financial statements of the City.

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(Continued) 48 L

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS The following bonds have been defeased by the City and no longer are included in the accompanying financial statements:

Utility Revenue and Refunding Bonds, Series 1978 Utility Revenue and Refunding Bonds, Series 1981 Utility Revenue and Refunding Bonds, Series 1981A Total Estimated Balance September 30, 2005 1,085,000 2,440,000 160,000 3,685,000 iw Conduit Debt - The City may assist nongovernmental entities in the obtainment of financing for capital facilities by issuing debt on behalf of the nongovernmental entity. This debt, known as conduit debt, allows the nongovernemental entity to borrow at tax-exempt rates. The nongovernmental entity, not the City, is responsible iW for repayment of the conduit debt obligation. At September 30, 2005, the following conduit debt is outstanding in the City's name.

Industrial Development Revenue Bonds Series 1995 1,000,000 Li NOTE I - INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The following is a summary of interfund receivables and payables at September 30, 2005:

Receivable Fund General Fund Payable Fund Nonmajor Governmental Funds Electric Fund Water Fund Wastewater Fund Amount 633,927 9,281 232 1,702 Water Fund Wastewater Fund Nonmnajor Governmental Funds Wastewater Fund General Fund 301 162 166,942 Nonmajor Proprietary Fund Total Internal Service Fund 15,051 827,598 The outstanding balances between funds result mainly from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.

(Continued) 49

L COTE OF MAACHUA, FLORAME NOTES TO FINANCALU STATEMENTS L

Interfund transfers:

Transfers In:

L Nonmajor Governmental Internal Service General Total Transfers Out:

General Electric Wastewater Nonmajor Enterprise Fund Total Transfers Out L

350,527 925,000 925,000 67,475 418,002 14,000 14,000 350,527 925,000 67,475 14,000 1,357,002 L

Transfers are normally recurring and are approved by the City Commission during the budget process. The transfer from the Electric Fund to the General Fund is in support of general government operations to the extent monies are available after paying operating expenses and debt service on outstanding bonds. Other transfers are for debt service requirements and for the City's match on grants.

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L NOTE J - NET ASSETS - RESTRICTED Net assets are reserved within governmental activities and business-type activities as follows:

L Debt service Walmart bridge loan Police forfeiture Other purpose Total Governmental Activities 169,311 6,178 175,489 Business-Type Activities 930,495 15,678 946,173 L

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NOTE K - ELECTRIC POWER AGREEMENTS City of Gainesville The City entered into a wholesale electric service contract with the City of Gainesville, Florida, on January 21, 1987, for the purchase of the majority of the City's electric power requirements beginning January 6, 1988. The City constructed a 138 x 69 - 12.47Y/7.2kV substation to receive the power, which was placed into operation on that date. The substation is located in such a manner that the City has reasonable access to the transmission lines of both the City of Gainesville and Florida Power Corporation. A portion of the substation is owned by the City of Gainesville. The initial term of the contract was five years, with options for additional annual extensions. The contract was renegotiated on October 2, 1992, and extended for an additional fifteen years, beginning on December 31, 1992. Provisions in the contract allow for price adjustments for increases and decreases in the City of Gainesville's fuel and operating costs. Total payments to the City of Gainesville for 2005 were $6,376,276.

Crvstal River Unit #3 Participation Agreement The City is a participant in an agreement with Florida Power Corporation which was entered into on July 31, 1975. Under terms of the agreement, the City acquired an 0.0779% ownership interest and generation entitlement L

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(Continued) 50 L

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS share in the nuclear steam electric generating unit. Participants are entitled to energy output of the unit based upon their respective generation entitlement share.

Florida Power Corporation has been appointed by the participants to act as their agent and has sole authority to manage, control, maintain, and operate the unit. Operating costs of the unit, in general, are shared in proportion to each generation entitlement share on a monthly basis. Common and external facilities of the generating unit are L

solely owned by Florida Power Corporation and participants share in the operating and maintenance expenses of such facilities. Nuclear fuel payments and capital acquisition costs are required of participants in advance. Total payments for 2005 were $152,111.

The City's share of plant decommissioning costs to be paid during the years 2015 through 2022 is being accumulated in an account administered by the FMPA. FMPA has determined the appropriate account balance to be i,

$359,303 at September 30, 2005. The cash account is offset by a deferred credit on the balance sheet of $359,303 at September 30,2005.

St. Lucie No. 2 Power Purchase Agreement The City has negotiated a long-term agreement with Florida Power and Light Corporation through FMPA to purchase.3044 megawatts of generating capacity and a corresponding amount of energy monthly from the St. Lucie No. 2 nuclear generating plant. The plant became operational in 1984. Total payments for 2005 were $159,513.

The City has signed certain documents with FMPA relating to the St. Lucie Project that provide that if the agency defaults on certain bond payments, the City would be required to satisfy payment on their share (A3 1%) of the bonds. The par amount of the outstanding bonds at September 30, 2005, was approximately $291 million.

NOTE L - PENSION PLANS Effective October 1, 2004, the City reinstated its membership in the Florida Retirement System, a multiple-employer iL defined benefit public retirement system. Previously, all full-time employees of the City hired prior to January 1, 1996, participated in the Florida Retirement System and all full-time employees hired on January 1, 1996, or later, participated in a retirement system administered by the Florida League of Cities, Inc. The participants in the Florida League of Cities, Inc. retirement plan now participate in the Florida Retirement System.

Florida Retirement System The Florida Retirement System (the System) was created by the Florida Legislature and is administered by the State of Florida, Department of Administration, Division of Retirement and is a cost-sharing, multiple-employer defined L

benefit public retirement plan available to governmental units within the state of Florida. The System issues a publicly available financial report that includes financial statements and required supplementary information for the System. The report may be obtained by writing to the Florida Retirement System, Division of Retirement, 2639-C North Monroe Street, Tallahassee, Florida 32399-1560, or by calling (850) 488-5706.

The System provides vesting of benefits after six years of creditable service. Members are eligible for normal retirement after they have met one of the following: (1) thirty years of service, regardless of age (twenty-five years if special risk) or (2) age 62 and six years of service (age 55 and six years if special risk).

(Continued) 51

CITY OF ALACHUA, FLORIDA L

NOTES TO FINANCIAL STATEMENTS Early retirement may be taken any time after completing six years of service; however, there is a 5% benefit L

reduction for each year prior to normal retirement. Benefits are computed based on age, average final compensation and service credit. Average final compensation is the average of the five highest years of earnings. The System also provides death and disability benefits. Benefits are estimated by Florida Statute and include cost of living adjustments.

The funding methods and the determination of benefits payable are provided in various acts of the Florida L

Legislature. These acts provide that employers, such as the City, be required to contribute 7.83% of the compensation for regular members, 10A5% for senior management and 18.53% for special risk as of September 30, 2005. The City's contributions to the System for the years ended September 30, 2005, 2004, and 2003, were L

$359,136, $99,524, and $102,548, respectively.

NOTE M - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors L

and omissions; and natural disasters for which the City carries insurance. The City has not had any significant reduction in insurance coverage and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. Insurance against losses is provided for the following types of risk with the following carriers:

florida Municipal Insurance Trust

• Workers' Compensation and Employer's Liability St. Paul Fire and Marine Insurance Company

• General liability and Automobile Liability

• Real and Personal Property Damage

• Automobile Physical Damage

• Public Employees' Blanket Bond L

• Boiler Officials' Liability

• Law Enforcement Officers' Professional Liability and Other Mandated Coverage

• Accidental Death and Dismemberment L

• Auxiliary Reserve Policy

• Law Enforcement Officers' Professional Liability H

The City's coverage for workers' compensation is under a retrospectively related policy. Premiums are accrued based on the ultimate cost to date of the City's experience.

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REQUIRED SUPPLEMENTARY INFORMATION In accordance with Governmental Accounting Standards Board Statement No. 34, the following information is presented as a required part of the basic financial statements.

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CITY OF ALACHUA, FLORIDA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND For The Year Ended September 30, 2005 Budgeted Amounts Variance with Final Budget Original Final Actual Revenues Taxes Licenses and permits Intergovernmental revenues Charges for services Fines and forfeitures Interest Miscellaneous 3,527,768 280,000 537,054 634,455 130,000 30,500 61,186 3,527,768 280,000 537,054 679,889 130,000 30,500 302,822 3,622,127 303,955 623,461 702,875 126,064 57,150 239,526 94,359 23,955 86,407 22,986

(

3,936) 26,650

(

63,296)

Total revenues 5,200,963 5,488,033 5,675,158 187,125 Expenditures Current General government Public safety Physical envirorment Transportation Parks and recreation Debt service Principal Interest and fiscal charges Capital outlay 2,424,365 2,268,762 459,021 498,728 480,722 464,497 2,670,370 2,122,279 2,279,212 2,212,752 459,021 429,025 498,728 494,320 478,037 440,902 11,763 874 482,797 263,001 548,091 66,460 29,996 4,408 37,135

(

11,763)

(

874) 219,796 Total expenditures 6,596,095 6,868,165 5,974,916 893,249 Excess (deficiency) of revenues over expenditures

(

1,395,132)

( 1,380,132)

( 299,758) 1,080,374 Other financing sources (uses)

Transfers in Transfers out 925,000

(

265,913) 925,000

(

280,913) 925,000

( 350,527)

(

69,614)

Total other financing sources (uses)

Net change in fund balance Fund balance -beginning of year (restated)

Fund balance - end of year 659,087 644,087 574,473

(

69,614)

(

736,045)

(

736,045) 274,715 1,010,760 1,069,153 1,069,153 1,069,153 333,108 333,108 1,343,868 1,010,760 Annual budgets are adopted on a basis consistent with generally accepted accounting principles.

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COMBINING STATEMENTS ba" These combining statements provide more detailed information than can be found in the basic financial statements, including information on the individual nonmajor governmental funds, as well as the pension trust funds.

57

L CITY OF ALACHUA, FLORIDA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET September 30, 2005 L

L Debt Service Fund Special Revenue Funds Capital Project Funds L

Total ASSETS Cash and cash equivalents Accounts receivable Due from other governments Prepaids Restricted assets - cash and cash equivalents 184,278 337,298 445,156 495 145,187 394,781 171,750 521,576 145,187 839,937 495 171,750 L

L Total assets 184,278 782,949 711,718 1,678,945 L

LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable Accrued expenses Interest payable Due to other funds Payable from restricted assets:

Accounts payable 174,293 707 38,982 3,317 301 391,823 393,821 43,66W 242,104

i..

568,121.'

8 44,375 42,299.

4 634,228 2,439 L

L 2,435 Total liabilities 39,283 570,140 682,039 1,291,462 Fund balances:

Reserved for:

Debt service Capital projects Unreserved, undesignated in Special revenue funds Capital projects L

L 144,995 169,311 144,995 169,311 212,809

(

139,632)

L 212,809

(

139,632)

L Total fund balances 144,995 212,809 29,679 387,483 TOTAL LIABILITIES AND FUND BALANCES 184,278 782,949 711,718 1,678,945 U

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CITY OF ALACHUA, FLORIDA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE For The Year Ended September 30, 2005 Debt Service Fund Revenues Special Revenue Funds 942,133 3,434 23,087 Capital Project Funds 473,038 145,451 Total 1,415,171 4,241 168,538 Intergovernmental revenues Interest Miscellaneous c

807 Total revenues 807 968,654 618,489 1,587,950 Expenditures Current:

General Government Public safety Physical environment LJ Economic environment Parks and recreation Debt Service L

Principal Interest and fiscal charges Capital outlay 1,736 780,725 24,100 78,459 9,219 462 541,967 64,383 420,830 2,198 I.-.780,725 566,067 78,459 73,602 178,692 196,870 440,302 151,884 178,277 26,808 18,593 19,472 Total expenditures Excess (deficiency) of revenues over expenditures 330,161 959,112 1,027,642 2,316,915

(

329,354) 9,542 409,153)

(

728,965)

Other financing sources (uses)

Proceeds from note Transfers in 333,388 68,504 297,633 16,110 297,633 418,002 Total other financing sources (uses)

Net change in fund balances 333,388 68,504 313,743 715,635 4,034 78,046

(

95,410)

(

13,330)

"a Fund balances - beginning of year (restated) 140,961 134,763 125,089 400,813 Fund balances - end of year 144,995 212,809 29,679 387,483 59

L CITY OF ALACHUA, FLORIDA NONMAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET September 30, 2005 L

I ASSETS Cash and cash equivalents Due from other governments Prepaids Total assets LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable Accrued expenses Interest payable Due to other funds Total liabilities Fund balances:

Unreserved, undesignated Total fund balances Community Redevelopment Agency Fund 324,884 495 325,379 8,162 3,317 11,479 313,900 313,900 State and Community Donation Highway Fund Safety Fund L

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12,414 9,188 L

12,414 9,188 707 1,435 2,142 12,414 7,046 12,414 7,046 L

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TOTAL LIABILlTIES AND FUND BALANCES 325,379 12,414 9,188 L

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Cooperative Public Forestry Assistance Assistance Fund Fund 416,243 19,725 416,243 19,725 166,131 366,288 24,100 532,419 24,100

(

116,176)

(

4,375)

(

116,176)

(

4,375) 416,243 19,725 Total 337,298 445,156 495 782,949 174,293 707 3,317 391,823 570,140 212,809 212,809 782,949 61

L CITY OF ALACHUA, FLORIDA NONMAJOR SPECIAL REVENUE FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For The Year Ended September 30, 2005 L

L Community Redevelopment Agency Fund State and Community Highway Safety Fund Donation Fund Public Assistance Fund L

L Revenues Intergovernmental revenues Interest Miscellaneous 143,848 3,434 48,284 17,622 720,822

• 5,465-L 726,287 L

Total revenues 147,282 17,622 48,284 Expenditures L

Current:

General Government Public safety Physical environment Economic environment Parks and recreation Debt Service Principal Interest and fiscal charges Capital outlay 1,736 39,338 L

736,178 78,459 26,808 18,593 9,219 L

L 11,900 2,853 Total expenditures 123,860 10,955 51,238 739,031 C

C Excess (deficiency) of revenues over expenditures 23,422 6,667

(

2,954)

(

12,744)

Other financing sources (uses) 58,030 10,000 L

Transfers in Total other financing sources (uses) 58,030 10,000 L

Net change in fund balances 81,452 6,667 7,046

(

12,744)

L Fund balances - beginning of year (restated) 232,448 5,747

(

103,432)

Fund balances - end of year 313,900 12,414 7,046

(

116,176)

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State Domestic Preparedness L

Equipment Support Fund 5,190 hi 5,190 hi 471 6i 4,719 A

5,190 Cooperative Forestry Assistance Fund 19,725 19,725 24,100 24,100 Law Enforcement Block Grant Fund 4,264 4,264 4,738 4,738 Total 942,133 3,434 23,087 968,654 1,736 780,725 24,100 78,459 9,219 26,808 18,593 19,472 959,112

(

4,375)

(

474) 9,542 4,375) 4,375) 474 474 68,504 68,504 78,046 134,763 212,809 63

L CiT OF ALACHUA, FLORIDA NONMAJOR CAPITAL PROJECT FUNDS COMBINING BALANCE SHEET September 30, 2005 L

L ASSETS Accounts receivable Due from other governments Restricted assets - cash and cash equivalents Total assets LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable Accrued expenses Due to other funds Payable from restricted assets:

Accounts payable Total liabilities Fund balances:

Reserved for capital projects Unreserved, undesignated Total fund balances Neighborhood Community Center Fund 20,545 20,545 37,687 37,687

(

17,142)

(

17,142)

Municipal Complex Fund CDBG -

Walmart Distribution Center Fund L

L 67,269 L

67,269 814 L

111,198 66,191 L

L 111,198 67,005 L

(

111,198) 264 L

(

111,198) 264 TOTAL LIABILITIES AND FUND BALANCES 20,545 67,269 L

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Bridge Loan -

Walmart Distribution Center Fund Natural Resource Conservation Service Fund Total 124,642 327,512 171,750 145,187 394,781 171,750 171,750 452,154 711,718 393,014 43,668 27,028 393,828 43,668 242,104 2,439 2,439 2,439 463,710 682,039 169,311 169,311

(

11,556)

(

139,632) 169,311

(

11,556) 29,679 171,750 452,154 711,718 65

CITY OF ALACHUA, FLORIDA NONMAJOR CAPITAL PROJECT FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For The Year Ended September 30, 2005 Revenues Intergovernmental revenues Miscellaneous Total revenues Expenditures Current:

General government Physical environment Parks and recreation Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses)

Proceeds from note Transfers in Total other financing sources (uses)

Net change in fund balances Fund balances -beginning of year (restated)

Fund balances - end of year Neighborhood Community Center Fund 2_

20,545 20,545 CDBG -

Municipal Walmart Complex Distribution Fund Center Fund 67,269 264 67,533 64,383 22,304 86,687

_(

66,142) 15,000 15,000

(

51,142) 34,000

$ (

17,142) 462 202,935 203,397 67,269 67,269

(

203,397) 264

(

203,397) 92,199

(

111,198) 264 264 L

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Bridge Loan -

Walmart Distribution Center Fund Natural Resource Conservation Hitchcock Service Fund Grant Fund 405,769 124,642 530,411 Total 473,038 145,451 618,489 128,322 128,322 541,967 541,967 462 541,967 64,383 420,830 1,027,642

(

128,322)

(

11,556)

(

409,153) 297,633 297,633 169,311

(

11,556) 169,311

(

11,556) 1,110 1,110 1,110 1,110) 297,633 16,110 313,743

(

95,410) 125,089 29,679 67

CITY OF ALACHUA, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS For The Year Ended September 30, 2005 I

General Employees' Pension Trust Additions:

Contributions:

Employer Plan members Total contributions Investment earnings:

Total additions Deductions:

Distributions Administrative fees Total deductions Change in net assets Net assets held in trust for pension benefits:

Net assets - beginning of the year Net assets - end of the year 15,239 15,239 2,667 17,906 Police Officers' Pension Trust 5,567 457 6,024 1,194 7,218 711,037 764 711,801 (704,583)

Totals 20,806 457 21,263 3,861 25,124 1,294,036 3,264 1,297,300 (1,272,176) 582,999 2,500 585,499 (567,593) 567,593 704,583 1,272,176

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OTHER INDEPENDENT AUDITOR REPORTS 69

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i ASSOCIATES Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAiTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERM"ENTA UDITNG STANDARDS L

The Honorable Mayor, City Commissioners and City Manager City of Alachua, Florida L

We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Alachua, Florida as of and for the year ended September 30, 2005, and have issued our report thereon dated December 15, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

L Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Alachua, Florida's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial L

statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the Li design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Reportable conditions are described in Part II of the accompanying Schedule of Findings and Questioned Costs.

A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts iL that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be L

reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe that none of the reportable conditions described above is a material weakness.

Li Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Alachua, Florida's financial statements are free of L

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no Li instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We also noted certain additional matters that were reported to management of the City of Alachua in a separate letter dated December 15, 2005.

71 Members:

• American Institute of CPA

• Center for Public Company Audit Firms M Private Companies Practice Section

• Florida Institute of CPA

This report is intended solely for the information and use of the Mayor, City Comnissioners, City Manager, L

management, and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties.

L Bradenton, Florida December 15,2005 L

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L CPA ASSOCIATES Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Honorable Mayor, City Commissioners and City Manager City of Alachua, Florida Compliance We have audited the compliance of the City of Alachua, Florida, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended September 30, 2005. The City of Alachua's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.

Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the City of Alachua's management. Our responsibility is to express an opinion on the L,

City of Alachua's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Alachua's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City of Alachua's compliance with those requirements.

In our opinion, the City of Alachua complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended September 30, 2005.

Internal Control Over Compliance The management of the City of Alachua is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City of Alachua's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purposes of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.

Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that 73 Mebr.UAeia nttt fCA UCne o ulcCmayAdt im rvt opne rcieScin UFoiaIsiueo P

Members:

• American Institute of CPA

• Center for Public Company Audit Firms

• Private Companies Practice Section

• Florida Institute of CPA

noncompliance with applicable requirements of laws, regulations, contracts, and grants caused by error or fraud that L

would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.

This report is intended solely for the information and use of the Mayor, City Conunissioners, City Manager, management, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified users.

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Bradenton, Florida December 15, 2005 L

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CITY OF ALACHUA, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30,2005 CFDA Number Pass-through Grantor's Number Expenditures Federal Awards U.S. Department of Housing and Urban Development Passed through Department of Community Affairs Community Development Block Grant - State Program Community Development Block Grant - Section 108 Loan Guarantee Total U.S. Department of Housing and Urban Redevelopment U.S. Department of Justice Passed through Florida Department of Law Enforcement Law Enforcement Block Grant Program Total U.S. Department of Justice 14.228 14.248 05DB-2Q-03-11-02-E 12 010D-SE99-99-15-X01 67,269 2,010,000 2,077,269 4,264 4,264 16.592 2005-LEBG-ALAC-2-L4-001 U.S. Department of Transportation Passed through Florida Department of Transportation State and Community Highway Safety Total U.S. Department of Transportation U.S. Department of Agriculture Natural Resources Conservation Service Emergency Watershed Protection Program Passed through Florida Department of Agriculture and Consumer Services Cooperative Forestry Assistance Total U.S. Department of Agriculture U.S. Department of Homeland Security Passed through Florida Department of Law Enforcement State Domestic Preparedness Equipment Support Grant Passed through Department of Community Affairs:

Public Assistance Grant - Hurricane Charley Public Assistance Grant - Hurricane Frances Public Assistance Grant - Hurricane Jeanne Total U.S. Department of Homeland Security 20.600 NA 10.664 97.004 97.036 97.036 97.036 FS-05-27-5 48,284 48,284 69-4209-5-1633 405,769 04-01 05-CJ-L2-03-11-02-042 05-PA-Co/o-03-11-02-706 05-PA-G0/*-03-11-02-024 05-PA-E=03-11-02-701 19,725 425,494 5,190 18,435 240,593 422,856 687,074 Total Federal Awards 3,242,385 The accompanying notes are an integral part of this schedule.

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CiTY OF ALACHUA, FLORIDA L

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS L

NOTE A - GENERAL The accompanying schedule of expenditures of federal awards present the activity of all federal financial L

assistance programs of the City of Alachua, Florida. The City of Alachua reporting entity is defined in Note A of the City's basic financial statements. All federal financial assistance received directly from federal agencies as well as federal assistance passed through other government agencies is included in these schedules.

L NOTE B - BASIS OF ACCOUNTING The accompanying schedule of expenditures of federal awards is presented using the modified accrual basis of accounting, which is described in Note A of the City's basic financial statements.

NOTE C - LOANS OUTSTANDING L

The City of Alachua, Florida had the following loan balances outstanding at September 30, 2005. These outstanding loan balances are also included in the schedule of expenditures of federal awards.

L Federal Program Name CFDA Number Amount Outstanding L

Section 108 Loan Guarantee 14.248

$2,010,000

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CHTY OF ALACHUA, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2005 Part I - Summary of Auditor's Results Basic Financial Statement Section L

Type of auditor's report issued:

Internal control over financial reporting:

Material weakness(es) identified?

L Reportable condition(s) identified not considered to be material weaknesses?

Ll Noncompliance material to basic financial statements noted?

Unqualified Opinion yes X

yes yes X

no x

no no Federal Awards Section Type of auditor's report issued on compliance for major programs:

Internal Control over compliance:

Material weakness(es) identified?

Reportable condition(s) identified not considered to be material weakness(es)?

Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a)?

Identification of major programs:

Natural Resources Conservation Service - Emergency Watershed Program - No CFDA Public Assistance Grant - CFDA 97.036 Dollar threshold used to determine Type A programs:

Auditee qualified as low-risk auditee?

Unqualified Opinion yes yes yes X

no X

no X

no

$300,000 X

yes no 77

CrTY OF ALACHUA, FLORIDA L

SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2005 L

Part II - Schedule of Basic Financial Statement Findings L

This section identifies the reportable conditions, material weaknesses, fraud, illegal acts, violations of provisions of contracts and grant agreements, and abuse related to the basic financial statements that are required to be reported in accordance with Chapter 5.18 through 5.20 of Government Auditing Standards.

L 05-01 Enterprise Funds Capital Assets Our review disclosed discrepancies between the City's detailed schedule of capital assets for the enterprise funds L

and the general ledger. There are no procedures for reconciling detailed capital asset records to the general ledger on a regular basis and the lack of such procedures has led to inaccurate accounting for capital assets. Although adjustments have been posted at year-end to correct discrepancies, management needs to implement procedures to L

ensure accurate accounting for capital assets.

We recommend the City perform a complete inventory of the enterprise fund capital assets, research L

historical records, and attempt to reconstruct the capital asset records of the enterprise funds. These records should be reconciled to the general ledger on a timely and ongoing basis.

l 05-02 Segregation of Duties Our review disclosed an inadequate segregation of duties for the accounts payable function. The accounts payable L

clerk enters invoices into the accounting system for payment, prints checks, and prepares the mailing of the checks to the respective vendors. The City utilizes blank paper stock for their checks, whereby the check number, bank account number, and all other check information is printed on the checks electronically, including the signature. As a L

result, unauthorized cash disbursements could be processed without being detected on a timely basis.

We recommend that the City reassign the check printing function to another employee or limit the accounts L

payable clerk's access to the signatures of authorized signers in order to eliminate any opportunity for unauthorized cash disbursements.

L Part Iml - Schedule of Federal Award Findings and Questioned Costs This section identifies reportable conditions, material weaknesses, and material instances of noncompliance, including known fraud, questioned costs, and abuse related to the audit of federal programs, as required to be reported by Circular A-133 Section.510 (a).

No reportable conditions, material weaknesses, and material instances of noncompliance, including known fraud, questioned costs, and abuse related to the audit of federal projects were identified.

L Part IV - Summary Schedule of Prior Audit Findings L

There were no prior audit findings for federal programs.

LL 78 l

' CPA ASSOCIATES Certified Public Accountants and Consultants MANAGEMENT LETTER Honorable Mayor, City Commissioners, and City Manager City of Alachua, Florida We have audited the basic financial statements of the City of Alachua, Florida as of and for the fiscal year ended September 30, 2005, and have issued our report thereon dated December 15, 2005, which was unqualified.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. We have issued our Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, our Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Federal Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133, and a Schedule of Findings and Questioned Costs. Disclosures in those reports and schedule, which are dated L

December 15, 2005, should be considered in conjunction with this management letter.

Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General, which L,

govern the conduct of local governmental entity audits performed in the state of Florida and require that certain items be addressed in this letter.

L The Rules of the Auditor General (Section 10.554(1)(h)1.) require that we address in the management letter, if not already addressed in the auditor's reports on compliance and internal controls or schedule of findings and questioned costs, whether or not recommendations made in the preceding annual financial audit report have been followed. The status of prior year findings are reported under the heading Status of Prior Year Audit Recommendations.

As required by the Rules of the Auditor General (Section 10.554(l)(h)2.), the scope of our audit included a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Alachua, Florida complied with Section 218.415, Florida Statutes.

The Rules of the Auditor General (Section 10.554(1)(h)3.) require that we address in the management letter any Li findings and recommendations to improve financial management, accounting procedures, and internal controls.

Matters required to be disclosed and other recommendations are reported under the headings Status of Prior Year Audit Recommendation and Current Year Findings and Recommendations.

The Rules of the Auditor General (Section 10.554(1)(h)4.) require disclosure in the management letter of the following matters if not already addressed in the auditor's reports on compliance and internal controls or schedule of findings and questioned costs and are not clearly inconsequential: (1) violations of laws, rules, regulations, and contractual provisions that have occurred, or are likely to have occurred; (2) improper or illegal expenditures; (3) improper or inadequate accounting procedures (e.g., the omission of required disclosures from the financial statements); (4) failures to properly record financial transactions; and (5) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of, the auditor. Our audit did not reveal any matters required to be disclosed by Rules of the Auditor General (Section 10.554(1)(h)4.).

79 Mem~bers:

• American Institute of CPA

• Center for Public Company Audit Firms

• Private Companies Practice Section

• Florida Institute of CPA

Honorable Mayor, City Commissioners, L

and City Manager City of Alachua, Florida The Rules of the Auditor General (Section 10.554(l)(h)5.), also require that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in the management letter, unless disclosed in the notes to financial statements. This information has been disclosed in the notes to the financial statements.

L As required by the Rules of the Auditor General (Section 10.554(l)(h)6.a.), a statement must be included as to whether or not the local government entity has met one or more of the conditions described in Section 218.503(1),

Florida Statutes. In connection with our audit, we determined that the City of Alachua, Florida did not meet any of L

the conditions described in Section 218.503(1), Florida Statutes.

As required by the Rules of the Auditor General (Section 10.554(l)(h)6.b.), we determined that the annual financial L

report for the City of Alachua for the fiscal year ended September 30, 2005, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2005.

L As required by the Rules of the Auditor General (Sections 10.554(h)6.c. and 10.556(7), we applied financial condition assessment procedures. It is management's responsibility to monitor the entity's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. No findings were noted in this regard.

This management letter is intended solely for the information of the Mayor, City Commissioners, City Manager, L

management, and the State of Florida Office of the Auditor General, and is not intended to be and should not be used by anyone other than these specified parties.

U Bradenton, Florida December 15,2005 LL L

L 80

PRIOR YEAR FINDINGS AND RECOMMENDATIONS Li 01-06 Pooled Cash Reconciliation During prior audits, we noted that the City's pooled cash reconciliation was not being accurately or timely prepared, and that the pooled cash fund did not reconcile to the cash accounts in the individual funds.

Status - During the current audit, we noted pooled cash reconciliations were being reconciled to the pooled L

cash account on a timely basis; however, the pooled cash account was not being reconciled to the pooled cash accounts in the individual funds. We assisted management in reconciling pooled cash to the pooled cash accounts in the individual funds, and have made the necessary adjustments. We again recommend and emphasize to management the necessity of reconciling the pooled cash to the pooled cash accounts in the individual funds.

i 03-02 Capital Asset Software During prior audits, we noted that the City was not able to calculate depreciation accurately using the capital asset L

module of the City's accounting system, and thus was manually calculating depreciation.

Status - During the current audit, we noted that the City was still not utilizing the capital asset module of the L

City's accounting system. We strongly recommend that the City obtain training and convert to a computerized system to accumulate and calculate depreciation expense. This will eliminate a significant amount of manual recordkeeping duties, make operations more efficient, and provide more accurate L

information regarding capital assets.

L CURRENT YEAR FINDINGS AND RECOMMENDATIONS 05-01 Enterprise Funds Capital Assets Our review disclosed discrepancies between the City's detailed schedule of capital assets for the enterprise funds and the general ledger. There are no procedures for reconciling detailed capital asset records to the general ledger on a regular basis and the lack of such procedures has led to inaccurate accounting for capital assets. Although adjustments have been posted at year-end to correct discrepancies, management needs to implement procedures to ensure accurate accounting for capital assets.

L We recommend the City perform a complete inventory of the enterprise fund capital assets, research historical records, and attempt to reconstruct the capital asset records of the enterprise funds. These records should be reconciled to the general ledger on a timely and ongoing basis.

05-02 Segregation of Duties Our review disclosed an inadequate segregation of duties for the accounts payable function. The accounts payable clerk enters invoices into the accounting system for payment, prints checks, and prepares the mailing of the checks to the respective vendors. The City utilizes blank paper stock for their checks, whereby the check number, bank account number, and all other check information is printed on the checks electronically, including the signature. As a result, unauthorized cash disbursements could be processed without being detected on a timely basis.

81

L We recommend that the City reassign the check printing function to another employee or limit the accounts payable clerk's access to the signatures of authorized signers in order to eliminate any opportunity for unauthorized cash disbursements.

L 05-03 Receipt of Goods or Services L

Invoices are not being approved by the department initiating or incurring the cost to evidence that the goods or services were received. Although the Assistant Finance Director is reviewing and approving the expenditure and cash disbursement edits for each check run to make a determination that the cash disbursement is valid and there is supporting documentation to support the cash disbursement, the Assistant Finance Director does not have direct knowledge that the goods or services were received and there is no documented evidence to support they were received.

We recommend that management establish a means to ensure goods or services purchased were actually received by the department incurring the cost. Review and approval of the related invoice by someone in the respective department is one way of obtaining that documentary evidence.

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(ftp of qtarbua The Good Life

- Community Celebrating a Century 1905-2005 Clovis Watson, Jr., MPA City Manager Jean Calderwood Mayor Bonnie Burgess Vice-Mayor James Lewis Commissioner Orien Hills Commissioner Gib Coerper Commissioner March 13, 2006 The Honorable William 0. Monroe State of Florida Auditor General Claude Pepper Building, Room 401 I I 1 West Madison Street Tallahassee, FL 32399-1450 RE: Management Letter Responses for 9/30/05 Audit

Dear Mr. Monroe:

After reviewing the Independent Auditor's Management Letter, the City Staff have implemented the following recommendations in response to Auditor's comments.

Commission and the Independent If any further assistance is needed please contact me at (386) 462-1231 between the hours of 8:00 AM and 5:00 PM Monday - Friday.

Sincerely, Clovis Watson Jr., MPA City Manager 15001 NW 140th St.

Alachua, Florida 32615 P.O. Box 9 32616 83 Phone 386.462.1231 fax 386.462.1985.

www.cityofalachua.com

The City of Alachua has taken action to implement prior and current recommendations as follows:

L 01-6 Pooled Cash Reconciliation:

L Audit Response: Administration has reconciled the pooled cash account monthly on a timely basis since the FY 01 audit findings. However, we were not reconciling the pooled cash account to the pooled cash accounts in the individual funds. The Administration now utilizes a spreadsheet created by CPA Associates to reconcile the pooled cash account to the pooled cash accounts in the individual funds. This is done on a monthly basis.

03-02 Fixed Asset Software:

I Audit Response: The Administration will again review the records of the assets entered into the fixed asset module to ensure their accuracy. There will be a large number of assets disposed of during FY 06.

When the assets are disposed of correctly in the system, the previously omitted information needed to L

properly use this module will be entered. Also, various depreciation schedules will be consolidated or removed. It is anticipated that this process will take approximately 4-5 months. The Administration believes that the module will be functioning properly for the upcoming fiscal year.

05-01 Enterprise Funds Capital Assets:

L L

Audit Response: The Administration will again perform a complete inventory of the enterprise funds capital assets and research historical records in order to reconstruct the asset records for the enterprise funds. Reconciliation with the general ledger will be performed monthly to ensure that the records are accurate. The Administration will work with CPA Associates to get this project started and completed.

05-02 Segregation of Duties:

L Audit Response: Although there were no unauthorized cash disbursements during the fiscal year, the L

Admninistration has reworked the accounts payable process in order to limit the accounts payable clerk's access to the signatures of authorized signers in order to eliminate any opportunity for unauthorized cash disbursements. The accounts payable clerk is no longer responsible for the printing of disbursement L

checks. The responsibility resides with the Finance Director who does not input invoices for payment or reconcile the City's bank account statements.

L L

L 84 at o at0ua L

15001 NW 140th St, Alachua, Florida 32615 Box 9 32616 Phone 386.462.1231 fax 386.62.1985 www.cityofalachuacom L

05-03 Receipt of Goods or Services:

Audit Response:

The Administration currently requires that the appropriate department approve all invoices before they will be processed for payment. For the most part, this occurred during the fiscal Lw year, but there is still need for improvement. The Administration will continue to enforce this requirement for the departments. Also, the Administration will create stamps to be used by each department that will have spaces for a date when goods were received as ordered in quality and quantity 6

and for signatures. Finance staff will not process invoices for payment without the appropriate signatures.

85 I tp of MIObua 15001 NW 140th St., Alachua, Florida 32615 Box 9 32616 Phone 386.462.1231 fax 386.462.1985 vWW.cityofalachua.com

GAINESVILLE REGIONAL UTILITIES I ANNUAL REPORT 2004 - 2005

DESIGN & PRODUCTION PRO iNK Corporation COPYWRITING Maureen Tartaglione PHOTOGRAPHY Media Image Photography, Principal Photography Tracy Wilcox, The Gainesville Sun (page 114)

Allen Cheuvront (page 15, left):

Earl Taylor (page 15, right)

Domino's Pizza, Inc. (page 16)

PRINTING StorterChilds Printing Co.

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CONNECTED: TO THE GREATEST NUMBER FOR THE GREATEST GOOD 11 CONNECTED: TO THE SMARTEST STRATEGIES FOR THE BEST RETURNS 17 CONNECTED: TO THE HOTTEST INNOVATIONS FOR THE BRIGHTEST FUTURE 22 2004-2005 STATISTICS 23 FISCAL YEAR 2005 HIGHLIGHTS 24 CUSTOMERS AND SALES 25 FINANCIAL STATEMENTS 26 Management's Discussion and Analysis 29 Report of Independent Certified Public Accountants 30 AUDITED FINANCIAL STATEMENTS 30 Balance Sheets 32 Statements of Revenues, Expenses and Changes in Net Assets 33 Statements of Cash Flows 35 Notes to Financial Statements 47 SUPPLEMENTAL SCHEDULES 48 Schedules of Combined Net Revenues in Accordance with Bond Resolution 49 Schedules of Net Revenues in Accordance with Bond Resolution 50 Electric Utility Fund 51 Gas Utility Fund 52 Water Utility Fund 53 Wastewater Utility Fund 54 GRUCom Utility Fund 55 Notes to Schedules of Net Revenues in Accordance with Bond Resolution 56 Combining Balance Sheet 58 Combining Statement of Revenues, Expenses and Change in Net Assets 59 Schedule of Utility Plant Properties-Combined Utility Fund 60 Schedule of Accumulated Depreciation and Amortization-Combined Utility Fund 60 OTHER REPORTS Independent Certified Public Accountants' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Ii 01-11 I

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ENERGIZED TEAM F OR GES P OW ERFUL C ONNEC TIO N

W e, like everyone in America, felt the Weffects of a tumultuous year.

Fortunately, we escaped disasters such as the hurricanes and were privileged to send crews to help those less fortunate. In fact, we gratefully report that we had a good year, during which we further connected ourselves to our community and to our neighbors.

In the pages that follow, we will describe what makes us strong and moves us forward. Our stability is grounded in the quality and number of our relationships. In short, we are connected. We use those con-nections to get good prices from our vendors, to deliver services that our customers want, and to employ the best technology in pro-ducing clean, safe, affordable and efficient electric, natural gas, water, wastewater and telecommunications services.

Perhaps the clearest indicators of our financial stability and success each year are our bond ratings. Both Moody's and Standard and Poor's once again gave us their "Double A" ratings. There are more than 2,000 municipal utilities in the nation, and only 14 share this distinction. We have achieved these designations every year since the late 1980s.

Access to the low interest financing afforded by these ratings has given us the flexibility to make proactive capital improvements, reduce debt and keep rates competitive for our customers. For example, a bond refinancing this year will save more than $13 million for our customers over the next 30 years.

Keeping rates affordable was a primary focus last year. We successfully responded to Hurricanes Frances and Jeanne in 2004, but even so, we used what we learned to update our strategy, further mitigating potential financial impact.

We have integrated a risk-based strategy into our own planning. This approach enhances stability by shifting resources to targeted areas of need, which will be reassessed annually. For 2006, we've reserved $56.9 million to cover any unantici-pated expenses, such as those triggered by natural disasters. We've seen immediate results in terms of positive feedback from the financial markets.

Being connected to diversified fuels sources for the production of electricity is a distinct advantage, as well. Although natural gas prices sky-rocketed this year, our fuel diversity protected our customers from the extreme prices other utilities were forced to charge. About 65 percent of our electric fuel needs are met with coal. We can also burn cheaper alternatives to natural gas when available, such as fuel oil. For the natural gas we do need, we've offset some of the price impact through long-term secure con-tracts. And, of course, we have natural gas a

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4 available for direct use in the home, where it is still very cost-effective for appliances such as water heaters, stoves and dryers.

We have proposed an additional environ-mentally secure, solid fuel-burning electric generating unit that would help keep rates affordable, and we are retrofitting our current coal-burning unit to perform far better than new federal environmental standards while still providing cost-effective electric generation.

We are proud of the fact that although we had to raise our electric base rates slightly this year, it is the first time we have had to do so in more than a decade.

Water and wastewater customers also saw increases, but natural gas rates remained unchanged. A typical residential electric, water and wastewater customer saw an increase of less than $5 per month.

Another way in which we stay connected with our customers is through a continuous surveying strategy designed to determine what services they want and need. Since 2002, we've contracted with RKS Research and Consulting, a professional public opinion polling group. This year, our customers gave us high ratings for giving them value for their utility dollar.

Our customer rankings compare us favorably with our peer institutions. In fact, our business scores are on par with some of the top ranked utilities in the nation. And our hard-earned reputation, and the high quality of life in our community, continues to help us attract and retain a superior staff.

This year we added two key members to our executive team. Both are valued for sound but innovative thinking, which is a hallmark of our organization.

In recognition of our renewable energy program, GRU was awarded the Green Power Beacon Award, granted jointly by the U.S. Department of Energy, the U.S.

Environmental Protection Agency and the Center for Resource Solutions. In addition, the American Society of Civil Engineers recognized GRUgreen', our landfill gas-to-energy program as Project of the Year for 2005. Our annual report also won recognition this year, taking the American Public Power Association's first place Award of Excellence, for providing in-depth and accessible data.

In this report, we summarize relation-ships that provide quality of life services to our customers, connections that reduce costs and enhance comfort, and relationships that provide added value to our community. This past year has been remarkable for GRU, largely because we remain connected.

Michael L. Kurtz General Manager

NOTABLE ACCOMPLISHMENTS OF 2005

• Refinanced bonds to save S1 3.2 million over the next 30 years Received a AA rating and Aa2 rating from Standard and Poor's and Moody's Investors Service, respectively

• Earned the 2005 Green Power Beacon Award for green power marketing excellence

• Earned the 2005 Project of the Year Award for excellence in civil engineering

• Earned the APPA's Award of Excellence for annual reports

• Earned good Value Ratings from residential and commercial customers

• Reached the 56 percent level of electric lines undergrounded

• Attracted top management talent for two key executive positions

• Received the "Tree City USA' designation for the 5th year in a row

• Assisted in generating $484,200 in grants and donations to help struggling residents, including:

- $340,000 federal money awarded through the Central Florida Community Action Agency

- S62,000 granted by Alachua County to support ConnectFREE

- $68,800 donated by citizens to help pay utility bills for disadvantaged customers

- $13,400 raised from the business community to support our Adopt-A-School

• Formed a buying alliance (Colectric) that helped save us more than half a million dollars

• Expanded our broadband product line by selling the first gigabit Ethernet service in Gainesville, capable of transferring the equivalent of 200 full-length feature films per second

• Launched a Rebate Program to encourage conservation and save customers up to 50 percent annually G)

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777.X-STRENGTH BUILDS AS SERVICE EXPANDS

One measure of a well-connected Organization is how far it reaches into the community. This year, we extended our services, upgraded our infrastructure and formed new partnerships.

As much as possible, we try to ensure that all members of our community have the basic quality of life services that we offer.

We do not turn our backs on those in need, but neither do we place a burden on our available resources.

In addition to providing flexible pay-ment options to keep ratepayers connected during periods of high fuel prices, we facilitate community donations that help low-income families stay connected. In one particular initiative, ConnectFREE, we con-nect disadvantaged families to the safe and reliable water supply we produce for our community.

In 2001, we secured a grant to start the ConnectFREE program. Through ConnectFREE, we identified low-income families that had to rely. upon private wells as their only source of water. These families were within our service area, but were not in an area that had an established water system infrastructure. They could not afford the fees to pay for the construction them-selves. Through this program, City water services have been extended to 1 8 new families.

EXPANDED NETWORK AND INFRASTRUCTURE INCREASE OUR CUSTOMERS QUALITY OF LIFE

COMMUNITY COLLABORATION KEEPS CUSTOMERS CONNECTED Another initiative in which we work to meet the needs of our less fortunate customers is the Social Services Summit.

We network with representatives from local churches, government agencies and non-profits to connect those providing assistance with those who seek it. Annually, during the summit, we meet with representatives of these organizations and map out the most effective strategy for securing and disseminating aid for the coming year.

Through these other efforts such as GRU's Project Share, we help keep low-income customers connected by finding funds to help them pay their bills.

As a result of our collective efforts, 1,350 of our customers received nearly

$340,000 from the Low Income Home Energy Assistance Program in 2005.

Through Project Share, our own generous customers kicked in another $68,800 to help pay utility bills for almost 500 customers who couldn't.

In an effort to help keep all of our customers' bills affordable in the future, we have proposed the construction of a 220 megawatt solid fuel electric generating unit to be built at our Deerhaven Generating Station. In keeping with our commitment to fuel diversity, the proposed circulating flu-idized bed generating unit would burn a combination of fuels, including coal, petro-leum coke and biomass (in this case wood waste). Gainesville is situated in the midst of a large southern pine forest, which supports a large silvaculture industry. The biomass from these operations could fuel up to 30 megawatts of power on a continual basis.

We have determined that Gainesville needs this additional power by 2011 to provide additional base load capacity for our growing population. We've participated in numerous community workshops and City Commission meetings to gather public input on how to meet that need in a manner that is consistent with community wishes. The City Commission has prudently undertaken an independent review before committing to the proposed energy supply plan, which will be completed in 2006.

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CONSERVATION STRETCH OUR CUSTOMERS' E NERGY DOLLARS

ENHANCED EFFICIENCY This fall, we embarked on a conservation program to improve energy efficiency for our customers. We took a close look at a group of homes to determine if those cus-tomers could reduce energy costs simply by repairing leaks in their air ducts. To date, we have inspected and repaired ducts as needed in 100 pilot program homes. It's working. Energy efficiency has improved.

We will be extending this program to reap an even greater savings in the coming year.

This year, we joined a group of non-competing service providers that combine purchases for equipment and parts. When we negotiate and buy together, we and our Colectric Partners qualify for enormous volume discounts. In the past nine months alone, these bulk-rate contracts have saved us more than half a million dollars. We will save millions more over the next two decades, just by buying together.

Another partnership that continued to maximize the value of our resources this year is The Energy Authority (TEA). We are one of several equity owners of TEA, a nonprofit public utilities corporation that coordinates marketing and distribution of excess electric generating resources for its members. On a 24/7/365 basis, TEA ensures that we either get the best possible price for our excess capacity or are able to purchase power at the lowest price if our available capacity is more expensive than the market. Not only does this enhance our revenue-generating capacity, it mini-mizes our customers' power costs. It also reduces by thousands of manhours the time it would take us to research and negotiate these contracts.

REDUCES COST, EMPOWERS CUSTOMERS 0a (D

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OPPOSITEl:G RU monitors and pays a leading role in setting commuit.y A.a..resource qualify standards.

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In an innovative campaign, we enlisted Ithe cooperation of our customers to reduce wastewater spills. Preventing these spills protects public health and safety, as well as the environment. It also reduces system expenditures -

cleaning up wastewater spills represents a significant cost to waste-water utilities. Although we have one of the lowest spill rates in the nation, we want to continue to improve. We've employed research conducted by the Environmental Protection Agency to target the largest source of spill-producing blockages: cooking grease. It turns out that something as simple as keeping grease out of kitchen drains can LO, help eliminate the number one cause of spills. Therefore, we created "Think before you put it in the sink," a hands-on, user-

° friendly campaign to educate customers.

I-Our "Grease Team" distributed to customers o °nearly 5,000 foil-lined receptacles to help Cs raise awareness and keep the wastewater D

from overflowing.

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<We selected a 120-acre tract to con-a, struct our new East Gainesville Operations 5 2Center as a base for field work on the east 0

side of our service area. Located directly 0) 12 adjacent to major east/west and north/south arteries, it is easily accessible to vehicular traffic. Work flow also will improve as work groups consolidate into shared physical space.

We'll see further savings when we go online with our new Customer Information System (CIS) in January 2007. This software harnesses emerging technology to fully inte-grate myriad processes. Once it's up and running, our new CIS will simplify customer billing, decrease repair response time and eliminate financial record-keeping duplication.

Finally, we increased our participation in teams working to solve environmental prob-lems. GRU continues to work cooperatively with agencies like the Florida Department of Environmental Regulation. As a principal stakeholder, we provide research support to help determine thresholds like the Total Maximum Daily Load -

the level of impurity a waterway can absorb without becoming polluted. Determining those levels is a chal-lenge. Meeting them is another. We have also been instrumental in creating Basin Management Action Plans to address these challenges.

LEADERSHIP

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North Central Florida, our home, is largely unspoiled. One of its greatest natural resources is the Floridan Aquifer, a huge underground body of pristine drinking water - and we plan to keep it that way.

The Cabot-Koppers Superfund site is located only two miles from the 60-acre Murphree well field, from which we pump all of our community's drinking water.

Beginning in 1916, wood treatment chemi-cals that we now know to be hazardous were stored in open unlined pits at the Superfund site. Although the site is now operated with techniques that are not haz-ardous, the problem remains in the ground.

We've assembled a team of world-renowned experts to evaluate the problem, and they determined that contamination from the site is a potential threat to our well field.

Beazer East, Inc. is the company now responsible for the clean-up of the site, and has stated that the threat of contamination is minimal. Beazer has stated that the chemi-cals will not reach the aquifer for 1 00 years or more, and by that time, they would be diluted and harmless. Such a finding, if supported by scientific data, would be good news indeed. Unfortunately, it did not hold up to an independent analysis. Our team of internationally recognized experts concluded that Beazer East, Inc. has severely underesti-mated the potential threat, which could be much more imminent. With the help of the Environmental Protection Agency and Senator Bill Nelson (D-Fla.), we've pushed for the installation of specialized on-site monitoring wells to provide early warning of contamination. Beazer East, Inc. began installing those wells in August. We will continue to play an active role in monitoring and pressing for full remediation.

In another part of town, we've embarked upon a plan that transforms a different Superfund clean-up site into ENLISTED AID AND SERVICE TO OTHERS PROTECTS OUR COMMUNITY RESOURCES Sen. Bill Nelson (D-Fla.) has aided 

our efforts to speed the clean-up of on environmenta!ly hazardous site.

additional green space for the community.

We broke ground in February on "Depot Park." Because the site formerly housed a manufactured gas plant, there were few uses for which it was suitable. Finally, we collaborated with the community to clean and restore the area. When it is complete, we will have dug up and treated any remaining contaminated soil, and land-scaped a meditation pond, which will double as an additional water retention pond for downtown.

Our employees also helped keep other communities connected this year.

When a 250-pound natural gas line was accidentally severed one weekend in Leesburg, Florida, our employees dropped weekend and vacation plans to immediately assist through Mutual Aid Agreements.

This year, residents fleeing the effects of Hurricane Katrina left gas meters on throughout New Orleans' Ninth Ward.

Overburdened local utility workers lacked the manpower to alleviate the situation. For two weeks in September, our Field Services and Gas Measurement employees were stationed in a tent camp near the danger zone. During the day, they methodically canvassed dangerous districts locating and "safing off" gas services to prevent tragedy.

In addition to the Field Services crews, Electric, Water and Wastewater employees assisted all along the gulf coast in every way we could serve our neighbors in need due to Katrina and Jeanne. Our employees also assisted in south Florida after Wilma added to the worst storm season in memory.

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SUPPORT 16 TECHNOLOGY TO HARNESS MORE POWER-

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NNOVATIONS FOR THE BRIGHTEST FUTURE GRU pioneered a partnership with our customers to bring green energy to our community. Customers voluntarily contribute money each month to support the GRUgreen' Energy program.

Our community is not situated in a climatic region that can use wind, hydro or geothermal energy, and even solar is better suited for a desert climate than the rain-abundant "sunshine" state. So we tapped into an energy source that was going to waste. Literally. Most municipalities must deal with the issue of methane gas build-up in landfills. Naturally biodegrading organic refuse produces gas. Lots of it. Methane, when released into the atmosphere, con-tributes to global warming and must be disposed of under federal guidelines.

Generally, operators simply burn the gas to get rid of it.

In our community, we are using that methane gas to generate electricity. We installed three generators at a local closed landfill that produces several megawatts per hour of energy. In this way, a community waste product becomes a community asset.

And the community recognizes and supports the effort. Our customers and contributors are supporting nearly 70 percent of the energy being produced. In addition, we have several solar demonstration projects.

We are committed to connecting with the fuels of the future.

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GRUCom provides communications services that are among the most technologically advanced in the nation.

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e are constantly growing in our Wunderstanding of the power of new technology to transform and disseminate information. This year we've seen tremen-dous leaps in how fast and how vast we can transmit information. When it comes to hyperspace, speed matters. We're on it.

We've launched a Gigabit Ethernet service, and thereby accelerated the trans-mission of information to GRUCom-connected customers. In fact, we've given our customers one of the fastest information tracks in the nation. In our community, data blasts across more than 250 miles of fiber optic track at one thousand megabits per second. That's so fast that even a transmission bloated with the equivalent of 200 full-length feature films hits the receiver in about the time it takes an average person to hit "send."

Next year will mark the 1 0th anniver-sary of GRUCom, our telecommunications arm. Originally premiered to connect GRU facilities with commercial and government entities, it has evolved to serve as a high speed Internet access provider and public safety radio beacon. We also lease out tower space for an additional source of revenue.

The only true limit on our ability to fully capitalize on this community asset is regula-tory. In 2005, legislation was proposed for the state of Florida that would have limited the ability of local governments to continue to lead in the deployment of innovative broadband service. We worked with the Florida Municipal Electric Association and other communities to successfully protect the

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right of municipal utilities to provide telecom-munications services. We will continue to monitor legislation and defend the rights of our customers to access superior, cost-effective service.

Our forward-thinking financial strategy also paid off this year when the U.S.

Environmental Protection Agency passed new air emissions rules that directly affect many utilities in Florida, which will have to meet the new standards by 2010. We find that we are in great shape to comply.

Because we are consistently "Double A" air emission requirements. We will be advanced beyond the necessary compliance so we can also meet future requirements without additional capital outlay.

Another proactive program is our new Conservation Rebate Program in which we've developed a package of incentives to motivate our customers to conserve. Beginning this year, consumers who install new energy-efficient air conditioners and heaters, or those who employ specified energy-saving upgrades, will see a double benefit: lower bills and money back to offset their costs through our six new electric rebate programs.

bond-rated, our bond issues have a lower interest rate and therefore are highly attrac-tive to investors when we need capital. By 2010 we will have retrofitted our Deerhaven Unit 2 to better meet all state and federal G) 2.C

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STRENGTHENED O ne of our most important and farthest-reaching programs connects us to the future of our community. We work extensively to help educate the next generation of energy users. We play our part in ensuring a safe and aesthetically pleasing environment, with abundant resources in which to raise our children.

We collaborated with our local school board to create the Energy Conservation School Curriculum. Starting in 2003, we began pulling together the best available materials from organizations such as Rebuild America Energy Smart Schools, the Department of Energy and the American Public Power Association. We enlisted the help of our elementary and middle school teachers to design teaching aids about energy production, use and conservation.

With their help, we created ways to make learning about energy hands-on and fun, two criteria that enhance life-long retention of information.

Games like "Bingo Save" and "The Pay Me Game" challenge students to evaluate energy use in their homes and community to discover, in terms of real dollars, what their behavior costs. This year, the curricu-lum materials are being used in a pilot program with nine area schools. Such pro-grams will give our children the tools they need to assume responsibility as stewards of the future.

Our staff works individually and as a team to support the schools throughout the year. During our annual Business Partners Golf Tournament we team up with our busi-ness community to raise funds for our adopted school, Williams Elementary. This year alone, we raised $13,400 for the school, and our employees generously donated time to men-tor students.

We've also made a significant contri-bution in beautifying the world the children will inherit. We've embarked upon a number of projects to place facilities underground.

As of October 2005, 56 percent of our electric lines are underground.

In addition, we've completed a major project in cooperation with the City's Public Works Department and the Department of Transportation to transform the streetscape of University Avenue. Undergrounding, black octagonal power poles, reliable aerial cable, new mast-arm traffic signals, colonial-style street lamps, upgraded landscaping and faux brick crosswalks now combine to create a welcoming gateway into the heart of the city.

This year, we've strengthened our relationships at every level, and forged new ones. In doing so, we've multiplied our ability to provide reliable, affordable and clean energy for customers and our community well into the future.

At GRU, we stay connected.

RELATIONSHIPS MULTIPLY OUR ABILITY TO PROVIDE FOR OUR COMMUNITY 3

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Kelly Generating Station Net Capability..........................

Share Ownership of Crystal River 3.............

Southwest Landfill..........................

Combined System..........................

Energy Delivery - Electric System Service Area..............................

Transmission.............................

Distribution Overhead (44%).........................

Underground 156%).......................

Total.................................

Distribution Substations.......................

Energy Delivery - Natural Gas System Service Area..............................

Distribution Mains..........................

Delivery Points.............................

Water System Walter E. Murphree Water Treatment Plant Treatment Capacity........................

Storage Capacity.........................

Supply Wells............................

Water Service Area.......................

Distribution Mains.........................

Wastewater System Kanapaha Water Reclamation Facility Treatment Capacity........................

Main Street Water Reclamation Facility Treatment Capacity.......................

Combined Treatment Capacity.................

Collection Service Area......................

Gravity Mains.............................

Force Mains..............................

Lift Stations...............................

Telecommunications Miles of Fiber Optic Cable....................

On-net Locations...........................

Maximum Bandwidth.......................

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""Net Cbiability f,.1,MW i.1 4 s.2 miles

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FISCAL YEAR 2005 HIGHLIGHTS Financial Net revenues 7649 163 82,998,479

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Aggregate ebt service

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Aggregate bond coverage ratio 307 3,1 1

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Total debt service coverage ratio 2.16 247 42.6%

Long-term debt 434925 8,696,515 3 339%

Net utility plant 674 710,009,596 31%

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Natural gas, Retail 31,70 30i901 62.6%

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CUSTOMERS & SALES NATURAL GAS CUSTOMERS (thousands of customers]

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MANAGEMENT'S DISCUSSION AND ANALYSIS TABLE 1 Combined Utility System Net Assets The City of Gainesville, Florida owns and operates a combined utility system (System) doing business as Gainesville Regional Utilities (GRU) which provides five separate utility functions. The utility functions consist of an elec-tric generation, transmission and distribution system (Electric System), water production and distribution system (Water System), a wastewater collection and treatment system (Wastewater System), a natural gas distribution system (Gas System) and a telecommunication system (GRUCom). Each of these sys-tems is accounted for internally as a separate enterprise fund but reported as a combined utility system for external financial reporting purposes.

We offer readers of GRU's financial statements this management discussion and analysis of GRU's financial statements for the fiscal years ended September 30, 2005 and 2004. It should be read in conjunction with the financial statements that follow this section.

REQUIRED FINANCIAL STATEMENTS Balance Sheet. This statement includes all of GRU's assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to GRU's creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the System and assessing the liquidity and financial flexibility of GRU.

Statement of Revenues, Expenses and Changes in Net Assets. All of the current year's revenues and expenses are accounted for in this statement. This state-ment measures the success of the combined utility system's operations over the past year.

Statement of Cash Flows. The primary purpose of this statement is to provide information about the combined utility system's cash receipts and cash pay-ments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting from operating, investing and financing activities.

Notes to financialStatements. The notes provide additional information that is essential to fully understanding the data provided in the financial statements.

The notes to the financial statements can be found on pages 35-46 of this report.

FINANCIAL ANALYSIS OF THE COMBINED UTILITY SYSTEM The Utilities' System net assets decreased by $1.4 million from 2004 to 2005 and increased $8.4 million from 2003 to 2004. Table 1 focuses on the net assets.

(in thousands)

September 30 Current and other assets Capital assets, net Total assets Long-term debt outstanding Current and other liabilities Total liabilities Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 2005 2004 2003

$ 345,937 $ 367,648 $ 420,434 732,361 710,010 682,740 1,078,298 1,077,658 1,103,174 434,983 418,697 432,926 291,160 305,382 325,039 726,143 724,079 757,965 297,056 299,671 263,207 48,187 48,744 79,487 6,912 5,164 2,515

$ 352,155 $ 353,579 $ 345,209 Changes in net assets can be further explained using the following condensed statements of revenues, expenses and changes in net assets.

TABLE 2 Combined Utility System Changes in Net Assets fin thousands)

September 30 2005 2004 Operating revenues Interest income Gain/(loss) on sale of investments Total revenues Operating expenses Interest expense, net Total expenses Income before contributions and transfers Capital contributions, net Operating transfer to City of Gainesville Change in net assets Net assets, beginning of year Net assets, end of year

$ 252,217

$ 240,755 4,390 4,156 2003

$ 225,624 6,298 (168) 2,720 2S6A439 247,631 231,922 216,174 198,516 180,972 19,445 18,657 20,362 235,619 217,173 201,334 20,820 30,458 30,588 5,036 4,922 3,657 (27,280)

(27,010)

(25,915)

(1 424) 8,370 8,330 353,579 345,209 336,879

$352,155

$353,579

$345,209

CAPITAL ASSET AND DEBT ADMINISTRATION CapitolAssets. GRU's investment in capital assets as of September 30, 2005, amounts to $732.4 million (net of accumulated depreciation). This investment in capital assets includes land, generation, transmission and distribution sys-tems, buildings and fixed equipment, and furniture, fixtures and equipment.

The net increase in the investment in capital assets (net of accumulated depre-ciation) for the current fiscal year was 3.1 %. In fiscal 2004 it increased 4.0%.

The following table summarizes the System's capital assets, net of accumu-lated depreciation and changes for the years ended September 30, 2005, 2004 and 2003.

Combined Utilities System Capital Assets (net of accumulated depreciation)

(in thousands)

Outstanding Debt (in thousands)

September 30 Senior Lien revenue bonds Subordinated revenue bonds Tax-exempt Commercial Paper Taxable Commercial Paper Total 2005

$ 298,935 71,600 80,591 16,231 2004

$ 309,035 74,500 51,844 17,031 2003

$ 318,620 77,300 53,700 17,815

$467,357

$452A410

$467,435 September 30 Generation Transmission, distribution and collection Treatment General plant Plant held for future use Plant unclassified Construction work in progress Total net utility plant 2005 2004 2003

$ 173,998

$ 175,696

$ 168,365 350,178 349,673 67,919 68,291 30,201 32,157 6,054 6,054 5,458 5,178 98,553 72,961 331,446 48,528 31,152 6,054 25,737 71,458

$732,361

$710,010

$682,740 Major capital asset events included the following:

• Water treatment net expansion was $1.6 million in 2005 and $2.6 million in 2004 and included $1.5 million for Murphree Lime Slaker replacement.

• Electric transmission and distribution expansion was $8.3 million in 2005 and $9.3 million in 2004 and included $2.4 for the landfill renewable gas project.

• Fiber optic service expansion was $504,000 in 2005 and $6.7 million in 2004.

• Electric production plant increased $6.4 million in 2005 and $16.6 million in 2004 and included boiler control upgrades of $4 million at the Deerhaven Generation Unit in 2004.

The Utility's 2006 capital budget is $62.1 million and was $57.8 million in 2005. These projects will be funded from a combination of internal equity and debt.

Additional information on capital assets may be found in Note 3 on page 38 of this report.

Long-Term Debt. At September 30, 2005 and September 30, 2004, GRU had total long-term debt outstanding of $467.4 million and $452.4 million, respectively, comprised of revenue bonds and other long-term debt.

On September 21, 2005, the City entered into an interest rate swap agree-ment with a November 16, 2005, effective date with Bear Stearns Financial Products, Inc. (BSFP) for an initial notional amount of $55.1 million amortiz-ing down to zero on October 1, 2026. Under the terms of this swap, the City would pay BSFP 3.20% interest on certain payment dates and, in return, BSFP would pay the City a floating rate based on a specified index.

On September 21, 2005, the City entered into an interest rate swap agree-ment with a July 6, 2006, effective date with Goldman Sachs Mitsui Marine Derivative Products, L.P. (GSMMDP) for an initial notional amount of $53.3 million amortizing down to zero on October 1, 2026. Under the terms of this swap, the City would pay GSMMDP 3.224% interest on certain payment dates and, in return, GSMMDP would pay the City a floating rate based on a specified index.

On April 28, 2005, the City issued Utilities System Commercial Paper Notes, Series C in the amount of $31.0 million, to finance ongoing construc-tion projects.

On January 30, 2003 the City issued Utilities System Revenue Bonds, Series 2003A and 2003B in the amounts of $33,000,000 and $7,625,000 respectively. The 2003A Bonds mature on various dates from October 1, 2015 through October 1, 2024. The 2003B Bonds mature on various dates from October 1, 2004 through October 1, 2013. The 2003A Bonds matur-ing on or after October 1, 2013 are subject to redemption at the option of the City on or after October 1, 2013 at 100%. The 2003B Bonds maturing are not subject to redemption prior to maturity.

On March 20, 2003, the City entered an interest rate swap agreement with an August 28, 2003 effective date with JP Morgan Chose Bank UP Morgan) for an initial notional amount of $121,525,000 amortizing down to zero on October 1, 2013. Under the terms of this swap, the City would pay JP Morgan 3.41% interest on certain payment dates and, in return, JP Morgan would pay the City a floating rate based on a specified index. On August 20, 2003, the City issued Utilities System Revenue Bonds, Series 2003C in the amount of $115,925,000. The proceeds of these Bonds were used to refund the 1993 Series A and 1993 Series B Bonds outstanding after October 1, 2003 and $6,235,000 of the 1996A Bonds maturing October 1, 2004 through October 1, 2008 and to pay an amount to terminate this swap agree-ment with JP Morgan.

The System maintains ratings of Aa2 and AA with Moody's Investors Services and Standard & Poor's (SP), respectively for its revenue bonds. The System has ratings of A-1 and P-1 for its commercial paper.

Additional information on long-term debt can be found in Note 4 on pages 39-42 of this report.

FINANCIAL HIGHLIGHTS The most significant changes in GRU's financial condition are summarized below:

• Operating sales revenue increased $17.5 million, or approximately 7.9%, and $15.1 million, or approximately 6.7%, in fiscal 2005 and 2004, respectively. Included in this amount is approximately $13.0 mil-lion and $8.2 million associated with higher fuel costs incurred in fiscal 2005 and 2004, respectively. These higher fuel costs are passed directly through to our customers as part of a fuel adjustment charge which is recorded as revenue.

• Fiscal 2005 year end fuels payable increased $8.0 million, or approxi-mately 300%, compared to fiscal 2004 year end. The primary reason for the increase was the significantly higher cost of natural gas in 2005.

Additionally, there was a buildup of coal and oil inventories as a safe-guard against potential non-availability of gas.

• Net capital contributions from developers increased $115,000 in fiscal 2005 over fiscal 2004 and increased $1.3 million in fiscal 2004 over fiscal 2003. The drop in fiscal 2005 was due to a leveling off of housing development in the area versus the increased activity seen in develop-ment in fiscal 2004.

• Gross utility plant in service increased $26.5 million, or 2.6%, and net capital assets increased $22.4 million, or 3.1%, in fiscal 2005. In fiscal 2004, gross utility plant in service increased $51.2 million, or 5.2%, and net capital assets increased $27.3 million, or 4.0%. This is summarized under 'Capital Assets," on page 38.

• Long-term debt increased $ 14.9 million, or 3.3%, in fiscal 2005 because of the issuance of Commercial Paper Notes totaling $31.0 million, offset by scheduled debt poydown of principal. Long-term debt decreased

$15.0 million, or 3.2%, in fiscal 2004 because of scheduled debt pay-down of principal. See 'Long-Term Debt" on page 27, and the detail, on pages 39-42.

• The number of customers for electric, water, wastewater and gas servic-es increased 1.8%, 3.2%, 3.4% and 3.6%, respectively, in fiscal 2005, and 3.3%, 3.1%, 2.9%, and 1.8%, respectively, in fiscal 2004.

• GRU is in the process of remediation efforts at a former manufactured gas plant site. The costs incurred to date total $2.6 million and GRU estimates that remaining costs of the project will be approximately $9.1 million.

However, to date GRU has recovered $3.3 million from insurance, includ-ing $450,000 of that total in fiscal 2005. After recognizing collection fees paid, a net recovery of $2.2 million has been realized which will directly reduce the amount to be recovered through customer billings.

GRU has accrued a regulatory asset and liability to account for the cost and cost recovery of the expense, which is being amortized as costs are incurred and customer revenues are received. Further explanation of this activity is presented in note 13, page 45 of this report.

• GRU's service area incurred approximately $7.4 million of damage to its facilities as a result of two hurricanes in September 2004. Requests for Federal Emergency Management Agency (FEMA) funding have been sub-mitted. The bulk of the $7.4 million in storm-related expenses were accrued as part of fiscal 2004 activity and reported in current liabilities.

No amounts have been accrued for any possible FEMA recoveries as of fiscal year end 2005, as such recoveries have yet to be confirmed by FEMA as being realizable.

• In order to pay the unanticipated costs associated with the hurricanes, GRU used Rate Stabilization funds; however, as FEMA reimbursements are received, those moneys will be deposited back into the Rate Stabilization Fund. It is anticipated that FEMA reimbursements will total approximately $6.5 million.

• In November 2003, GRU purchased the service facilities and billing rights to 1,144 customer accounts from Clay Electric Cooperative at a cost of $1.6 million.

CURRENTLY KNOWN FACTS OR CONDITIONS THAT MAY HAVE A SIGNIFICANT EFFECT ON GRU'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS The primary factors affecting the utility industry include environmental regulations, restructuring of the wholesale energy market, the formation of independent bulk power transmission systems and the increasing strategic and price differences among various types of fuels.

Utilities, and particularly electric utilities, are subject to increasing federal, state and local statutory and regulatory requirements with respect to the siting and licensing of facilities, safety and security, air and water quality, land use and other environmental factors.

The system's Deerhaven and JR Kelly generating stations are subject to Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR) which were promulgated in 2005. As a result, significant capital and operating and maintenance expenditures will be required prior to 2009 and 2010.

Restructuring of wholesale markets and the formation of independent trans-mission systems have slowed considerably. No state legislation is pending or proposed at this time for retail competition in Florida. Any such restructuring of the Florida retail electric utility industry would be expected to affect the System. Currently, there is no initiative concerning retail electric deregulation in Florida or nationwide.

On October 1, 2005, GRU implemented an overall electric system rate increase of 3%. Customer charges for all classes increased by 5%. For Residential and General Service Non-Demand classes, each had a second rate tier increase with no increase to the first tier. General Service Demand and Large Power classes demand charges were also increased.

GRU also increased rates for both the water and wastewater systems by 15%. A further modification of the rate structure was made by the Gainesville City Commission effective October 1, 2005. Fire hydrant charges will be incorporated into base water rates across all classes.

There were no changes in gas rates.

The rate increases noted above may affect the financial condition and results of operations.

To meet increased costs of service, GRU also increased connection fee charges by 3.3% and 9.3%, for the water and wastewater systems, respec-tively.

GRU currently forecasts the need for new electric supply by about 2011, in order to maintain a 15% reserve margin. In 2002, GRU initiated an Integrated Resource Planning process to investigate options to satisfy its cus-tomer demand and supply needs. In early 2005, management proposed to the City Commission a plan that would include construction of a 220 megawatt solid fuel unit capable of generating 30 megawatts from biomass and a blend of coal and up to 50% petroleum coke. The plan would also reduce carbon intensity of the system by 14% while maintaining cost effective and reliable electrical supplies. In August 2005, the City Commission

3 A

3 A

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• 6 I*

I I 9



S 0

00 authorized management to issue a request for proposals to obtain an inde-REQUESTS FOR INFORMATION pendent consultant to further examine the plan developed. A consultant was This financial report is designed to provide a general overview of the Utility selected in November 2005.

The emerging role of municipalities as telecommunications providers has System's finances for all those with an interest in the System's finances.

resulted in a number of state-level legislative initiatives across the nation to Questions concerning any of the information provided in this repohieo curtail this activity. In Florida, this has culminated in the possage of SB1 322.

requests for additional financial information should be addressed to the Chief curtal thisactivith y.InFloridathishasculminatedinthepassageofS 32 Financial Officer, City of Gainesville Regional Utilities, P.O. Box 147117, Although the system has special status as a grandfathered entity under this leg-Station A-i105, Gainesville, FL 32614-7117, islation, there are some implications should GRUCom seek to expand into additional areas of service.

he Honorable'Mayor and Members f ihe CtyCmmission "In our opinion, thefinancial statements referred tb fai

-City of Gainesv i Florida','

all terial respects the fi ciI osio o GainesvilleRegion Utilities as e ave audited the accompanying balance egial of Septem r 302005 and 2004, dtechanges init W,

Utilit (adepoment ofthe-CiyofGainevile, Flri ) as ofSeptembr30, and ash fows fo the e ten eded, in anrmit ith: ccunting porit

,,- 2005,a~nd 20,04,--an-d the frelated statements of :revenues, axenses and ;0ciples generally accepted in the United States..:,.';

f;'-'.;-,-,Xchangesinnetassetsandcashflowsfortheyearsthenended.These n accordance with Go enA ud Standards e also s

sed;

'Utl financial statements are the Cresponsibilityif the G esville Regiona Utilities ourrepor dated,Novembr 10, 25 on ainei

'h'- management.-'Our responsibility' i~sto expressi an opinio~n on these Financial 0Regional Utilities' internal conitrol over financial reporting and on 'our tests oF.--

d.';,'-stateents ba'sedonour audits..-.

its

-,,p with; certain rovisios of l

, regulations, c nta cts, and We e'conducted is audits inacordanewithtadardsgenerally other matters.he purpoe,of th e ort s todescri the 1;',.'accepted in te UnitedStates andthe standards aplicableto financial audits. :ing of intern,,acon~trol oe fin~ancial reportingagnd copiance an'd teresults-'

contained.in rnent Aedati, Standards, issued -by -the Comptrolier of that testing, and not to provide na opinion on the internal contr er finan-.

y'neral oF the Unitd States. Those andards require that we plan-and 'cil reorting-r onaco c

Tha is an intral p an audit per

perForm the audit o obtain reasonabe assurnceaboutwheter he financial -form in accordl ance wit G overnment Audi n 3tandards" an sould

' satemnts e free of materit l mi ssatem t. Wer are not engaged t perform cn,-, der'edin assig theresults of our audit.

r d

c an audit of Gainvesvoille Regial Utliti' Internal conttrol,ovet financil report- -

Man tagementsDiscussiolie

,o, n

, ingt. Our a'udit included consideration of in'ternal 'control over fnantcial retport-'

nota requiredptrt of~the basic.financial stateme'nts but is s'upplementary infor.

-iingasa sisfordesigningaudit edures thatare appopriate intecur-mation requiredby theGov rnmental Acounting Sindardse Be d. W hve tcurnstances, butnot Far the rpos of e

aini neffective apli i liedprcedurewhichositedpin ally nquii ness ofGain silleeional tilitest nal co trol over financial reporng.

management regarding he methods of measurementiand presenatin of 'te'-

Accordinglygl

,'w'e epress no such opinion.'iAn auditalsoincludes examining, -reqiredsuppleentary nfrmain However,,w i not uditte informa--

on a test basi, evidence supportin he amous and di s

closs in he inan tion a e

n pin on it.

cial statments, assessing the accountingprinciplesused and significantesi-Our audit wast conductedrfar.the purpose of sorming atn opinionton ths e

bascainnciletaemets Te spsemntaonnfrmaiouicluedinth

-mates made bymanagement,and e ing te overa fina cial ament epr ie eo presentati on.Wed believe thatouraudits prov ide areasonable scdass rIs presentedfor purposes ofaddition--

I

opinmon, alanaysisandis o

euired t o the b sicfinanca statemens Te.-

As discussed in Note,.

thae financial statements present onlinesville suppl ent ry i foratio h

n s td tohe aud eures t.Regional Utilities(theo ie'dUtilityFuncofthe City ofG esville, Florida) applied in the au itof thebasic financialIstate nts and in our 'pinn, i' and are -not intendied to present fairly the financial position of the City of fairly stated in adll naterlal respect5 in relationto the basic inancial statements Gaine'svlle, FloUrida, andte -changesuInrits financaltopo ition nd cashfl os ta as a wh o le.

r p-

-e

'-of itspropriea ry f nd types, in conformity wt acoung prcipe gerally.

ac td d inptd in the d andog S, t lor ida perormtheo'uito otai hets~d~, c~iuanc~~oostwhthevthmfienII I :

0I5

2005 2004 Assets Current assets Cash and cash equivalents Investments Accounts receivable, net of allowance for uncollectible accounts of $1,049,992 in 2005 and $940,717 in 2004.

Prepaid rent, lease/leaseback Fuels contracts Deferred charges Inventories Fuel Materials and supplies Total current assets Restricted assets Utility deposits - cash and investments Debt service - cash and investments Rate stabilization - cash and investments Construction Fund - cash and investments Utility plant improvement fund - cash and investments Investment in The Energy Authority Decommissioning reserve - cash and investments Total restricted assets Prepaid rent, lease/leaseback Other noncurrent assets Capital assets Utility plant in service Plant unclassified Less: accumulated depreciation and amortization Net utility and unclassified plant Plant held for future use Construction in progress Net capital assets Total assets 1,435,928 3,100,747 289,231 36,437,195 10,686,909 4,844,014 4,784,233 32,197,451 10,686,909 3,093,569 2,904,822 9,825,661 7,411,188 7,182,475 7,553,569 75A25,128 67,008,773 3,900,543 3,706,280 21,974,746 22,421,714 50,984,006 61,091,124 10,566,567 18,205,560 29,104,500 29,095,045 2,251,685 1,987,205 6,181,620 5,648,230 124,963,667 142,155,158 130,024,059 140,710,968 15,524,360 17,773,706 1,057,056,211 1,031,144,740 5,720,667 5,177,664 435,022,865 405,327,781 627,754,013 630,994,623 6,053,926 6,053,926 98,552,735 72,961,047 732,360,674 710,009,596

$1,078,297,888

$1,077,658,201 Continued on next page.

2005 2004 Liabilities and net assets Current liabilities Fuel payable Accounts payable and accrued liabilities Operating lease, lease/leaseback Deferred credits Due to other funds Total current liabilities Payable from restricted assets Utility deposits Rate stabilization deferred credit Construction fund accounts payable and accrued liabilities Debt payable, current portion Accrued interest payable Total payable from restricted assets 12,134,923 2,850,419 12,461,916 6,367,311 4,755,711 38,570,280 4,125,676 9,580,402 12,461,916 1,725,904 4,121,905 32,015,803 4,041,439 3,850,178 50,984,006 61,091,124 2,877,580 1,593,056 16,536,750 16,052,500 8,411,103 8,753,375 82,850,878 91,340,233 Long-term debt Utilities system revenue bonds Subordinated utilities system revenue bonds Commercial paper notes Unamortized loss on refinancing Unamortized bond premium/discount Total long-term debt Operating lease - lease/leaseback Other noncurrent liabilities Total liabilities 289,550,000 68,500,000 92,770,500 (24,647,778) 8,809,829 434,982,551 151,608,509 18,130,579 726,142,797 298,935,000 71,600,000 65,822,250 (27,509,929) 9,849,194 418,696,515 164,069,621 17,957,380 724,079,552 Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets Total liabilities and net assets 297,055,621 48,187,290 6,912,180 352,155,091

$1,078,297,888 299,670,237 48,744,149 5,164,263 353,578,649

$1,077,658,201

=

See accompanying notes.

A I

A 0

eS 2005 2004 Operating revenue Sales and service charges Transfers from rate stabilization Other operating revenue Total operating revenue Operating expenses Operation and maintenance Administrative and general Depreciation and amortization Total operating expenses Operating income Non-operating income (expense)

Interest income Interest expense, net of AFUDC Gain/(loss) on sale of investments Total non-operating expense Income before contributions and transfers Capital contributions Contributions from developers Reduction of plant costs recovered through contributions Net capital contributions Operating transfer to City of Gainesville General Fund Change in net assets Net assets, beginning of year Net assets, end of year

$ 239,901,044 3,972,826 8,342,803

$ 222,382,854 11,060,752 7,311,535 252,216,673 240,755,141 152,246,424 137,825,854 25,372,471 23,938,149 38,554,797 36,752,375 216,173,692 198,516,378 36,042,981 42,238,763 4,389,747 4,156,003 (19,445,194)

(18,656,887)

(167,756) 2,720,587 (15,223,203)

(11,780,297) 20,819,778 30AS8S466 5,227,336 5,167,619 (191,028)

(245,924) 5,036,308 4,921,695 (27,279,644)

(27,010,442)

(1A23,558) 8,369,719 353,578,649 345,208,930

$352,155,091

$353,578,649 See accompanying notes.

2005 2004 Cash flows from operating activities Cash received from customers Cash payments to suppliers for goods and services Cash payments to employees for services Cash payments for operating transactions with other funds Other operating receipts Net cash provided by operating activities Cash flows from noncapital financing activities Transfers to other funds Net cash used in noncapital financing activities Cash flows from capital and related financing activities Principal repayments on long-term debt Interest paid on long-term debt Other receipts Acquisition and construction of fixed assets (including allowance for funds used during construction)

Proceeds from new debt and commercial paper Cash received for connection charges Net cash used in capital and related financing activities Cash flows from investing activities Interest received Purchase of investments Investment in The Energy Authority Distributions from The Energy Authority Proceeds from investment maturities Net cash provided by investing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

$ 235,852,561 (134,267,782)

(45,044,540)

(8,604,599) 10,541,426

$ 219,972,966 (116,969,729)

(43,109,125)

(8,116,428) 14,160,352 58A77,066 65,938,036 (27,279,644)

(27,010,442)

(27,279,644)

(27,010,442)

(16,252,500)

(15,025,250)

(20,826,831)

(18,031,898) 85,131 72,631 (47,009,854)

(47,791,846) 31,000,000 3,385,879 2,437,528 (49,618,175)

(78,338,835) 3,305,496 2,554, 172 (245,158,401)

(447,704,385)

(1,161,361)

(114,601) 896,881 1,342,398 262,172,155 481,017,390 20,054,770 37,094,974 1,634,017 (2,316,267) 30,552,034 32,868,301

$ 32,186,051

$ 30,552,034 Continued on next page.

2005 2004 Reconciliation of operating income to net cash provided by operating activities Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Operating leose/leaseback revenue Increase (decrease) in cash attributable to change in assets and liabilities:

Receivables Prepaid expenses Inventories Deferred charges Accounts payable and accrued liabilities Due to other funds Utility deposits Other liabilities and deferred credits Net cash provided by operating activities

$ 36,042,981

$ 42,238,763 38,554,797 (1,774,203) 36,752,375 (1,774,203)

(4,239,744)

(1,750,445)

(2,500,805) 9,334,615 2,563,788 633,806 191,261 (18,578,985)

(4,969,003)

(2,724,359)

(801,636) 14,442,559 8,357,808 957,560 121,383 (26,663,208)

$58A77,066

$65,938,039 Noncash, investing, capital and financing activities Utility plant contributed by developers in aid of construction was $5,036,308 and $4,921,695 in 2005 and 2004, respectively.

See accompanying notes.

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Gainesville Regional Utilities (GRU or the Ufility) is a combined municipal utility system operating electric, natural gas, water, wastewater, and telecom-munications (GRUCom) utilities. GRU consists of the combined Utility Funds of the City of Gainesville, Florida (City). GRU is a unit of the City and, accord-ingly, the financial 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 accor-dance with government accounting standards, GRU has elected not to apply FASB pronouncements issued after that date. In accordance with the Utilities System Revenue Bond Resolution as Supplemented and Amended (Bond Resolution), rates are designed to cover operating and maintenance expense, debt service and other revenue requirements, which exclude depreciation expense and other noncash expense items. This method of rate setting results in costs being included in the determination of rates in different periods than when these costs are recognized for financial statement purposes. The effects of these differences are recognized 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 substantially all provisions of the National Association of Regulatory Utility Commissioners (NARUC). Rates are approved annually by the City Commission.

Gainesville Regional Utilities reports net assets in the following classifications:

Invested in capital assets, net of related debt. This component of net assets con-sists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, or other long-term borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds.

Restricted. This component of net assets consists of net assets subject to exter-nal constraints on their use imposed by creditors (such as through debt covenants), contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.

Unrestrided. This component of net assets consists of net assets that do not meet the definition of 'restricted' or 'invested in capital assets, net of related debt."

USE OF ESTIMATES The preparation of financial statements in conformity with accounting prin-ciples generally accepted in the United States requires management to make estimates that affect the reported amounts of assets and liabilities; 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.

RECLASSIFICATIONS Certain acmounts for the prior year have been reclassified to conform with current year presentation.

INVESTMENTS Investments are reported at fair value in the balance sheets based on quoted market prices. All short-term commercial paper with maturities less than one year have been reported at cost which approximates fair value. During fiscal 2005, GRU implemented GASB Statement No. 40, Deposit and Investment Disclosures, an amendment to GASB Statement No. 3. GASB Statement No.

40 modified some of the disclosure requirements related to deposits and investments. More information is provided in Note 5, "Deposits and Investments".

RISK MANAGEMENT/FUTURES AND OPTIONS CONTRACTS GRU conducts a risk management program with the intent of reducing the impact of fuel price spikes for its customers. The program utilizes futures and options contracts that are traded on the New York Mercantile Exchange (NYMEX) so that prices may be fixed or reduced for given volumes of gas that the utility projects to consume during a given production month. Based on feedback and direction from GRU's Risk Oversight Committee, consultation and recommendations from reputable risk management sources, and close monitoring of the market on a daily basis, GRU makes every effort to take rea-sonable steps to minimize the customers' exposure to fuel spikes while, at the same time, attempting to reduce costs.

The information below provides a summary of results based on GRU's risk management activity during Fiscal Years 2005 and 2004.

September 30 Deposits Gain 2005

$5,400,000

$1,299,700 2004

$3,100,000

$ 773,460 Gains or losses from hedging transactions are applied to GRU's monthly fuel expenses as an offset to fuel cost.

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.

CAPITAL ASSETS Property and equipment are recorded at cost. Maintenance and repairs are charged to operating expense as incurred. The average cost of depreciable plant retired is eliminated from the plant accounts and charged to accumulated depreciation. Associated cost of removal net of salvage is charged to depre-ciation expense as incurred.

Plant unclassified includes property and equipment related to 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 An independent evaluation of GRU's depreciation rates and accumulated reserve was performed by an outside consultant in 2004. The study recom-mended an update to depreciation rates and allowance reserve balances.

Depreciation of utility plant is computed using the straight-line method over estimated service lives ranging from 6 to 50 years. GRU implemented the rec-ommended rates in fiscal 2005. This change adjusted the overall depreciation rate to 3.27% of average depreciable property for 2005. In fiscal 2004, the rate was 3.50%. Depreciation expense includes a provision for decommis-sioning costs related to the jointly-owned nuclear power plant (see Note 6).

The cost of nuclear fuel, including estimated disposal cost, is amortized to fuel expense based on the quantity of heat produced for the generation of electric 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.

REVENUE RECOGNITION Revenue is recorded as earned. GRU accrues for services rendered but unbilled, which amounted to approximately $15,891,000 and $13,400,000 for 2005 and 2004, respectively. Fuel adjustment revenue is recognized based on the actual fuel costs. Amounts charged to customers for fuel are based on estimated costs, which are adjusted for any differences between the actual and estimated costs once actual fuel costs are known. If the amount recovered through billings exceeds actual fuel costs, GRU records deferred fuel as a liability. If the amount recovered through billings 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, 2005 and 2004, deferred fuel costs were a receivable in 2005 of $2,394,000 and a liability in 2004 of

$367,000. The deferred fuel balances are reported as part of either current deferred charges or credits on the balance sheets.

TRANSACTIONS WITH THE CITY OF GAINESVILLE As an enterprise fund of the City of Gainesville, transactions occur between GRU and the City's governmental funds throughout the year in the ordinary course of operations. Below is a summary of significant transactions:

Administrative Services. GRU is billed monthly for various administrative and insurance services provided by the City's governmental functions.

Nonmetered and Metered Service Charges. GRU bills the City's governmental funds on a monthly basis for all nonmetered, metered and other administrative services.

Transfers to the General Fund GRU budgets an annual transfer to the general fund based on a City Commission approved formula. See Note 11 for details.

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 accumulated 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 purposes, accounts for funds accumulated to pay principal and interest on subordinated indebtedness.

The Rate Stabilization Fund accounts for funds accumulated to stabilize rates over future periods through the transfer of funds to and from operations as necessary and to provide operating reserves for the Utility.

The Construction Fund accounts for funds accumulated for the cost of acqui-sition and construction of the system.

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

When both restricted and unrestricted resources are available for use, it is GRU's policy to use restricted resources first, then unrestricted resources as they are needed.

OPERATING, NON-OPERATING REVENUES GRU has defined operating revenue as that revenue which is derived from customer sales or service while non-operating revenues include interest on investments and any gain from the sale of such investments.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

An allowance for interest on borrowed funds used during construction of

$306,000 and $771,000 in 2005 and 2004, respectively, is included in construction 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 projects under construction. The effective interest rate was approximately 3.96%.

CONTRIBUTIONS IN AID OF CONSTRUCTION GRU recognizes capital contributions to the water, wastewater and GRUCom divisions, from developers and other third parties as revenues in the period received. Contributions to the electric and gas divisions are also reported as capital contribution revenues; however, the related capital asset amounts are also expensed in the same period consistent with the requirements of the FERC Uniform System of Accounts.

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 the refinancing of bonds are deferred and amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter.

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 contribu-tions 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 customers. Each month, GRU staff estimates the cost of fuel and consumption for both the electric and natural gas systems. These estimates are combined with a true-up for actual costs from previous months into a current-month electric fuel adjustment 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.

Currently, GRU prepares its financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, and records var-ious 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 from 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 reg-ulatory assets and liabilities. Management believes that GRU currently meets the criteria for continued application of SFAS No. 71, but will continue to eval-uate significant changes in the regulatory and competitive environment to assess continuing applicability of the criteria.

3. CAPITAL ASSETS AND CHANGES IN ACCUMULATED DEPRECIATION A summary of capital assets, changes in accumulated depreciation and related depreciation provisions expressed as a percentage of average depreciable plant follows:

PLANT IN SERVICE Transmission, Distribution and Treatment Generation Collection General Balance, October 1, 2004

$106,485,440

$353,036,776

$508,717,127

$62,905,397 Capital additions and transfers 3,361,175 8,067,277 16,893,468 2,453,415 Sales, retirements and transfers 815,103 859,327 1,790,622 1,398,813 Balance, September 30, 2005

$109,031,S12 S360,244,726

$523,819,973

$63,959,999 Accumulated depreciation, October 1, 2004

$ 38,194,156

$177,341,277 S159,043,942

$30,748,406 CWIP/Plant held Unclassified for Future Use Combined

$5,177,664

$ 79,014,973 S1,115,337,377 31,318,339 57,935,455 120,029,129 30,775,336 32,343,766 67,982,967

$5,720,667

$104,606,662 $1,167,383,539 n/a n/a

$ 405,327,781 Depreciation expense Retirements/adjustments Accumulated depreciation, September 30, 2005 3,732,712 9,764,885 16,388,221 4,179,478 263,263 n/a 34,328,559 815,103 859,327 1,790,622 1,168,423 n/a n/a 4,633,475

$ 41,111,765

$186,246,835

$173,641,541

$33,759,461 S 263,263 n/a

$ 435,022,865 Average depreciation rate 3.46%

2.74%

3.17%

6.59%

4.83%

n/a 3.27%

PLANT IN SERVICE Transmission, Distribution and Treatment Generation Collection General Balance, October 1, 2003

$ 85,372,532

$336,363,796

$479,214,863

$58,422,894 Capitol additions and transfers 22,505,311 18,280,589 32,840,116 6,690,080 Sales, retirements and transfers 1,392,403 1,607,609 3,337,852 2,207,577 CWIP/Plant held Unclassified for Future Use Combined

$25,737,464

$77,512,387 $1,062,623,936 59,756,294 63,108,309 203,180,699 80,316,094 61,605,723 150,467,258 Balance, September 30, 2004 Accumulated depreciation, October 1, 2003 Depreciation expense Retirements/adjustments Accumulated depreciation, September 30, 2004

$106,485,440

$353,036,776

$508,717,127

$62,905,397

$ 5,177,664

$79,014,973 $1,115,337,377

$ 36,844,915

$167,998,270

$147,770,014

$27,270,893 n/a n/a S 379,884,092 2,741,644 12,254,184 14,611,780 5,757,721 n/a n/a 35,365,329 1,392,403 2,911,177 3,337,852 2,280,208 n/a n/a 9,921,640

$ 38,194,156

$177,341,277

$159,043,942

$30,748,406 n/a n/a

$ 405,327,781 Average depreciation rate 2.86%

3.56%

2.96%

9.491/.

n/a n/a 3.50%

4. LONG-TERM DEBT Long-term debt outstanding at September 30, 2005 and 2004, consisted of the following:

2005 Utilities System Revenue Bonds Series 1983 (1983 Bonds), interest payable semi-annually to October 1, 2014 at a rate of 6.0%

1992 Series B (1992 B Bonds), interest payable semi-annually to October 1, 2013 at various rates between 6.5% and 7.5%

1996 Series A (1996 A Bonds), interest payable semi-annually to October 1, 2026 at rates between 5% and 5.75%

2002 Subordinated Series A (2002 Series A),

interest at variable rates; 2.75% at September 30, 2005 2002 Subordinated Series B (2002 Series B), interest at variable rates; 2.70% at September 30, 2005 2003 Series A (2003 A Bonds), interest payable semi-annually to October 1, 2024 at rates between 4.625% and 5.25%

2003 Series B (2003 B Bonds), interest payable semi-annually to October 1, 2013 at a 4.4% interest rate (Federally Taxable) 2003 Series C (2003 C Bonds), interest payable semi-annually to October 1, 2013 at rates between 4.0% and 5.0%

Utilities System Commercial Paper Notes Series C (C Notes), interest at variable market rates; 2.65% at September 30, 2005 Utilities System Taxable Commercial Paper Notes Series D (D Notes), interest at variable market rates; 3.76% at September 30, 2005 Current portion of long-term debt Unamortized loss on refinancing Unamortized premium/discount Total long-term debt 2004

'5,000 4,675,000 4,67 24,630,000 24,630,000 120,750,000 123,180,000 31,600,000 34,500,000 40,000,000 40,000,000 33,000,000 33,000,000 7,000,000 7,625,000 108,880,000 115,925,000 80,591,250 51,843,750 16,231,000 17,031,000 467,357,250 452,409,750 (16,536,750)

(16,052,500)

(24,647,778)

(27,509,929) 8,809,829 9,849,194

$434,982,551

$418,696,515

4. LONG-TERM DEBT (CON1INUED)

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 B Bonds mature at various dates from October 1, 2001 to October 1, 2017. Those bonds maturing on or after October 1, 2004 to October 1, 2007, amounting to $14.3 million were redeemed at the option of the City on October 1, 2002.

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. A portion of the bonds maturing from October 1, 2004 through October 1, 2008 ($6.2 million) were advance-refunded to the maturity dates.

The bonds were defeased, in substance, and will be paid from escrowed funds. There were $5,125,000 in defeased bonds outstanding as of September 30, 2005.

The 2002A Subordinated Utilities System Revenue Bonds mature on October 1, 2017. The 2002B Subordinated Utility System Revenue Bonds mature on October 1, 2032. The 2002A and 2002B Series Bonds were issued as multi-modal variable interest-rate bonds, initially issued as variable-rate auction notes. As such, interest rates are reset by an auction process each 35 days based on market rates. Payment of principal and interest of the 2002A and 2002B Series Subordinated Bonds when due are insured by a municipal bond insurance policy issued by Financial Security Assurance.

While in the variable auction-rate mode, the bonds may be redeemed at the option of the City in whole or in part on any interest payment date immediately following the end of an auction period without premium.

The 2003A Utilifies System Revenue Bonds mature on various dates from October 1, 2015 through October 1, 2033. The 2003 B Bonds mature on various dates from October 1, 2005 through October 1, 2013. The 2003 A Bonds maturing on or after October 1, 2013 are subject to redemption at the option of the City on or after October 1, 2013 at 100%. The 2003 B Bonds maturing are not subject to redemption prior to maturity.

The 2003C Utilities System Revenue Bonds mature at various dates from October 1, 2004 to October 1, 2013. The 2003C bonds are not subject to redemption prior to maturity.

Utilities System Commercial Paper Notes, Series C Notes (tax-exempt) in a principal amount not to exceed $85 million may continue to be issued to refi-nance 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. This agreement has been extended to November 30, 2015. 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 agreement, GRU may borrow up to $85 million with same day availability ending on the termination date, as defined in the agreement. Series C Notes of $3.2 million and $2.3 million were redeemed during 2005 and 2004, respectively.

In June 2000, a Utilities System Commercial Paper Note Program, Series D (taxable) was established in a principal amount not to exceed $25 million.

Liquidity support for the Series D Notes is provided under a long-term credit agreement dated June 1, 2000 with SunTrust Bank. This agreement has been extended to July 23, 2008. 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 million with same day availability ending on the termination date, as defined in the agree-ment. Series D Notes of $833,000 and $800,000 were redeemed during 2005 and 2004, respectively.

4. LONG-TERM DEBT (coNTNUE)

GRU is required to make monthly deposits into separate 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 following table lists the Debt Service requirements (principal and interest) on long-term debt outstanding at September 30, 2005.

Total Debt Service Requirements ("

Period ending September 30 Principal Interest 2006 2007 2008 2009 2010 2011 -2015 2016 - 2020 2021 -2025 2026 - 2030 2031 -2033 Total 16,536,750 17,317,250 22,101,250 25,246,750 26,396,250 136,541,250 82,520,000 54,801,250 48,519,500 37,377,000

$ 20,114,722 19,513,303 18,794,701 17,838,173 16,563,212 62,499,789 36,666,345 21,462,209 11,363,383 2,941,467 36,651,472 36,830,553 40,895,951 43,084,923 42,959,462 199,041,039 119,186,345 76,263,459 59,882,883 40,318,467

$467,357,250

$227,757,304

$695,114,554 In Interest rates on variable-rate longterm debt were valued to be equal to 2.75% for the 2002A Series Subordinated Bonds, 2.70% for the 2002B Series Subordinated Bonds, 2.65% for Series C Tax-exempt Commercial Paper and 3.76% for Series D Taxable Commercial Paper. These are the rates in effect as of September 30, 2005.

The table below shows the changes in net long-term debt balances that occurred during the years ended September 30, 2005 and 2004.

2005

$418,696,515 2004

$432,926,230 Long-term debt outstanding at beginning of year Changes in long-term debt Series 2005A TECP issued Fixed rate debt redeemed -Senior Lien and Subordinated TECP redeemed during the year Taxable CP redeemed Change in unamortized loss/bond discount Long-term debt outstanding at end of year 31,000,000 (12,485,000)

(3,218,750)

(833,000) 1,822,786 (13,000,000)

(2,252,500)

(800,000) 1,822,785

$434,982,551

$418,696,515

$ 16,536,750

$ 16,052,500 Current portion of long-term debt

4. LONG-TERM DEBT (CoNliNUED)

Under the terms of the Bond Resolution relating to the sole 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 certain other specified purposes), including any investments and income thereof.

The Bond Resolution contains certain restrictions and commitments, includ-ing GRU's covenant to establish and maintain rates and other charges to pro-duce 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 improvement fund.

DERIVATIVES GRU is a party to certain interest rate swap agreements, which are not recorded in the financial statements. Following is a disclosure of key aspects of the agreements.

Objective of the interest rate swap. To protect against the potential of rising inter-est rates, the City has entered into three separate floating-to-fixed interest rate swap transactions.

Terms, fair values and credit risk. The terms, fair values and credit ratings of the outstanding swaps as of September 30, 2005, were as follows. The notional amounts of the swaps match the principal amounts of the associated debt.

Fiscal Year Auction-Rate Notes Ending Sept 30 Principal Interest 2006 3,100,000 789,250 2007 3,200,000 704,000 Interest Rate Swaps, Net 387,450 345,600 Total

$ 4,276,700 4,249,600 2008 2009 2010 2011-2015 2016-2017 Total 3,300,000 616,000 302,400 4,218,400 525,250 257,850 525,250 257,850 5,100,000 2,626,250 1,289,250 783,100 783,100 9,015,500 16,900,000 704,000 345,600 17,949,600

$31,600,000 $6A90,000

$3,186,000 $41,276,000 Credit Risk. As of September 30, 2005, the fair value of the swap was nega-five, therefore the City is not subject to credit risk. However, should interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the amount of the derivative's fair value. To miti-gate the potential for credit risk, the City has negotiated additional termination event and collateralization requirements in the event of a ratings downgrade.

Failure to deliver the Collateral Agreement to the City as negotiated and detailed in the Schedule to the International Swap and Derivative Agreement (ISDA) for each counterparty would constitute and event of default with respect to that counterparty.

Associated Bond Issue Notional Amounts Effective Date Fixed Payer Rate Variable Receiver Rate Fair Value Termination Date Counterparly Credit Rating 2002A

$31,600,000 7/3/02 4.100%

BMA

$11,188,333) 10/1/17 Aa3/A+/M-2005C*

2006.

Basis Risk. The swaps expose the City to basis risk. The swap effective on July

$55,135,000

$53,305,000 3, 2002, is exposed to the difference between the weekly BMA index and a 35-day rollover based on current market conditions. As a result, savings may 3.2001%

37224%

not be realized. As of September 30, 2005, BMA was 2.75% for the week of 3.2ofIB 68 32 LI September 28, 2005, while the last 35-day rollover rate was 2.75%. The 68% of LJBOR 68% of UIBOR

$ (1 83,289) n/a swaps for the 2005C Series and the 2006 Series are exposed to basis risk

$10/1/26 1/1/2/a through the potential mismatch of 68% of LIBOR and the BMA rate. As of September 29, 2005, the three-month LIBOR rate was at 4.02% trading at Aaa/AA Aaa/AA+

approximately 68.40 of BMA.

• See 'Basis Risk' in Note 4, 'Long-Term Debt' and Note 17, 'Subsequent Event,'

for details.

fair Value. All the swap agreements currently have negative fair values as of September 30, 2005. Due to historically low interest rates, our fixed payer rates currently exceed the variable receiver rates. This is anticipated to be a short-term event.

Swap payments and associated debt. Assuming interest rates remain the same at September 30, 2005, debt service requirements on the auction rate notes and the interest rate swap would be as follows:

Termination Risk. The swap agreement will be terminated at any time if certain events occur that result in one party not performing in accordance with the agreement. The swap can be terminated due to illegality, a credit event upon merger, or an event of default and illegality. The swap can also be terminated if credit ratings fall below established levels.

5. DEPOSITS AND INVESTMENTS Deposits are held in qualified public depository institutions insured by the Federal Depository Insurance Corporation and, as required by the Bond Resolution, in banks, savings and loan associations, trust companies of the United States or national banking associations having capital stock, surplus and undivided earnings aggregating at least $10 million.

In accordance with state laws and the Bond Resolution, GRU is authorized to invest in obligations which are unconditionally guaranteed by the United States of America or its agencies or instrumentalities, 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 United States of America or of any agency, instrumentality or local gov-ernmental 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 cat-egory of a nationally recognized rating agency and in one of the two highest rating categories of at least one other nationally recognized rating agency.

As of September 30, 2005, GRU had the following investments and matu-rities (amounts are in thousands).

Issuer Cargill, Inc. - Commercial Paper Chorta, tIC. - Commercial Paper Federal Home Loan Bank Percent of Total Investments 6.00%

5.49%

37.99%

Cash and investments are contained in the following balance sheet accounts as of September 30:

Restricted assets Current assets:

Cash and cash equivalents Investments Total cash and investments Less cash and cash equivalents Less Jnvestment in TEA Less CR3 Decommissioning Reserve Less accrued interest receivable and accounts receivable Total investments 2005

$ 124,963,667 1,435,928 2004

$ 142,155,158 3,100,747 289,231 126,399,595 145,545,136 (32,186,051)

(30,552,034)

(2,251,685)

(1,987,205)

(6,181,620)

(5,648,185)

(460,162)

(692,662)

$ 85,320,077

$106,665,050 Maturities in Years Fair Value Less than 1 1-5 Investment Type Commercial Paper U.S. Agencies Total

$ 21,914

$ 21,914 63,406 12,005 51,401

$85,320

$33,919

$S51A01 Interest Rote Risk. GRU's investment policy limits its investments to securities with terms of ten years or less to reduce exposure to rising interest rates, unless investments are matched to meet specific cash flow needs. Additionally, the average portfolio term is not to exceed seven years. GRU's Bond Resolution further limits investments in the Utility Plant Improvement Fund and Rate Stabilization Fund to five years.

Credit Risk. GRU's investment policy and Bond Resolution limits investments in state and local taxable or tax exempt debt, corporate fixed income securities and other corporate indebtedness to investments that are rated by both Moody's and Standard and Poor's in either of their two highest rating cate-gories. As of September 30, 2005, all of GRU's commercial paper investments were rated P-1 or better by Moody's Investors Services and A-1 or better by Standard and Poor's.

Concentration of Credit Risk. State law does not limit the amount that may be invested in any one issuer. It does require, however, that investments be diver-sified to control risk of loss from over concentration of assets. As of September 30, 2005, GRU had more than 5% of the investment portfolio of the following:

6. JOINTLY-OWNED ELECRIC 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 Progress Energy. GRU's net investment in CR3 at September 30, 2005 and 2004 is approximately $7,894,000 and

$7,603,000, respectively. CR3 operation and maintenance costs, which rep-resent 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 Progress Energy 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 decommissioning cost estimates provided by Progress Energy in March 2005, estimated GRU's share of total future decommissioning costs to be $7,744,000. At September 30, 2005, GRU has funded $6,182,000 of this cost.

7. RESTRICTED NET ASSETS Certain assets are restricted by bond resolution and other external require-ments. Following is a summary of the computation of restricted net assets at September 30, 2005 and 2004, and the restricted purposes of the net asset balances:

7. RESTRICTED NET ASSETS (CONTINUED) 2005 Restricted net assets Total restricted assets Unspent debt proceeds Payable from restricted assets Restricted net assets

$124,963,667 (10,462,249)

(66,314,128)

$142,15 (18,12 (75,28 nent full and part-time employees who are eligible for normal, early, or disability retirement are eligible for these benefits. Individual benefits are the 2004 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. The actuar-55,158 ial costs of these plans are determined and funded by the City. The City

'3,276) recognizes the cost of these benefits on a monthly basis by contributing a 37733) percentage of active payroll costs. The cost of providing these benefits for the 9,149 GRU retirees for the fiscal years ended September 30, 2005 and 2004 was a4

$1,272,000 and $1,181,000, respectively.

$48,187,290

$48,74 Net assets are restricted as follows:

2005 Debt covenants Debt service Utility plant improvement Total restricted pursuant to debt covenants Other restrictions Investment in The Energy Authority Nuclear decommissioning reserve Total other restrictions Restricted net assets

$ 10,649,485

$ 12,013,669 29,104,500 29,095,045 39,753,985 41,108,714 2,251,685 1,987,205 6,181,620 5,648,230 8,433,305 7,635,435

$48,187,290

$48,744,149

8. RETIREMENT PLANS The City sponsors and administers one defined benefit 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 obligations for individual units of the City. Such informa-tion is presented in the City of Gainesville, Florida, September 30, 2005, Comprehensive Annual Financial Report.

The General Employees Pension Plan (Employees Plan), a contributory defined benefit pension plan, covers all employees of GRU, except certain lim-ited 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 amortiza-tion of prior service costs, were $1,326,000 and $1,800,000 for the years ended September 30, 2005 and 2004, 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 partici-pate in the second defined contribution plan. The total defined contribution cost for GRU for the years ended September 30, 2005 and 2004, was

$102,000 and $115,000, respectively.

9. POSTREFIREMENT 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 insurance program. Most perma-

10. DISAGGREGATION OF RECEIVABLES AND PAYABLES RECEIVABLES For the years ended September 30, 2005 and 2004 respectively, net accounts receivable represent 92.5% and 94.0% from customers for billed and unbilled utility services, and 7.5% and 6.0% from other receivables.

There are no receivables expected to take longer than one year to collect.

PAYABLES As of September 30, 2005 and 2004 respectively, payable balances represent 53.7% and 21.2% related to fuels payable, 5.6% and 40.8%

to standard vendor payables, 11.4% and 12.1 % to accrued vacation payable, 21.0% and 21.2% to intergovernmental payables and 8.4% and 4.6%

to other payables.

11. TRANSFERS TO GENERAL FUND GRU makes transfers to the City's general government 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 subordinated debt or to make other nec-essary transfers under the Bond Resolution. The formula-based fund transfer to the general fund for the years ended September 30, 2005 and 2004 was

$27,279,644 and $27,010,442, respectively.

12. DEFERRED CHARGES Deferred charges are presented on the balance sheets under current assets and as other noncurrent assets.

The largest deferred charge is for estimated environmental costs of

$9,779,000 and $10,797,000 at September 30, 2005 and 2004 respec-tively. See Note 13 for details on the manufactured gas plant remediation portion of this item.

Also included in deferred charges is unamortized bond issuance costs of approximately $5,752,000 and $6,286,000, respectively, at September 30, 2005 and 2004. These costs are being amortized straight-line over the life of the bonds, which approximates the effective interest method.

IOther significant deferred charges include electric distribution plant acqui-sition costs of $3,589,000 and $3,800,000 for September 30, 2005 and 2004, respectively, which are being amortized over the expected life of the acquired assets. Accrued fuel adjustment was a deferred debit of $2,394,000 and a deferred credit of $367,000 at September 30, 2005 and 2004, respectively.

Remaining smaller items make up the balance of the deferred charges.

13. ENVIRONMENTAL LIABILITIES GRU is subject to numerous federal, state and local environmental regula-tions. Under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as 'Superfund,' GRU has been named as a potentially responsible party at one hazardous waste site. In addition, in January 1990, GRU purchased the natural gas distribution assets of a company and pursuant to the related purchase agreement, assumed responsibility for the investigation and remediation of environmental impacts related to the operation of the former manufactured gas plant. Based upon GRU's analysis of the cost to clean up these sites, GRU has accrued a liability to reflect the costs associated with the cleanup effort. Fiscal year 2005 and 2004 expen-ditures which reduce the liability balance were $297,000 and $464,000 respectively. In addition, GRU was able to recover a net of $301,000 and

$1,900,000 through insurance coverage in 2005 and 2004, respectively.

When applied against the reserve, it leaves a balance of $6,931,000 and

$7,528,000 as of September 30, 2005 and 2004, respectively. GRU is recovering the costs of this clean-up through customer charges. A regulatory asset was established as a deferred charge in the accompanying balance sheets to represent the balance of customer charges. Fiscal 2005 and 2004 billings were $718,000 and $758,000, respectively. This, plus the affect of the insurance recovery, reduced the deferred asset balance to $7,529,000 and $8,547,000 as of September 30, 2005 and 2004, respectively.

Although some uncertainties associated with environmental 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 financial position, results of operations or liquidity.

14. 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 the leaseback period term, GRU has an option to buy out the remainder of the lease for a fixed purchase option amount.

Under the terms of the transaction, GRU continues to own, operate, main-tain and staff the facilities.

The proceeds received by GRU from this transaction were approximately

$249 million. From these proceeds, GRU deposited $142 million as a pay-ment undertaking agreement and a second deposit of $72 million in the form of a collateralized Guaranteed Investment Contract (GIC), both with an AAA rated insurance company. The deposit instruments will mature in amounts suf-ficient 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 million and resulted in a deferred gain, which is being amortized as income on a straight-line basis over the leaseback period of 20 years.

Amortization of the net benefit was $1,775,000 in both 2005 and 2004, respectively, and was reported as a component of other operating revenue.

15. INVESTMENT IN THE ENERGY AUTHORIlY In May 2000, GRU became an equity member of The Energy Authority (TEA), a power marketing joint venture. In May 2002, TEA began trading nat-ural gas on behalf of GRU. As of September 30, 2005, this joint venture was comprised of six municipal utilities across the nation, all of which are partici-pating in the electric marketing and five of which participate in the gas program. GRU's ownership interest was 7.1 % in the electric venture and 7.7%

in the gas venture, and it accounted for this investment using equity accounting.

To become a member, GRU paid an initial capital contribution of $1,000,000 and a membership fee of $867,360. The membership fee was amortized over 24 months and, consequently, eliminated at September 30, 2002. GRU has reflected the capital contribution 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 electric purchases transactions with TEA of $11,747,684 and

$15,258,036 and sales transactions of $2,507,996 and $1,761,596 in fis-cal years 2005 and 2004, respectively. TEA's profit on these transactions has been reflected as a reduction to GRU's reported revenue or expense. As of September 30, 2005, GRU's investment in TEA was $2,251,685 verses

$1,987,205 on September 30, 2004.

GRU provides guarantees to TEA and to TEA's bank to secure letters of credit issued by the bank to cover purchase and sale contracts for electric energy, natural gas and related transmission. In accordance with the membership agreement between GRU and its joint venture members and with the executed guaranties delivered to TEA and to TEA's bank, GRU's aggregate obligation for electric energy marketing transactions entered into by TEA on behalf of its members is $9,600,000 as of September 30, 2005. GRU's aggregate obli-gation for TEA's natural gas marketing transactions, under similar agreements and executed guaranties, is $18,800,000 as of September 30, 2005.

The following is a summary of the unaudited financial information of TEA for the twelve-month periods ended September 30, 2005 and 2004:

Condensed statement of operations Total revenue Total cost of sales and expenses Operating income Net revenue Condensed balance sheet Assets Current assets Noncurrent assets Total assets 2005

$1,274,442,000 2004

$ 743,556,000 1,140,975,000 564,226,000

$ 133,467,000

$179,330,000

$ 134,670,000

$ 96,532,000

$ 287,510,000

$ 133,241,000 7,574,000 18,155,000

$ 295,084,000

$151,396,000 Continued on next page.

15. INVESTMENT IN THE ENERGY AUTHORITY (cONTINUED) 2005 Liabilities Current liabilities Noncurrent liabilities Total liabilities Members' capital Total equity and liabilities

$ 262,584,000 2,572,000

$ 110,547,000 14,334,000 265,156,000 124,881,000 29,928,000 26,515,000

$295,084,000

$151,396,000 TEA issues separate audited financial statements on a calendar year basis.

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. There have been no significant reduc-tions in insurance coverage from that in the prior year, and settlements have not exceeded insurance coverage for the past three fiscal years. The City is self-insured for workers' compensation, auto liability, and general liability but carries excess workers' compensation coverage. 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, recording the appropriate expense. However, GRU does maintain its own insurance reserve, for the self-insured portion, in the amount of $2,106,000, based on an actuarially com-puted liability The present value calculation assumes a rate of return of 4.5%

with a confidence level of 75%. This reserve is recorded as a fully amortized deferred credit. All claims for fiscal 2005 were paid from current year rev-enues.

Changes in the claims liability for the last two years are as follows:

17. SUBSEQUENT EVENT In November 2005, the City issued three series of 2005 Utilities System Revenue Bonds. The 2005 A Bonds in the amount of $196,950,000 were issued to (a) provide funds for the payment of the cost of acquisition and con-struction of certain improvements to the System and lb) to refund the Series C Commercial Paper Notes. Those Bonds mature at various dates from October 1, 2021 to October 1, 2036. The Bonds are subject to redemption at the option of the City on or after October 1, 2015, in whole or part, at a redemp-tion price of 100%.

The 2005 SeriesB Bonds -Federally Taxable in the amount of $61,590,000 were issued to (a) provide funds for the payment of the cost of acquisition and construction of certain improvements to the System and lb) to refund the Series D Commercial Paper Notes. Those Bonds mature at various dates from October 1, 2007 to October 1, 2021. The Bonds are subject to redemption prior to maturity at the option of the City, in whole or in part, at a redemption price so specified.

The 2005 Series C Bonds in the amount of $55,135,000 were issued to provide funds to refund $53,190,000 in aggregate principal amount of the 1996 Series A Bonds. Those Bonds were issued as Variable Rate, Revenue Bonds which initially bear interest at Daily Rates. Those Bonds mature at vari-ous dates through October 1, 2026. The Bonds are subject to mandatory and optional redemption prior to maturity and to option and mandatory tender for purchase. Liquidity support is provided by Sun Trust Bank.

In connection with the 2005 Series C Bonds, the City entered into an interest rate swap agreement with a November effective date with Goldman Sachs Mitsui Marine Derivative Products, L.P. (GSMMDP) for an initial notional amount of $45,000,000 amortizing down to zero on October 1, 2021.

Under the terms of this swap, the City would payGSMMDP the BMA Municipal Sway Index Rate on certain payment dates and, in return, GSM-MDP would pay the City 77.14% of one month's LIBOR.

Fiscal Year 2003-2004 2004-2005 Beginning Balance

$2,422,000

$2,106,000 Claims

$973,000

$903,200 Payments

$657,000

$903,200 Ending Balance

$2,106,000

$2,106,000 1

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00 00 2005 2004 2003 2002 2001 Revenue Electric fund Sales of electricity Other electric revenue Transfers from/(to) rate stabilization Interest/Investment income Total electric fund revenue Gas fund Gas sales Other gas revenue (expenses)

Transfers from/(to) rate stabilization Interest/Investment income Total gas fund revenue Water fund Sales of water Other water revenue Transfers from rate stabilization Interest/investment income Total water fund revenue Wastewater fund Wastewater billing Other wastewater revenue Transfers from rate stabilization Interest/Investment income Total wastewater fund revenue GRUCom fund Sales to customers Transfers to rate stabilization Interest/investment income Total GRUCom fund revenue

$ 174,046,209 2,692,565 (134,672) 2,326,225

$ 159,117,761 2,887,861 6,451,678 4,161,700

$ 154,865,704 2,273,293 (401,377) 4,197,325

$ 147,794,301 2,313,536 (267,583) 4,873,647

$ 159,398,907 2,731,147 (6,311,744) 5,712,572 178,930,327 172,619,000 160,934,945 154,713,901 161,530,882 26,044,659 24,500,658 22,926,678 15,913,737 21,638,160 (25,177)

(19,825)

(29,329).

29,208 (11,333) 761,130 (1,130,506)

(1,122,811)

(683,493)

(953,843) 429,646 2I9,627 408,040 313,548 462,527 27,210,258 23,569,954 22,182,578 15,573,000 21,135,511 13,826,209 13,998,249 12,533,489 13,350,022 12,879,286 1,549,635 1,156,849 1,451,087 785,894 1,763,409 1,534,938 3,065,791 2,620,711 3,400,560 1,083,493 279,053 328,649 569,102 696,999 1,265,816 17,189,835 18,549,538 17,174,389 18,233A75 16,992,004 17,418,564 16,933,546 15,957,966 16,038,915 15,696,526 2,351,726 1,512,204 2,055,284 1,218,747 2,413,499 1,816,821 3,362,600 3,252,677 5,089,796 1,893,022 555,058 471,352 824,618 1,019,672 1,732,733 22,142,169 22,279,702 22,090,545 23,367,130 21,735,780 8,565,405 8,081,031 8,009,457 6,943,275 5,150,833 (5,391)

(688,811)

(543,194)

(435,905)

(138,900) 79,455 90,022 31,100 21,187 183,160 8,639A69 7A82,242 7,497,363 6,528,557 5,195,093

$254,112,058

$244,500,436

$229,879,820

$218,416,063 $226,589,270 Total revenue Continued on next page.

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@0' 00 00 Se 2005 2004 2003 2002 2001 Operation, maintenance and administrative Electric fund Fuel expense Operation and maintenance Administrative and general Total electric fund expense Gas fund Fuel expense Operation and maintenance Administrative and general Total gas fund expense Water fund Operation and maintenance Administrative and general Total water fund expense Wastewater fund Operation and maintenance Administrative and general Total wastewater fund expense GRUCom fund Operation and maintenance Administrative and general Total GRUCom fund expense Total operation, maintenance and administrative Net revenue in accordance with bond resolution Electric Gas Water Wastewater GRUCom Total net revenue in accordance with bond resolution Aggregate bond debt service Aggregate bond debt service coverage ratio Total debt service 89,398,658 30,539,416 12,320,230 76,259,729 32,132,279 11,466,706 69,667,757 26,532,262 10,202,723

$ 60,010,484 23,739,551 12,305,262

$ 67,450,729 23,256,589 10,480,361 132,258,304 119,858,714 106,402,742 96,055,297 101,187,679 16,881,895 14,593,903 12,950,876 7,926,883 13,658,209 1,388,368 1,166,824 1,184,334 572,690 483,139 3,107,252 2,919,393 2,775,614 2,871,282 2,829,406 21,377,515 18,680,120 16,910,824 11,370,855 16,970,754 5,497,667 5,235,332 4,784,731 4,361,166 4,693,510 3,590,193 3,688,337 3,248,742 3,447,597 2,407,524 9,087,860 8,923,669 8,033,473 7,808,763 7,101,034 6,174,582 5,842,395 5,778,075 5,167,674 5,441,505 4,212,466 4,224,198 3,658,970 3,933,172 2,827,428 10,387,048 10,066,593 9A437,045 9,100,846 8,268,933 2,365,838 2,321,615 2,618,525 2,377,170 2,033,441 2,142,330 1,651,046 1,286,735 1,240,869 742,638 4,508,168 3,972,661 3,905,260 3,618,039 2,776,079 177,618,895 161,501,757 144,689,344 127,953,800 136,304,479 46,672,023 52,760,286 54,532,203 58,658,604 60,343,203 5,832,743 4,889,834 5,271,754 4,202,145 4,164,757 8,101,975 9,625,869 9,140,916 10,424,712 9,890,970 11,755,121 12,213,109 12,653,500 14,266,284 13,466,847 4,131,301 3,509,581 3,592,103 2,910,518 2,419,014

$ 76,493,163

$ 82,998,679

$ 85,190,476

$ 90,462,263

$ 90,284,791

$ 24,876,978

$ 26,673,276

$ 25,502,972

$ 29,312,587

$ 29,765,188 3.07 3.11 3.34 3.09 3.03

$ 35,476,481

$ 33,554,604

$ 33,704,853

$ 34,097,931

$ 37,677,047 Total debt service coverage ratio 2.16 2.47 2.53 2.65 2.40

MANE 3

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.i 2005 2004 REVENUE Sales of electricity Residential sales General service and large power Fuel adjustment Street and traffic lighting Utility surcharge Sales for resale Interchange sales Total sales of electricity Other electric revenue Service charges Pole rentals Miscellaneous Total other electric revenue Transfers (to) from rate stabilization Interest income Total revenue OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Fuel expense Retail and purchased power Interchange Total fuel expense Power production Transmission Distribution Total operation and maintenance Administrative and general Customer accounts Administrative and general Total administrative and general Total operation, maintenance and administrative expense Net revenue in accordance with bond resolution Retail Interchange Total net revenue in accordance with bond resolution

$ 47,696,845 36,866,017 73,264,660 3,476,840 2,856,803 6,371,563 3,513,481

$ 47,256,059 36,653,483 60,251,088 3,372,439 2,810,511 5,814,701 2,959,480 174,046,209 159,117,761 1,928,241 1,864,268 550,542 740,535 213,782 283,058 2,692,565 2,887,861 (134,672) 6,451,678 2,326,225 4,161,700 178,930,327 172,619,000 86,844,092 74,066,795 2,554,566 2,192,934 89,398,658 76,259,729 19,503,775 19,675,195 916,712 723,008 10,118,929 11,734,075 119,938,074 108,392,007 3,889,275 3,552,746 8,430,955 7,913,961 12,320,230 1 1A66,707 132,258,304 119,858,714 45,713,108 51,993,740 958,915 766,546

$ 46,672,023

$ 52,760,286

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Se 2005 2004 REVENUE Sales of gas Residential Interruptible/commercial Other sales Total sales of gas Other gas revenue (expense)

Transfers (to) from rate stabilization Interest income Total revenue OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Fuel expense Operation and maintenance Total operation and maintenance Administrative and general Customer accounts Administrative and general Total administrative and general Total operation, maintenance and administrative expense Total net revenue in accordance with bond resolution

$ 12,701,421 13,075,593 267,645

$ 12,879,972 11,399,803 220,883 26,044,659 24,500,658 (25,177)

(19,825) 761,130 (1,130,506) 429,646 219,627 27,210,258 23,569,954 16,881,895 14,593,903 1,388,368 1,166,824 18,270,263 15,760,727 2,058,540 1,925,827 1,048,712 993,566 3,107,252 2,919,393 21,377,515 18,680,120

$ 5,832,743

$ 4,889,834

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0e 2005 2004 REVENUE Sales of water General customers University of Florida Fire protection Generating stations Utility surcharge Total sales of water Other water revenue Connection charges Miscellaneous Total other water revenue Transfers from rate stabilization Interest income Total revenue OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Source of supply Pumping Water treatment Transmission and distribution Total operation and maintenance Administrative and general Customer accounts Administrative and general Total administrative and general Total operation, maintenance and administrative expense Total net revenue in accordance with bond resolution

$ 10,719,360 765,828 1,094,539 48,880 1,197,602

$ 11,079,601 617,004 1,077,233 42,422 1,181,989 13,826,209 13,998,249 1,430,329 1,081,822 119,306 75,027 1,549,635 1,156,849 1,534,938 3,065,791 279,053 328,649 17,189,835 18,549,538 9,657 9,194 1,301,027 1,287,963 2,567,984 2,231,437 1,618,999 1,706,738 5A97,667 5,235,332 1,070,461 1,103,301 2,519,732 2,585,036 3,590,193 3,688,337 9,087,860 8,923,669

$ 8,101,975

$ 9,625,869

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@0 2005 REVENUE Wastewater billings Billings Utility surcharge Total wastewater billings Other wastewater revenue Connection charges Miscellaneous Total other wastewater revenue Transfers from rate stabilization Interest income Total revenue OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Collection Treatment and pumping Total operation and maintenance Administrative and general Customer accounts Administrative and general Total administrative and general Total operation, maintenance and administrative expense Total net revenue in accordance with bond resolution 2004

$ 15,567,106 1,366,440

$ 15,892,998 1,525,566 17,418,564 16,933,546 2,146,578 1,355,706 205,148 156,498 2,351,726 1,512,204 1,816,821 3,362,600 555,058 471,352 22,142,169 22,279,702 1,388,654 1,481,035 4,785,928 4,361,360 6,174,582 5,842,395 876,059 867,403 3,336,407 3,356,795 4,2122A66 4,224,198 10,387,048 10,066,593

$11,755,121

$12,213,109

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0016.,.

REVENUE Sales to customers Transfers to rate stabilization Interest income Total revenue Operation, maintenance and administrative expense Operation and maintenance Total operation and maintenance Administrative and general Customer accounts Administrative and general Total administrative and general Total operation, maintenance and administrative expense Total net revenue in accordance with bond resolution 2005 2004

$ 8,565,405 (5,391) 79,455

$ 8,081,031 (688,811) 90,022 8,639,469 7A82,242 2,365,838 2,321,615 2,365,838 2,321,615 421,979 219,836 1,720,351 1,431,210 2,142,330 1,651,046 4,508,168 3,972,661

$4,131,301

$3,509,581

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'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.

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

• Other water and wastewater revenue include fees for connection, installation, and backflow prevention.

• Transfers to the general fund are excluded.

• Revenue from lease/leaseback transaction is excluded (see Note 14, 'Lease/Leaseback").

Assets Current assets Cash and cash equivalents Accounts receivable, net Prepaid rent, LILO Fuels contracts Deferred charges Inventories Fuel Materials and inventories Total current assets Restricted assets Utility deposits, cash and investments Debt service fund, cash and investments Rate stabilization, cash and investments Construction fund, cash and investment Utility plant improvement fund, cash and investments Investment in The Energy Authority Decommission reserve, cash and investments Total restricted assets Prepaid rent, U1LO Other noncurrent assets Capital assets Utility plant in service Plant unclassified Less: accumulated depreciation and amortization Net utility and unclassified plant Plant held for future use Construction in progress Net capital assets Total assets Electric Gas Water Wastewater GRUCom Combined 379,249 28,922,826

- 10,686,909 2,702,868 4,121,996 238,714 2,780,466 2,141,146 472,688 16,201 1,700,802 508,049 2,170,919 293,715 862,182 1,435,928 36,437,195 10,686,909 4,844,014 4,784,233 77,506 96,919 15,124 9,825,661 r 77n

-0 Il I -o

-ra naI I1 I qI 9,825,661 7 all 10

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/,411,100 62,419,091 6,050,542 2,396A50 2,775,887 1,783,158 75S25,128 3,900,543 3,900,543 12,946,654 1,215,926 2,774,454 4,251,851 785,861 21,974,746 42,217,677 6,126,569 47,029 784,780 1,807,951 50,984,006 3,824,335 2,098,675 1,725,785 1,749,895 1,167,877 10,566,567 18,606,827 4,912,447 448,368 2,353,832 2,783,026 29,104,500 2,251,685 2,251,685.

6,181,620 6,181,620 89,929,341 14,353,617 4,995,636 9,140,358 6,544,715 124,963,667 130,024,059 130,024,059 8,807,264 4,921,647 800,067 872,063 123,319 15,524,360 646,124,832 43,491,338 143,777,237 192,737,692 30,925,112 1,057,056,211 746,645 253,161 2,409,066 1,636,612 675,183 5,720,667 278,423,610 22,079,249 52,630,709 69,915,555 11,973,742 435,022,865 368,447,867 21,665,250 93,555,594 124,458,749 19,626,553 627,754,013 6,053,926 6,053,926 51,771,098 5,486,896 18,476,734 17,206,236 5,611,771 98,552,735 426,272,891 27,152,146 112,032,328 141,664,985 25,238,324 732,360,674

$717,52,646 $52,77,952

$120,224,481

$154,453,293

$33,689,516

$1,078,297,888 Continued on next poge.

Liabilities and net assets Current liabilities Fuels payable Accounts payable and accrued liabilities Operating lease, LILO Deferred charges Due to other funds Total current liabilities Payable from restrited assets Electric Gas Water Wastewater GRUCom Combined 10,819,146 $ 1,315,777 $

12,134,923 1,467,074 12,461,916 5,069,010 1,032,402 30,849,548 339,628 1,486,947 1,258,242 4,400,594 477,878 (49,926) 2,053,055 2A81,007 489,796 (124,628) 354,228 719,396 76,043 (14,092) 57,784 119,735 2,850,419 12,461,916 6,367,311 4,755,711 38,570,280 Utility deposits Rate stabilization deferred credit Construction fund: accounts payi and accrued liabilities Debt payable, current portion Accrued interest payable Total payable from restricted assets

-rm debt Utilities system revenue bonds Subordinated utilities system revenue bonds Commercial paper notes table 4,041,439 42,217,677 6,126,569 47,029 784,780 1,807,951 4,041,439 50,984,006 1,850,678 125,351 8,321,195 1,214,928 4,615,859 610,908 468,485 2,112,259 1,450,323 332,819 2,920,618 1,529,422 100,247 1,967,750 204,591 2,877,580 16,536,750 8,411,103

• Unamortized loss on refunding Unamortized bond prem/disc Total long4erm debt Operating lease, LLO Other noncurrent liabilities Total liabilities 61,046,848 8,077,756 4,078,096 5,567,639 4,080,539 82,850,878 166,164,973 15,487,726 51,350,597 48,196,904 8,349,800 289,550,000 34,657,950 12,170,880 6,317,750 15,353,420 68,500,000 35,883,914 6,167,765 11,603,959 19,084,377 20,030,485 92,770,500 (17,573,721)

(928,673)

(3,069,374)

(3,076,010)

(24,647,778) 6,139,824 68,864 1,343,844 1,210,435 46,862 8,809,829 225,272,940 32,966,562 67,546,776 80,769,126 28A27,147 434,982,551 151,608,509 151,608,509 11,174,644 6,242,594 214,799 488,637 9,905 18,130,579 479,952,489 51,687,506 74,320,678 87,544,798 32,637,326 726,142,797 199,828,517 (4,557,805) 44,969,615 60,680,513 (3,865,219) 297,055,621 33,465,200 5,392,114 1,305,339 4,745,623 3,279,014 48,187,290 4,206,440 (43,863)

(371,151) 1,482,359 1,638,395 6,912,180 237,500,157 790,446 45,903,803 66,908A95 1,052,190 352,155,091

$717,452,646 $52A77,952 $120,224,481

$154,453,293 $33,689,516 $1,078,297,888 Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets Total liabilities and net assets

0

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@0' Gas Water Wasewater GRUCom Combned Opeing Mven Sales and service charges Transfers from/

(to) rate stabilization Other operating revenue Total operating revenue Operating expenses Operation and maintenance Administrative and general Depreciation and amortization Total operating expenses Operating income Non-operating income/

(expense)

Interest income Interest expense Loss on sale of investments Total non-operating income (expense)

Income before contributions and transfers Capital contributions Contributions from developers Reduction of plant cost recovered from contributions Net capital contributions Operating transfer to City of Gainesville general fund Change in net assets Net assets, beginning of year Net assets, end of year

$ 174,046,207 $ 26,044,659

$ 13,826,209

$ 17,418,564

$ 8,565,405

$ 239,901,044 (134,672) 4,466,769 761,130 (25,178) 1,534,938 1,549,635 1,816,821 2,351,726 (5,391)

(149) 3,972,826 8,342,803 178,378,304 26,780,611 16,910,782 21,587,111 8,559,865 252,216,673 119,938,074 18,270,263 5,497,667 6,174,582 2,365,838 152,246,424 12,320,230 3,107,252 3,590,193 4,212,466 2,142,330 25,372,471 23,495,403 2,117,994 4,369,222 6,265,931 2,306,247 38,554,797 155,753,707 23A95,509 13,457,082 16,652,979 6,814,415 216,173,692 22,624,597 3,285,102 3A53,700 4,934,132 1,745,450 36,042,981 2,644,945 481,270 441,151 689,329 133,052 4,389,747 (10,300,422)

(1,562,395)

(2,986,081)

(3,618,333)

(977,963)

(19,445,194)

(126,695)

(7,517)

(14,008)

(18,998)

(538) 1167,756)

(7,782,172)

(1,088,642)

(2,558,938)

(2,948,002)

(845,449)

(15,223,203) 14,842,425 2,196,460 894,762 1,986,130 900,001 20,819,778 191,028 2,048,041 2,988,267 5,227,336 (191,028)

(191,028) 2,048,041 2,988,267 5,036,308 (17,680,627)

(1,280,405)

(3,452,311)

(4,560,163)

(306,138)

(27,279,644)

(2,838,202) 916,055 (509,508) 414,234 593,863 (1,423,558) 240,338,359 (125,609) 46,413,311 66,494,261 458,327 353,578,649

$237,500,157 $

790,446

$45,903,803

$66,908,495

$1,052,190

$352,155,091

PLANT IN SERVICE Electric utility fund Production plant Nuclear fuel Transmission and distribution plant General and common plant Plant unclassified Total electric utility fund Gas utility fund Distribution plant General plant Plant acquisition adjustment Plant unclassified Total gas utility fund Water utility fund Supply, pumping and treatment plant Transmission and distribution plant General plant Plant unclassified Total water utility fund Wastewater utility fund Pumping and treatment plant Collection plant Reclaimed water plant General plant Plant unclassified Total wastewater utility fund GRUCom utility fund Distribution plant General plant Plant unclassified Total GRUCom utility fund Total plant in service Plant held for future use, electric Construction in progress Electric utility fund Gas utility fund Water utility fund Wastewater utility fund GRUCom utility fund Total construction in progress Balance

eptember 30, 2004 345,711,967 7,324,809 Additions 7,287,542 779,735 Sales, Retirements

& Transfers 859,327 Balance September 30, 2005 352, 140, 182 8, 104,544 226,663,660 50,416,108 1,985,375 9,989,959 1,510,845 18,329,351 1,684,103 1,016,363 19,568,081 234,969,516 50,910,590 746,645 632,101,919 37,897,432 23,127,874 646,871,477 35,771,254 1,347,808 37,119,062 1,567,273 228,739 74,371 1,721,641 4,650,635 4,650,635 153,456 1,676,252 1,576,547 253,161 42,142,618 3,252,799 1,650,918 43,744,499 24,796,288 2,020,777 347,962 26,469,103 110,326,885 2,484,448 15,442 112,795,891 4,393,588 282,680 164,025 4,512,243 1,261,108 5,935,863 4,787,905 2,409,066 140,777,869 10,723,768 5,315,334 146,186,303 81,689,152 1,340,398 467,141 82,562,409 97,420,599 2,529,627 83,548 99,866,678 4, 172,492 37,163 7,528 4,202,127 5,843,746 404,945 142,213 6,106,478 1,387,654 4,561,091 4,312,133 1,636,612 190,513,643 8,873,224 5,012,563 194,374,304 29,711,601 504,464 30,216,065 684,683 26,206 1,842 709,047 390,071 815,782 530,670 675,183 30,786,355 1,346452 532,512 31,600,295

$1,036,322,404

$62,093,675

$35,639,201

$1,062,776,878 6,053,926 6,053,926 43,323,067

$ 27,712,852

$ 19,264,821 51,771,098 3,603,189 3,559,959 1,676,252 5,486,896 12,481,650 11,979,802 5,984,718 18,476,734 9,370,965 12,437,465 4,602,194 17,206,236 4, 182,176 2,245,377 815,782 5,611,771 72,961,047

$57,935,455

$32,343,767 98,552,735

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Balance September 30, 2004 Sales, Retirements

& Transfers Balance September 30, 2005 Additions Electric utility fund Production plant Nuclear fuel Transmission and distribution plant General and common plant Plant unclassified Total electric utility fund Gas utility fund Distribution plant General plant Plant acquisition adjustment Plant unclassified Total gas utility fund Water utility fund Supply, pumping and treatment plant Transmission and distribution plant

$ 170,182,905 7,158,372 62,383,090 21,546,455 9,380,740 384,145 7,121,839 3,537,680 lr7 10^

859,327 1,684,103 885,366

$ 178,704,318 7,542,517 67,820,826 24,198,769 lr7 1-n General plant Plant unclassified Total water utility fund Wastewater utility fund I J/,

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I OU 261,270,822 20,581,584 3A28,796 278A23,610 15,372,810 1,062,184 16,434,994 952,690 89,144 57,246 984,588 4,535,251 115,386 4,650,637 9,030 9,030 20,860,751 1,275,744 57,246 22,079,249 10,193,236 818,873 347,962 10,664,147 35,467,403 3,057,995 15,442 38,509,956 3,323,681 221,362 120,580 3,424,463 32,143

- 32,143 48,984,320 4,130,373 483,984 52,630,709 28,000,920 2,913,839 467,141 30,447,618 31,485,721 2,670,114 83,548 34,072,287 397,163 150,916 7,528 540,551 4,640,163 271,219 103,390 4,807,992 47,107 47,107 64,523,967 6,053,195 661,607 69,915,555 9,402,503 2,209,787 11,612,290 285,418 60,073 1,842 343,649 17,803 17,803 9,687,921 2,287,663 1,842 11,973,742

$405,327,781

$34,328,559

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$435,022,865 Pumping and treatment plant Collection plant Reclaimed water plant General plant Plant unclassified Total wastewater utility fund GRUCom utility fund Distribution plant General plant Plant unclassified Total GRUCom utility fund

• Total The Honorable Mayor and Members of the Cty Commission employees in the-normal, course ot pertorming their assigned tunctions. We noted

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RICK BRYANT Commissionerv JACK DONOVAN.

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Vision for the future Annual Report 2005l OUC 00 The Reliable One'

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OUC will strive for excellence by building upon the character, commitment and teamwork of our employees.

OUC will offer a high-quality portfolio of customer-focused utility services, using prudent technological innovation and sound business practices, while maintaining long-term financial stability. OUC will provide leadership in the utility industry and support the Central Florida communities we serve.

Outstanding Performance Unsurpassed Value Customer Commitment

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0 Living up to our name now and in the future Letter from the General Manager/CEO & Board President OUC means a lot more than Orlando Utilities Commission. To our customers and stakeholders it means Outstanding performance, Unsurpassed value and Customer commitment. In 2005 we lived up to that tradition of excellence.

Outstanding performance. It is not always easy maintaining our position as the most reliable utility in the state of Florida, but we managed to do it again in 2005. In recent comparison data from the Florida Public Service Commission, OUC again topped the state's investor-owned utilities in overall electric reliability and performance.

At the center of this performance is our team of highly motivated employees. Our philosophy is to give our employees the resources, equipment and training necessary to provide superior performance. And they have consistently risen to the occasion year after year. It's no wonder in our recent customer opinion polling that 92% of our customers said we live up to our name, "The Reliable One."

Unsurpassed value. Superior performance comes at a cost. We realize that value is just as important to our customers and stakeholders as performance.

Maintaining competitive rates and a strong financial position during one of the most volatile fuel markets in recent history was a challenge. We lessened the impact of escalating costs on customers through the use of our stabilization fund; however, we were forced to raise fuel rates late in the year. We also provided additional value to our owners, the citizens of Orlando, by increasing the amount of funds transferred to the City for the year.

Despite all these demands, our rates still remain some of the lowest in the state -

providing our customers with the value they have come to expect. In fact, Moody's Investor Service, Standard & Poor's and Fitch Investor Services acknowledged our financial strength when they assigned OUC excellent bond ratings. Moody's reported "the credit rating on OUCs revenue bonds is the highest rated city-owned electric utility in the U.S."

Customer commitment One of the key factors the rating agencies noted was the rapid growth of our service territory and the opportunities for expansion. Orlando is one of the fastest growing cities in the nation -

consistently outpacing other cities in new home construction. This surge in development has benefited our two commercial business products -

OUCooling, our chilled water division, and OUConvenient Lighting, our commercial lighting division.

Both businesses had outstanding years and are well positioned to meet future customer needs.

Meeting customer needs is a priority at OUC. As the hometown utility provider, our customers expect OUC to provide not only adequate power generation at competitive rates, but environmental stewardship, as well. To that end, OUC management is focused on developing a long-term generation plan that balances technology, fuel flexibility and environmental stewardship.

With these goals in mind, OUC formally entered a strategic partnership with the Department of Energy and the Southern Company to build a 300 megawatt coal gasification plant at the Stanton Energy Center.

The proposed Integrated Gasification Combined Cycle project allows OUC to efficiently meet base load requirements while demonstrating state-of-the-art environmental technology. The gasifier, which is an add-on to the combined cyde unit, will allow us to switch between natural gas and coal for increased fuel flexibility.

Electric generation is not the only area facing increased customer demands for balancing supply and the environment. The water industry is dealing with a tightening of the Florida potable water supply. As a result, we have joined a consortium of other water utilities in a project that has the potential to produce more than 50 million gallons per day of alternative water supply.

Planning for the future. Planning for the future is something that OUC has always done well. In 2005, we took steps to further analyze our business and how to position ourselves to meet future demands through a strategic planning process.

OUC senior management spent months drilling down into every area of the organization to develop our "View of the World." We identified new opportunities and potential threats. We conducted a full evaluation of the way we currently do business and the way we would need to operate to meet dhe demands of not only the industries in which we operate, but also the communities we serve.

A key component of our strategic planning process was the development of five specific goals for the organization.

We call the goals our DREAM for the future. Details of our DREAM are outlined on the following pages of this report.

Most importantly, a good strategic plan needs a mission that every employee can buy into... one that is easy to understand... one as simple as... OUC.

Outstanding performance.

Unsurpassed value.

Customer commitment.

It's as simple -

and important -

as that.

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Tommy Boroughs Board President Ke Ksionek General ManagerrCEO l 2 0 0 5 A N N U A L R E P O R T OUC Board President Tommy Boroughs (left) and General Manager and CEO Ken Ksionek stand in front of a telescope at the Orlando Science Center, one of OUC's most valuable partners in helping develop the engineers and scientists of tomorrow

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Each year OUC's linemen compete in numerous training events to keep their skills sharp.

STRATEGIC PLAN GOAL #1

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OUC promises and delivers d edicated service and performance.

Our results are measured in reliability.

So just how reliable are we? See for yourself. For the fourth consecutive year, we ranked best in Florida.

Maintaining our ranking as the most reliable utility in the state is hard work - but we did it again in 2005. In recent data from the Florida Public Service Commission, OUC topped the state's investor-owned utilities in overall electric reliability and performance.

This incredible reliability achievement came after OUC experienced the ferocity of 40 years worth of hurricanes in 50 days.

After Hurricanes Charley, Frances and Jeanne damaged OUCs energy delivery system in 2004, the Energy Delivery Business Unit worked tirelessly to restore the system to its pre-storm condition.

Throughout the year, OUC evaluated the electrical system and strengthened it, where possible, to prepare for the future. With more frequent hurricanes expected in the coming years, planning ahead is critical to the success of OUC's exceptional vision.

Reliability was increased for our customers even more by the completion of two new substations.

In comparison data, OUC topped the state's investor-owned utilities in overall electric reliability and performance.

jobs easier. OUC's new mobile dispatching program features laptop computers in all trouble crew trucks.

Thanks to this program, details about outages and trouble calls are available at the click of a button.

Service dispatchers also can see real-time map displays of where crews are located in the field.

The Energy Delivery Business Unit made internal changes in 2005 with a reorganization that created three new areas, eliminated two and restructured three existing areas with the goal being to create more operational efficiencies.

With an eye toward the future, but with unrelenting focus on the present, OUC worked to ensure our name of "The Reliable One" rung true in 2005. V The $7.5 million Kaley substation was energized on December 5, 2004 and the $8.5 million Lake Nona substation on March 4, 2005.

For employees in the field, technology is helping make their 2 0 0 5 A N N U A L R E P O R T 5

Advanced clean-coal technology comes to OUC Continued focus on fuel diversity is an essential ingredient to managing costs, protecting the environment.

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, 10 i This rendering of the Orlando Gasification Project shows that the new facility will be a low-profile addition to the Stanton Energy Center.

An exciting partnership is bringing the future of clean coal technology to OUC in the form of an innovative plant that already is attracting attention from around the world.

The proposed plant, to be built at the Curtis H.

Stanton Energy Center in east Orange County, calls for a $57 million investment by OUC in the core technology of the Orlando Gasification Project (OGP). The bulk of the plant's expense is covered by a

$235 million grant from the U.S. Department of Energy (DOE) and the rest by Atlanta-based Southern Company, the nation's second-largest power producer.

OUC also will pay for more traditional equipment: about This combined-cycle facility gives OUC tremendous ability to provide future rate stability for customers by burning whichever fuel is most economical at the time -

coal or natural gas.

$13 million for coal cars and $235 million to build a combined-cycle generating plant, which will be capable of meeting base load demand and can be operated without the gasifier.

The combined-cycle plant, together with the OGP, will make up an integrated gasification combined-cycle facility.

This combined-cycle facility gives OUC tremendous ability to provide future rate stability for customers by burning whichever fuel is most economical at the time -

coal or natural gas.

As Hurricane Katrina showed, just one hurricane or disaster can cripple the availability of a fuel source. At OUC, promoting fuel diversity is a main component of our approach to power generation. Maintaining a mixture of fuel sources helps us better manage any supply disruptions.

By splitting costs with Southern Company -

and with the grant from the DOE -

OUC's financial risks are limited, while the potential benefits are enormous.

The new plant will generate enough power to light about 30,000 homes and will serve as a global demonstration model for the viability of YL1_

Control Center Operator Denny Denson monitors fuel flow to the boiler on Stanton Energy Center Unit 2.

2 0 0 5 A N N U A L R E P O R T OUC's diversity of fuel sources -

of which coal plays a major role -

has allowed us to better weather fuel price fluctuations and possible supply interruptions. I

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Water future f i-eCater strage OUC leads the way in alternative water supply issues while continuing to produce great-tasting drinking water.

After securing a historic 20-year renewal of its consumptive-use permit (CUP) in 2004, OUC spent much of 2005 working with our partners to make progress on the CUP requirements for generating new alternative water supplies.

An agreement with Orange County and the St. Johns River and South Florida Water Management Districts calls for OUC to develop at least five million gallons a day (mgd) of alternative water Water Pumped vs. Active Meters

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OUC is committed to promoting water conservation while also pursuing innovative alternative water supply opportunities that benefit our cormmrunity.

1997 1998 In October, the OUC Board voted to approve participation in a preliminary design study and environmental information document for the St. Johns River/Taylor Creek River Water Supply Project. The project has the potential to produce more than 50 mgd of treated surface water for the region and reduce demand on the Floridan Aquifer.

OUC is committed to promoting water conservation while also pursuing innovative alternative water supply opportunities that benefit our community.

Another study, begun in early 2005 with OUC and the City of Orlando, analyzed all of the options surrounding a possible consolidation of the City and OUC's water operations.

Following months of detailed analysis, the nationally recognized consulting firm of CH2M Hill recommended against a merger of OUC's water service and the City's wastewater service. The study found that OUC's water and the City's wastewater operations were dissimilar. However, both organizations were found to be very efficient and well run.

The minimal potential benefits did not outweigh the considerable challenges and risks of a merger.

Indeed, the study found that in the best-case scenario, savings might have reached only one percent of the utilities' combined operating budgets. Mergers generally must offer a minimum of seven to eight percent savings even to be considered.

A high level of cooperation between OUC and the City marked the evaluation process. As recommended by the consultants, the OUC and City of Orlando staff who participated in the study will continue working closely together in the 1999 2000 2001 2002 2C03 2004 supply to supplement current and future groundwater withdrawals.

The agreement calls for construction of alternative water supply facilities to be completed by 2013.

2 0 0 5 A N N U A L R E P O R T

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i-future to identify opportunities to increase efficiency and reduce costs.

Throughout the year, OUC's water operations continued to produce our signature high-quality, great-tasting tap water proudly dubbed H2OUC.

The safety of our drinking water is OUC's highest Kf priority, which is why we

;7, Z-a were proud that the OUC annuaif ensure the Water Quality Laboratory quality and safety of continued to receive OUC's drinking water.

National Environmental In addition to testing, Accreditation Conference OUC remains vigilant Certification. The program in monitoring and is administered through protecting water facilities the Florida Department with multi-level security of Health.

procedures and intrusion-OUC's staff performs detection systems.

about 20,000 chemical Thanks to the ozone and bacteriological tests treatment process at our eight water treatmenti. `-

plants, the odor~u-hydrogen sulfide is removed from the water and the amount of chlorine that must be added is reduced. The result is fresh-tasting water with a sparkling appearance.

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STRATEGIC PLAN GOAL #2

_lp"Iffi6 OUC employees excel in time of crisis and are quick to lend a helping hand Though Hurricanes Wilma and Katrina mostly spared Central Florida, OUC worked to assist others in need.

Unlike Central Florida's historic triple-hurricane season of 2004, this year OUC's service territory dodged a direct hurricane strike. Despite that good fortune, Central Florida did not escape the effects of Hurricanes Katrina and Wilma.

Hurricane Katrina crippled the production and delivery of natural gas in the Gulf of Mexico and hampered delivery of gasoline and diesel fuel.

OUC joined statewide calls for customers to conserve energy and implemented measures to lower demand and maximize the use of available fuels.

Through the fast response of our employees, OUC maintained the generating capacity to meet the needs of our customers thanks to the fuel diversity OUC uses to produce electricity.

However, we also recognized the energy needs around the state and encouraged OUC assisted power and water restoration efforts in communities that were among the hardest hit by Hurricane Katrina.

voluntary conservation in many ways, including darkening the company sign at the top of OUC's downtown building to visually remind customers to conserve.

OUC assisted power and water restoration efforts in communities that were among the hardest hit by Hurricane Katrina. On September 9, OUC water specialists traveled to Hattiesburg, Mississippi, to assist with drinking water restoration near the Gulf Coast. A few days later, electric crews departed for Gulfport, Mississippi, on September 11 to help their rebuilding efforts.

At home, during the month of September, OUC employees, retirees and contract workers contributed more than

$23,000 to the American Red Cross and United Way Hurricane Katrina Relief Funds. With a dollar-for-dollar match from OUC, the total relief contributions topped $46,000.

Almost two months after Hurricane Katrina, OUC was ready when Hurricane Wilma's outer edges blew through our service area October 24.

Less than 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> after completing its own Wilma repairs, OUC sent a convoy of crews, trucks and equipment to Key West to assist with power restoration. After finishing restoration work in Key West, the crews headed north to Lake Worth and began working to restore power to the community of 26,000 south of West Palm Beach.

OUC General Manager and CEO Ken Ksionek (right) thanks water employee James Wirtz and the rest of the OUC water crews for volunteering to travel to the Gulf Coast to assist with restoration efforts after Hurricane Katrina.

l2 0 0 5 A N N U A L R E P O R T OUC water employees (front row, from left) Thomas Howell, George Williams, James Wirtz (kneeling) and Randy Belcher; (second row) William Munson and Alfred Jones traveled to the devastated Gulf Coast to help Mississippi recover from Hurricane Katrina.

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STRATEGIC PLAN GOAL #3

,The true of an organization is measured by more than just dollars and cents. At OUC, we offer business programs, enduring financial

{)-u-:eckiHr and a sincere concern for our customers. That's why the value of what OUC offers is o-When customers hear the name "The Reliable One," they think of OUC's outstanding record of electric and water service. But being 'The Reliable One" also describes OUC's approach to the financial side of maintaining the second-largest public utility in the state of Florida.

Whether planning capital project expenditures, refinancing debt or managing assets, OUC's financial team repeatedly has shown that it makes valuable decisions for both the near-and long-term interests of our customers.

In 2005, the bond rating agencies again bestowed some of their highest rankings on OUC - naming us among the best-run companies in America.

Both Standard & Poor's and Fitch gave OUC an AA rating -

the highest grade Fitch gives utilities.

Moodys rated OUC AaI.

Fitch Investors Services called OUC one of its highest rated public power utilities due to our competitively priced rates, and efficient and diversified power supply portfolio.

Because of OUC's strong financial standing, we were in position to help the City of Orlando partially address its budget shortfall this past year.

Thanks to our history of sound fiscal decisions, OUC was able to increase our payment to the City for the 2005-2006 fiscal year.

We did so while maintaining our excellent reliability and without impacting customer rates. OUC's payments are deposited into the City's general fund, which is used to support parks and recreation facilities, public works and police and fire protection.

The Environmental Division's excellent financial and operational planning also produced valuable results for OUC in 2005. All of the Stanton Energy Center power plants met their permit limits, and we commissioned the use of storm water from the Orange County landfill as an alternative water source at Stanton.

Over the years, OUC's longstanding commitment to the environment has led us to invest more than $200 million in state-of-the-art environmental protection equipment at Stanton to safeguard the air, water and quality of life in Central Florida.

2 0 0 5 A N N U A L R E P O R T I

rising fuel prices The diversity of OUC's fuel supply is a crucial advantage for customers, as is practicing energy conservation.

OUC's Diverse Fuel Mix (Figures Based oii GCenpeiation)

Coal - 64.3%

Natural Gas - 23.4%

From Central Florida to New England to the West Coast, rising fuel costs strained business and citizen budgets across the country this past year. As prices rose steadily, many utilities were forced to raise fuel charges to compensate for increasing costs.

OUC was no exception, as forecasts show a projected $79.5 million increase in fuel-related costs for the 2006 calendar year. Thanks in large part to OUC's fuel diversification, we consistently have made smaller and less frequent fuel charge increases than other utilities. As it is for many utilities, the price of fuel is a "pass-through" cost that generates no income for OUC.

Additionally, OUC's mix of resources for generating electricity is a benefit to customers in that we are not as vulnerable to upswings in price in one type of fuel.

This fuel diversity is a critical advantage for OUC and our customers.

As prices continue to increase, energy conservation is often the OUCs mix best way to help defray added costs. OUC already has a tiered conservation rate structure in place to reward customers who use less energy with lower charges per kilowatt hour.

OUC emphasizes year-round energy conservation by publicizing conservation tips on our Web site, through bill inserts, customer newsletters, of resources for generating electricity is a benefit DVD or video full of conservation information; or request a free in-home survey to identify areas with the greatest potential for energy savings and then apply for rebates through several cost-saving energy-efficiency rebate programs.

For customers experiencing financial difficulties paying their bills, OUC's Project CARE provides emergency assistance.

Since its inception in 1994, Project CARE has raised more than

$800,000 and helped thousands of customers in Orange and Osceola counties.

OUC also is proud to work with 2-1-1 Community Resources, a local gateway to more than 3,800 social programs and services.

As a leader in the Central Florida community, OUC knows how valuable these programs are during difficult financial times.

Regular announcements about Project CARE are distributed in customer bills, newsletters and online at www.ouc.com.

to customers.

and radio and television advertising.

We strengthened our program to include presentations at neighborhood meetings and greater community education on this topic.

OUC also offers a variety of programs for customers who want to make their homes more energy efficient. Customers can take a free online home energy audit; request a l 2 0 0 5 A N N U A L R E P O R T C(05

OUCooling heats up in Thanks to continued record growth, OUC's innovative chilled-water business expanded operations in downtown Orlando, and elsewhere, this year.

Revenue (In Millions of Dollars)

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OUCooling, our chilled-water division, maintained its rapid growth rate, thanks largely to the expanding customer base in downtown Orlando.

Construction in downtown is ongoing -

as one new high rise is finished, work begins on the next. For example, the Sanctuary Downtown, a new 18-story, 667,000 square-foot commercial central chilled water facility.

By outsourcing these services to OUC, property owners guarantee the reliability of chilled water.

With OUCooling, all of the equipment used to cool water for air-conditioning systems is housed in centralized facilities. There, water is cooled to 37 degrees and piped to participating buildings before returning 2002 2003 2004 2005 With OUCooling, all of the equipment used to cool water for air conditioning systems is housed in centralized facilities.

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and residential tower, opened its doors to residents in 2005.

OUCooling provides the air conditioning needs for residents and substantial cost savings for the developer.

Instead of a condo association billing residents and maintaining its own on-site cooling system, OUCooling bills residents for their individual usage and operates the system at a to the chiller plant at 52 degrees to repeat the cycle.

OUC's new North Central water chiller plant kicked into operation in late 2004.

At its future full capacity, the new facility -

larger than the first downtown OUCooling plant -

will supply 12,000 tons of chilled water in its delivery loop and will open up more of downtown to OUC's valuable service.

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The Central Florida night skyline One look is all it takes to see how quickly OUConvenient Lighting grew its business during the past year.

OuCE OUConvenient Lighti Revenue (1n Millions of Dollars)

$8-J 6-INI In 2005, OUConvenient V

Lighting sold more than ng 4,200 new fixtures to customers across Central Florida. The business has been so successful -

with more than 9,700 fixtures installed in the past three years and many more scheduled for installation-that it seems like every new Central Florida 2005 lighting project is an OUC job.

fixture/pole groupings to produce the desired blend of style and function.

After the record-setting hurricane season of 2004, OUC launched a new business venture aimed at keeping businesses running should an extended power outage occur.

Although OUC is "The Reliable One," we cannot control all of Mother Nature's forces 4-2-

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2002 2003 2004 OUConvenient Lihting works with commercial partners to plan, install and maintain customized streetlights.

From new home communities to apartment complexes to industrial park projects, OUConvenient Lighting works with commercial partners to plan, install and maintain streetlights for various types of developments. To ensure solutions that work for individual customers, customized service packages are available that combine dozens of when it strikes our system. Therefore, we began offering Backup Generation service to customers as an extra protection against unpredictable events. Power-related downtime is inconvenient, and it can cause scheduling problems, lost productivity and revenue, and damage to valuable business reputations.

Fo> deve-lopets choosing OLUCHnnveti ernt Liqrtci'n con)twge d to be a cc it effect ye de-isin.r 2005 l 2 0 05 A N N U A L R E P O R T C°n B

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I I OUC Customer Service Representative Lizvette Melendez offers top-notch service with a smile to customers in St. Cloud.

1 2 0 0 5 A N N U A L R E P O R T I i...

STRATEGIC Pi AN GOAL #A

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At OUC, commitment to our customers is integral to our vision.

Here, success is measured in smiles -

the brighter, the better. For decades, our helpful and innovative service has generated happy, satisfied customers.

At OUC, building good relationships with our customers is at the heart of what we do. We live up to being 'The Reliable One" by being a customer-focused utility and providing exceptional services.

Whether in person, over the phone or online, making contact with OUC has never been faster or easier.

OUC regularly surveys customers and holds focus groups to measure satisfaction and ensure that we are meeting those high expectations. A 2005 customer opinion survey found that 92 percent of respondents identify us as "The Reliable One."

Customers also responded to changes in how we process outage calls. The quicker response times, especially during busy periods, resulted in satisfaction jumping 18 percent for first-call resolution.

OUC is planning changes to our automated call response program to improve customers' ability to get the A 2005 customer opinion survey found that 92 percent of respondents identify us as "The Reliable One."

information they need quickly.

New selection menus, easier navigation, the ability to complete certain tasks that currently require a Customer Service Representative and more information options will highlight the system's new features.

Providing convenient paying options prompted OUC to partner with participating 7-Eleven stores in Orange and Osceola counties.

Customers can now pay their bills at Vcom9 self-service kiosks. Vcom service offers bi-lingual, 24-hour customer assistance and the ability to conduct multiple transactions at once.

Even easier, customers can pay their bills from anywhere, at anytime, through OUC's Web site.

With our new eCheck payment system, the amount due is deducted directly from a customer's checking account. This secure payment option represents another way OUC is working to connect with customers in the method most convenient to them. Vr 2 0 0 5 A N N U A L R E P O R T 21

Community involvement highlights active year Across Central Florida, OUC has been a community leader...

from partnering with the University of Central Florida to hosting neighborhood hurricane preparedness meetings.

Throughout the year -

in ways big and small -

OUC and our employee volunteers have worked to be a positive influence in the lives of our customers.

OUC-sponsored events included the second annual OUC Downtown Orlando Triathlon, the OUC Half Marathon &

5K and the OUC Junior Achievement Bowl-A-Thon. Employees from across OUC participated in these events and numerous others throughout the year, demonstrating a strong commitment to community and family.

As part of our focus on science education, OUC partnered with the Florida Interactive Entertainment Academy at the University of Central Florida. This digital media project is the latest collaboration for OUC and UCF in a long-standing partnership.

This latest OUC-UCF venture took shape in late 2005 when OUC asked students to develop a new character or characters to represent OUC's community and educational outreach programs and to build the character(s) into a 30-second animation. The reams received feedback from OUC's marketing professionals, and one OUC worked with the cities of Orlando and St. Cloud to host neighborhood hurricane preparation meetings.

idea was selected for development into a 30-second Jumbotron animation that will be shown at the Citrus Bowl during home UCF football and bowl games.

OUC has been a major sponsor of UCF athletics and academics for more than 10 years. And in 2005, UCF alumni and OUC Director of Human Resources German Romero was awarded UCF's Community Service Award.

In another partnership, OUC worked with the cities of Orlando and St. Cloud this spring to host neighborhood meetings throughout our service area to discuss hurricane preparation.

In May and June, OUC hosted 18 meetings in Orlando, St. Cloud and Orange County, including one Spanish-only presentation.

Along with presenters from the City of Orlando, the meetings featured information on emergency response, storm water, trees and other safety issues. Local NBC affiliate WESH 2 participated by sending meteorologists to discuss weather patterns and what to expect in the hurricane season.

OUC publicized the meetings in radio, television and print ads, as well as through wwwouccom and targeted postcard mailings to nearby customers.

BY THE NUMBERS_

OUC and its employees I contributed more than

[S213,700 to various chanties and community

' endeavors in 2005, including more than S460000 to the Hurricane Katrina Relief Funds. Since 1993, OUC employees [

-have donated more than 55,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> to 180 L community organizations.

1 2 0 0 5 A N N U A L R E P O R T As part of our focus on science education, OUC partnered with the University of Central Florida to develop new characters and animation for OUC electronic ads. 0

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Important changes New Customer Information System and relocated service center offer examples of how OUC is meeting head on the challenges of the future.

OUC Total Customer Population birl Thao isa )(4s, f (, -

.cn-r ;s) 325 -

300 -

275 -

2002 2003 2004 2005 OUC's current Customer Information System (CIS) has been in use for many years and helps us deliver high quality customer service, provide accurate billing services and maintain historical perspectives for each customer.

To keep up with technological advances, a team of employees has been working to ensure a seamless transition to a new, more sophisticated system. The new PeopleSoft Enterprise Revenue Management system (PS/ERM) will provide the framework and necessary functionality integrated with robust business processes -

to improve OUC's ability to truly "know" our customers and best meet their needs.

PS/ERM will provide a comprehensive view of all aspects of a customer account, including access to demographic information, financial billing information, historical payment trends, services rendered and other important transactional details.

Additional features will provide trending analysis, proactive notifications of In 2006, OUC will work with an owners representative, real estate expert and architect to evaluate options for our downtown headquarters:

special customer events, revenue protection algorithms and more.

Planning for future customer needs and our ability to provide a high level of customer focus is at the forefront as we face the challenges of moving our corporate headquarters and main customer service center.

The move is necessitated by the Florida Department of Transportation's (FDOT) plans to build a new high-speed interchange for Interstate 4 and the 408 Expressway on land occupied by OUC's existing Administration Building parking garage.

In 2006, OUC will work with an owner's representative, real estate expert and architect to evaluate options for our downtown headquarters:

renovate the existing Administration Building with a new parking garage, build a new facility, purchase part of a building with a third party or move into an existing building.

Through embracing change -be it in location or technology -

OUC ensures our vision for the future is always on the right track.

2 0 0 5 A N N U A L R E P O R T

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200 square miles City of Orlando/Orange County electric service area:

244 square miles St. Cloud electric service area:

150 square miles

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0 Charting the course At OUC, the strength of our local governing board lies in its connections to Central Florida.

Known as the Commission, OUC's governing board is comprised of five citizens who live in our service area, have deep roots in the

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community and represent the important, well-informed decisions diversity of our customer base.

about rates and policies.

That means each board member All Commissioners, with the has a strong inherent desire to exception of the mayor of Orlando ensure the enduring success of (an ex officio member), can serve up OUC. Their exceptional vision is to two consecutive four-year terms.

what guides them when making They serve without compensation.

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I OUC's senior management team utility service, our top managers partnership to increase the use of boasts experts in an array of fields, work for the present and plan for alternative water supply.

including engineering, technology, the future.

With their experience and water production, marketing and Thanks to their efforts, OUC is combination of talents, the OUC finance. Having dedicated poised to begin work on such senior management team is perfectly themselves to OUC's mission of innovative projects as a first-of-its-positioned to chart a steady course providing affordable and reliable kind coal-gasification facility and a into the future.

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Financial and statistical highlights September 30

% Increase (Decrease) 2005 2004 Combined Financial Highlights (Dollars in thousands)

Total operating revenues Total operating expenses Interest and net other income Interest expense Income before contributions Dividend payment Utility plant, net Total assets Long-term debt, net Net assets Senior bond ratings (1)

Debt service coverage:

Current debt service 754,260 645,034 16,049 68,551 56,724 34,034 1,765,676 2,547,134 11,351,781 762,500 AA, Aal, AA 673,107 574,772

- 25,436 71,004 52,767

• 31,660 1,746,342

- 2,545,195

- 1,387,423 725,203 AA, Aa 1, AA 2.24 1 12.1%

12.2%

-36.9%

.- 3.5%

- 7.5%

7.5%-

t.1%

-0.1%

--2.6%

5.1%

1.3%.

2.26 Electric Financial Highlights Operating revenues 700,002 622,708 12.4%

Fuel and purchased power 373,880 318,558 17.4%

Operating expenses excluding fuel and storm recovery expenses 228,255 199,101 14.6%

Storm recovery expenses 5,856

-100.0%

Water Financial Highlights Operating revenues 54,258 50,399 7.7%

Operating expenses exduding storm recovery expenses 42,899 38,110 12.6%

Storm recovery expenses 147

-100.0%

Electric Statistical Highlights Total sales (MWH) 8,703,050 8,538,879 1.9%k Total retail sales (MWH) 5,350,346 5,162,022 3.6%

Sales for resales (MWH) 3,352,704 3,376,857

-0.7%

Total active services (2) 192,194 183,492 4.7%

Average annual residential use (KWH) 13,058 12,767 2.3%

Average residential revenue per KWH 9.79 8.99 i

8.9%

Heating degree days 501

54

-9.6%

Cooling degree days 3,468 3,416-1.5%

Gross peak demand (MW) 1,141 1,100 3.7%

Water Statistical Highlights Total sales (in thousands of gallons) 28,980,351 Total active services 130,719 Average annual residential usage (gallons) 140,660 Average residential revenue per 1000 gallons 1.87 Rainfall (inches) 64.20 Peak pumping (million gallons per day) 109

1. Bond Rating Agencies: Fitch Investors Service, Inc. Moody's Investors Service and Standard & Poor's, respectively.

2. Exdudes inactive and streetlight services.

For more detailed statistical inforrnation, see OtiC's Ten-Year Financial & Statistical Information Report.

27,902,339 126,712 141,199 1.81 52.60 118 4.1%

3.2%

-0.4%

3.6%

22.1%

-8.1%

2 0 0 5 I

I A N N U A L R E P O R T L

ouc.@

The Reliable Ones 50O South Orange Avenue, Orlando, FL 32801 Phone: 407423.9100 Fax: 407236.9616 wwwouc.com