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 iAuditor'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 Standardsand 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 analysis as required by the U.S. Office of Management and Budget Circular A-133, Audit of States, Local L

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 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.

FinancialHighlights 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: L

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 FinancialStatements This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements consist of three components: (1) government-wide L

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-widefinancialstatements 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 assets may serve as a useful indicator of whether the financial position of the City is L

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 4 L

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 IU 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 activities wsstewater, and mosquiuto control funds U

Reqiired'fiuiancial-statements Balance sheet; Statement-of revenues, expenditures, and changes in fuind Statement of net assets; Statement of revenues, expenses and changes Statement of fiduciary net assets; Statement of changes L

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 information used up and liabilities that come due during the year All assets and liabilities, both financial and capital, All assets and liabilities, both short and long- term L

or soon thereafter, no capital assets included and short and long-term L

Type of inflow/ Revenues for which cash is All revenues and All revenues and outflow information received during or soon expenses during the after the end of the year, year, regardless of expenses during the year, regardless of L

expenditures when goods when cash is received when cash is or services have been received and payment is or paid received or paid L due during the year or soon thereafter L L

6 L

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 governmentalfunds 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 is also presented in the proprietary fund financial statements. The basic proprietary fund financial L

statements can be found on pages 28 through 33. L FiduciaryFunds 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 depreciated in the governmental financial statements. The new standard requires that these assets be L

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, 2005.

L 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 Governmental Business-type -- Total%

Activities Activities Total I Change 2004 2005 2004 2005 2004 2005 2004-2005 Current and other assets $1,803,617 $2,611,102 $9,419,547 $10,916,115 $11,223,164 $13,527,217 20.5%

Capital Assets 4,158,076 4,311,713 12,853,141 11,719,927 17,011,217 16,031,640 -5.8%

1W Total Assets $5,961,693 $6,922,815 $22,272,688 $22,636,042 $28,234,381 $29,558,857 4.7%

Long-term liabilities outstanding $3,543,712 $3,667,926 $11,614,912 $11,135,739 $15,158,624 $14,803,665 -2.3%

kw Other liabilities 288,628 879,751 1,441,524 2,521,192 1,730,152 3,400,943 96.6%

Total Liabilities $3,832,340 $4,547,677 $13,056,436 $13,656,931 $16,888,776 $18,204,608 7.8%

Net Assets Invested in capital assets, net of related debt $1,026,647 1,006,106 $1,641,488 1,042,838 $2,668,135 2,048,944 -23.2%

L Restricted 51,490 175,489 918,000 946,173 969,490 1,121,662 15.7%

Unrestricted 1,051,216 1,193,543 6,656,764 6,990,100 $7,707,980 8,183,643 6.2%

Total Net Assets $2,129,353 $2,375,138 $9,216,252 $8,979,111 $11,345,605 $11,354,249 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. L

• 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, increase capital assets, reduce unrestricted net assets, and increase invested in capital assets, net L

of debt. i

• 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 Business-type Totals %

Activities Activities Totals change 2004 2005 2004 2005 2004 2005 2004-2005 Revenues:

'3rograrn Revenues:

Charges for Services $1,000,349 $1,124,128 $10,475,296 $12,244,591 $11,475,645 $13,368,719 16.50%

Operating Grants and Contributions 58,699 1,388,772 58,699 1,388,772 2265.92%

Capital grants and Contributions 887,298 231,662 887,298 231,662 -73.89%

3eneral Revenues:

Property Tax 2,172,994 2,389,945 2,172,994 2,389,945 9.98%

Other Tax 348,775 361,772 348,775 361,772 3.73%

Franchise Tax 173,241 226,439 173,241 226,439 30.71%

6i Utility Tax 543,939 643,971 543,939 643,971 18.39%

Intergovernmental 632,298 615,007 632,298 615,007 -2.73%

Other 79,821 313,523 70,531 $253,111.00 150,352 566,634 276.87%/

Total Revenues $5,897,414 $7,295,219 $10,545,827 $12,497,702 $16,443,241 $19,792,921 20.37%

Expenses:

6 General Government $1,977,611 $2,193,976 $1,977,611 $2,193,976 10.94%

Public Safety 2,227,148 3,202,102 2,227,148 3,202,102 43.78%

Parks and Recreation 494,500 564,972 494,500 564,972 14.25%

Transportation 644,394 772,815 644,394 772,815 19.93%

6 Physical Environment 629,191 1,004,761 629,191 1,004,761 59.69%

Economic Environment 699,843 82,049 699,843 82,049 -88.28%

Electric, Water, and Sewer 9,249,502 11,742,368 9,249,502 11,742,368 26.95%

L Interest on long-term debt 246,730 197,744 246,730 197,744 -19.85%

Total Expenses $6,919,417 $8,018,419 $9,249,502 $11,742,368 $16,168,919 $ 19,760,787 22.21%

L Increase (decrease) in net assets before transfers ($1,022,003) ($723,200) $1,296,325 $755,334 $274,322 $32,134 -88.290/%

Transfers 955,329 992,475 (955,329) (992,475) 0 0 0.000/0 L Increase (decrease) in net assets ($66,674) $269,275 $340,996 ($237,141) $274,322 $32,134 -88.29%

Net assets - beginning (restated) $2,196,027 $2,105,863 $8,875,256 $9,216,252 $11,071,283 $11,322,115 2.27%

Net assets - ending $2,129,353 $2,375,138 $9,216,252 $8,979,111 $11,345,605 $11,354,249 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

$1,000 ,000 si oovooo

$50000 _lH Reenues (excluding tax Ex sup Olt)r

_ _ I

$00 aQ E

OE ;o da aa o3 ie v

e Programs 12

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

Operating Grants & A- Contributions Contributions 3%

17%

, Taxes Unrestricted Investment Earnings 0 Intergovernmental 1% h Taxes o Charges for Services 43% o Miscellaneous Transfers / a Transfers 12%

a Unrestricted Investment Earnings Miscellaneous / a Operating Grants & Contributions 3% l Capital Grants & Contributions VIntergovernmental Charges for Services 7%

14%

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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CITY OF ALACHUA, FLORIDA I 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 I

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.

Expenses and Program Revenues - Business-Type Activities I-

$12,000,000

$10,000,000 I

WI 0

$8,000,000

• Revenues I

$6,000,000

$4,000,000 I

• Expenditures I

$2,000,000

$0 Electric Water Wastewater Mosquito Control I

Programs I

Program Revenue by Source - Business-Type Activities Unrestri t ne I,amnings Capital Grants &

Contributions I

0 1%

Miscellaneous /

0%

I

• Charges for Services

• Miscellaneous I

o Unrestricted Investment Earnings o Capital Grants & Contributions I Charges for Services 98% I FundFinancialAnalysis I

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

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CITY OF ALACHUA, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2005 Governmental Funds The primary purpose of the City's governmentalfunds 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, unreservedfund 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, unreservedfindbalance 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, wastewater, and mosquito control utilities. Each utility operates like a business, where the rates L

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 increasing the General Fund contingency account.

L

• $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%

TOTAL $15,517,432 $15,023,908 -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 Economic Factors and Next Year's Budgets and Rates L

• The unemployment rate for the Gainesville MSA that includes the City of Alachua at September 30, 2005, was 2.7%, same as the previous fiscal year.

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• The citywide taxable value of property increased to $493 million, representing a growth of 13%.

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• Population increased approximately 4.8% from the prior year to an estimate of 7,020 at September 30, 2005.

L 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 demonstrate the City's accountability. If you have questions concerning any of the information provided L

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 L

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BASIC FINANCIAL STATEMENTS 19

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

Cash and cash equivalents $ 1,348,846 5,918,373 7,267,219 Accounts receivable, net of allowance 232,714 1,728,339 1,961,053 Internal balances ( 156,028) 156,028 Due from other governments 918,774 918,774 Restricted assets:

Cash and cash equivalents 177,928 2,094,590 2,272,518 Investments 359,303 359,303 Inventories -- 263,556 263,556 Prepaid expenses 88,868 1,695 90,563 Deferred charges -- 246,966 246,966 Bond issue cost -- 147,265 147,265 Capital assets:

Land 226,980 2,228,697 2,455,677 Buildings 1,481,347 6,943,544 8,424,891 Improvements other than buildings 1,217,765 2,284,929 3,502,694 Machinery and equipment 1,502,270 11,433,556 12,935,826 Construction in progress 478,631 176,086 654,717 Infrastructure 4,954,246 -- 4,954,246 Accumulated depreciation (5,549,526) ( 11,346,885) (16,896,411)

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

Account payable and accrued expenses $ 807,075 1,116,280 1,923,355 Accrued interest payable 42,299 256,495 298,794 Deferred revenue 27,938 27,938 Current liabilities payable from restricted assets:

Accounts payable 2,439 2,439 Deferred revenue 700,000 700,000 Customer deposits 448,417 448,417 Noncurrent liabilities payable from restricted assets:

Deferred credit - CR-3 decommissioning costs 359,303 359,303 Other noncurrent liabilities:

Due within one year 640,000 640,000 Due in more than one year 3,667,926 10,136,436 13,804,362 Total liabilities 4,547,677 13,656,931 18,204,608 NET ASSETS Invested in capital assets, net of related debt 1,006,106 1,042,838 2,048,944 Restricted for.

Debt service 930,495 930,495 Capital projects 169,311 169,311 Other purposes 6,178 15,678 21,856 Unrestricted 1,193,543 6,990,100 8,183,643 Total net assets 2,375,138 8,979,111 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

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

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

Functions/Programs Expenses Services Contributions Capital Governmental activities:

General government $ 2,193,976 394,028 L

Public safety 3,202,102 126,464 806,910 Physical environment Transportation 1,004,761 772,815 540,857 550,135 8,455 L Economic environment 82,049 211,117 Parks and recreation 564,972 62,779 23,272 20,545 I' Interest on long-term debt 197,744 Total governmental activities 8,018,419 1,124,128 1,388,772 231,662 Business-type activities:

Electric Water and sewer 8,946,756 2,771,163 10,105,732-2,097,604

-

-

L Mosquito control Total business-type activities Total 24,449 11,742,368

$ 19,760,787 41,255 12,244,591 13,368,719

-

1,388,772 231,662 L

General revenues:

L Ad valorem taxes Local option gas tax Franchise fee taxes Utility service taxes L

Communication service taxes State shared revenues Unrestricted investment earnings L Miscellaneous Transfers Total general revenues and transfers Change in net assets L

Net assets - beginning of year (restated)

Net assets - end of year 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 2,389,945 140,829 140,829 226,439 226,439 643,971 643,971 220,943 220,943 615,007 615,007 61,391 89,647 151,038 252,132 - 163,464 415,596 992,475 ( 992,475) 5,543,132 ( 739,364) 4,803,768 269,275 ( 237,141) 32,134 2,105,863 9,216,252 11,322,115

$ 2,375,138 8,979,111 11,354,249 23

CITY OF ALACHUA, FLORIDA BALANCE SHEET L

GOVERNMENTAL FUNDS September 30, 2005 L General Nomnajor Governmental Total Govermmental L

Fund Funds Funds Il ASSETS L Cash and cash equivalents $ 827,270 521,576 1,348,846 Accounts receivable Due from other funds 87,527 645,142 145,187

-

232,714 645,142 L

Due from other governments 78,837 839,937 918,774 Prepaids 88,373 495 88,868 Restricted assets - cash and cash equivalents 6,178 171,750 177,928

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

LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable $ 159,014 568,121 727,135 L

Accrued expenses Interest payable Deferred revenue 35,565 27,938 44,375 42,299 79,940 42,299 27,938 L

Due to other funds Payable from restricted assets:

Accounts payable 166,942

--

634,228 2,439 801,170 2,439 L

Total liabilities 389,459 1,291,462 1,680,921 L Fund balances:

Reserved for:

L Debt service 144,995 144,995 Capital projects Other purposes 6,178 169,311 169,311 6,178 L

Unreserved, undesignated General fund Special revenue funds 1,337,690

-

--

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

Capital projects funds - ( 139,632) ( 139,632)

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

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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 $ 9,861,239 Less: accumulated depreciation (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 (725,000) 1995 First National Bank Note (163,604) 2000 Sales Tax Revenue Note (45,259) 2000 Tax Increment Road Improvement Note (203,220) 2001A Section 108 Loan (2,010,000) 2004 Caterpillar Loan (30,202) 2005 Walmart Bridge Loan (297,633)

Compensated absences (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

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

L Nonmajor Total Revenues General Fund Governmental Funds Governmental Funds L Taxes Licenses and permits Intergovernmental revenues S 3,622,127 303,955 623,461 1,415,171 3,622,127 303,955 2,038,632 L

Charges for services 702,875 702,875 Fines and forfeitures Interest 126,064 57,150 4,241 168,538 126,064 61,391 L

Miscellaneous 239,526 408,064 Total revenues 5,675,158 1,587,950 7,263,108 L Expenditures i i Current General government - .2,122,279 - 2,198 2,124,477 Public safety 2,212,752- 780,725 2,993,477 Physical environment Transportation Economic environment 429,025 494,320 566,067 78,459 995,092 494,320 78,459 L

Parks and recreation 440,902 73,602 514,504 Debt service Principal 11,763 178,692 190,455 L

Interest and fiscal charges 874 196,870 197,744 Capital outlay Total expenditures 263,001 5,974,916 440,302 2,316,915 703,303 8,291,831 L

Deficiency of revenues under expenditures ( 299,758) ( 728,965) ( 1,028,723) L Other financing sources (uses)

Proceeds from note - 297,633 297,633 L Transfers in Transfers out (

925,000 350,527) 418,002

- (

1,343,002 350,527) L Total other financing sources (uses) 574,473 715,635 1,290,108 Net change in fund balances Fund balances - beginning of the year (restated) 274,715 1,069,153

( 13,330) 400,813 261,385 1,469,966 L

Fund balances - end of the year S 1,343,868 387,483 1,731,351 L L

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

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 $ 703,303 Less: current year depreciation (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. 32,111 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.

Proceeds from Walmart Bridge Loan (297,633)

Principal payments on:

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

CITY OF ALACHUA, FLORIDA STATEMENT OF NET ASSETS L

PROPRIETARY FUNDS September 30, 2005 L Business-Type Activities-Enterprise Funds L

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

Fund Fund Fund Control Fund Funds Service Fund ASSETS L

Current assets:

Cash and cash equivalents Receivables Prepaids S 4,401,620 1,527,842 1,695 454,041 73,176

-

901,027 125,090

-

52,516 2,231

-

5,809,204 1,728,339 1,695 109,169 L

Due from other funds Due from other governments Inventories - 227,859

- 463 34,538 166,942 1,159 15,051

-

182,456 263,556 L

Deferred charges 246,966 - - - 246,966 -

Total current assets 6,405,982 562,218 1,194,218 69,798 8,232,216 109,169 Noncurrent assets:

L Restricted assets:

Cash and cash equivalents Investments 981,075 359,303 124,635

-

988,880

-

-

-

2,094,590 359,303 -

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

Capital assets:

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

Less accumulated depreciation Net capital assets

( 4,566,165) 3,882,617

( 2,878,508) 2,347,467

( 3,868,918) 5,464,467

( 3,096) (11,316,687) 4,104 11,698,655

( 30,198) 21,272 L

Other assets:

L Bond issue costs L

101,272 7,336 38,657 -- 147,265 -

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

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

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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 S 977,351 10,179 54,395 - 1,041,925 1,671 Accrued expenses 64,140 2,183 47 66,370 6,314 Due to other funds 9,281 1,702 394 - 11,377 15,051 Accrued interest 139,654 46,682 70,159 - 256,495 Payable from restricted assets:

Deferred revenue _ - 700,000 _ 700,000 Customer deposits 341,188 54,792 52,437 - 448,417 Current portion of long-term debt 323,492 59,131 257,377 - 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 t 359,303 - - _ 359,303 Compensated absences 31,631 11,967 20,054 - 63,652 35,695 Long-term debt 5,977,343 1,158,990 2,900,756 - 10,037,089 --

Total noncurrent liabilities 6,368,277 1,170,957 2,920,810 - 10,460,044 35,695 TOTAL LIABILITIES 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 ( 2,418,218) 1,129,346 2,306,334 4,104 1,021,566 21,272 Restricted for Debt service 639,887 69,843 220,765 - 930,495 Other purpose - - 15,678 - 15,678 Unrestricted 5,285,197 499,024 1,085,690 69,751 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

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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 Operating revenues:

Charges for services $ 10,105,732 811,921 1,285,683 41,255 12,244,591 550 Interfund charges --- 648,033 Total operating revenues 10,105,732 811,921 1,285,683 41,255 12,244,591 648,583 Operating expenses:

Electric power expenses:

Nuclear power 151,137 151,137 --

Purchased power 6,718,176 6,718,176 --

Personal services 388,107 230,618 228,496 11,247 858,468 503,349 Contractual services 56,430 44,700 52,038 -- 153,168 42,101 ij Supplies 44,975 36,802 64,147 11,069 156,993 76,342 Repairs and maintenance 73,346 45,748 68,980 1,084 189,158 2,378 Billing and administration 324,017 162,008 162,008 -- 648,033 --

Depreciation 646,336 411,034 735,400 720 1,793,490 9,253 Other expense 220,317 94,975 161,953 329 477,574 25,878 Total operating expenses 8,622,841 1,025,885 1,473,022 24,449 11,146,197 659,301 Operating income (loss) 1,482,891 ( 213,964) ( 187,339) 16,806 1,098,394 ( 10,718) ii Nonoperating revenues (expenses):

Interest income 73,969 15,678 -- 89,647 --

I Interest and fiscal charges ( 321,889) ( 111,276) ( 162,638) ( 595,803) --

I Amortization of bond issue costs ( 6,751) ( 489) ( 2,577) ( 9,817) --

Miscellaneous 100,980 20,163 42,321 -- 163,464 20,167 Total nonoperating revenues (expenses) 153,6911 ( 91,602) ( 107,216) -- ( 352,509) 20,167 Income (loss) before transfers 1,329,200 ( 305,566) ( 294,555) 16,806 745,885 9,449 Transfers in - - -- -- - 14,000 Transfers out ( 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 3,102,666 2,003,779 3,990,497 71,049 9,167,991 48,261 Total net assets - end of year $ 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.

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CITY OF ALACHUA, FLORIDA STATEMENT OF CASH FLOWS L

ENTERPRISE FUND For The Year Ended September 30, 2005 L

Major Funds Business-Type Activities-Enterprise Nonmajor Fund Funds Total Business-Type Activities

.

Electric Fund Water Fund Wastewater Fund Mosquito Control Fund Enterprise Funds Internal Service Fund L CASH FLOWS FROM OPERATING ACTIVITIES I Receipts from customers S 9,650,188 811,531 1,286,580 41,276 11,789,575 648,583 Payments to suppliers for goods and services ( 6,886,570) ( 305,273) ( 424,960) ( 12,435) ( 7,629,238) ( 151,638)

Payments to employees for services ( 394,879) ( 230,660) ( 224,066) 11,247) ( 860,852) ( 483,769)

Payments to other funds - internal activity ( 324,017) ( 162,008) ( 162,008) _ ( 648,033)

Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL 2,044,722 113,590 475,546 17,594 2,651,452 13,176 L

FINANCING ACTIVITIES Miscellaneous Transfers in Transfers out (

100,980 925,000) 20,163

- (

42,321 67,475) (

-

14,000) (

163,464 1,006,475) 20,167 14,000

-

L Net cash provided (used) by noncapital financing activities ( 824,020) 20,163 ( 25,154) ( 14,000) ( 843,011) 34,167 CASH FLOWS FROM CAPITAL AND L RELATED FINANCING ACTIVIES Acquisition and construction of fixed assets Proceeds from loan

( 398,832) ( 122,969) (

-

137,316) 5,298

- ( 659,117) 5,298

( 10,4112) [

- - - IL' Capital contribution - - 700,000 _ 700,000 aw Bond and loan principal payments ( 307,188) ( 57,131) ( 241,681) - ( 606,000) -

Bond and loan interest payments ( 296,961) ( 94,421) ( 155,337) ( 546,719)

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- -

Net cash provided (used) by capital and related financing activities ( 1,002,981) ( 274,521) 170,964 - ( 1,106,538) ( 10,412)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of pooled investments 39,599) _ - ( 39,599)

Interest on pooled cash and investments 73,969 - 15,678 89,647 Net cash provided by investing activities 34,370 - 15,678 - 50,048 Net increase (decrease) in cash and cash equivalents 252,091 ( 140,768) 637,034 3,594 751,951 36,931 Cash and cash equivalents at beginning of year 5,130,604 719,444 1,252,873 48,922 7,151,843 72,238 C Cash and cash equivalents at end of year S 5,382,695 578,676 1,889,907 52,516 7,903,794 109,169 Detail of cash at end of year.

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

S 4,401,620 981,075 5,382,695 454,041 124,635 578,676 901,027 988,880 1,889,907 52,516 52.516 5,809,204 2,094,590 7.903.794 109,169 109.169 L

. ...

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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 Fund Total Activities Electric Water Wastewater Mosquito Enterprise Internal Fund Fund Fund Control Fund Funds Service Fund RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss) S 1,482,891 ( 213,964) ( 187,339) 16,806 1,098,394 ( 10,718)

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

L Depreciation expense (Increase) decrease in accounts receivable 646,336 411,034 735,400 720 1,793,490 9,253 274,532) ( 10,176) ( 8,911) 21 ( 293,598) -

(Increase) decrease in due from other funds - 16,449 - - 16,449 -

(Increase) decrease in inventories and other current assets 13,428) ( 15,281) ( 1,159) - ( 29,868) -

(Increase) decrease in deferred costs 248,370) - - - ( 248,370) -

Increase (decrease) in accounts payable and accrued liabilities 413,596 ( 55,148) ( 4,187) 47 354,308 ( 4,939)

Increase (decrease) in due to other funds 22,357) ( 29,068) ( 72,496) - ( 123,921) -

Increase (decrease) in deferred revenue 39,599 - - - 39,599 -

L Increase (decrease) in customer deposits 27,759 9,786 9,808 - 47,353 -

Increase (decrease) in accrued compensated absences 6,772) ( 42) 4,430 - 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 S 6,751 489 2,577 _ 9,817 -

Amortization of Discount 3,714 269 1,418 - 5,401 -

Amortization of Loss on Refunding 29,547 6,434 24,756 _ 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 L

Trust Funds L Additions:

Contributions:

Employer $ 20,806 Plan members 457 Total contributions 21,263 Investment earnings: 3,861 Total additions 25,124 Deductions:

Distributions 1,294,036 L

Administrative fees 3,264 Total deductions 1,297,300 Change in net assets (1,272,176)

Net assets held in trust for pension benefits:

Net assets - beginning of the year 1,272,176 Net assets - end of the year $

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 NOTES TO FINANCIAL STATEMENTS L

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

L Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and the major L

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 measurementfocus and the accrualbasis 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 currentfinancialresources measurementfocus 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) 366

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 generalfund 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 electricfund 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 internalservicefund accounts for the administrative services provided to the Electric Fund, Water Fund, and Wastewater Fund.

1 The two pension trustfunds 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 operatingrevenues and expenses from nonoperatingitems. 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 charges to customers for sales and services. The City's enterprise funds also recognize as operating revenues the L

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

L The government's cash and cash equivalents are considered to be cash on hand, demand deposits, and highly liquid instruments with original maturities of three months or less from the date of acquisition.

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

(Continued)

L 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 NOTES TO FINANCIAL STATEMENTS L

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 on their use either through enabling legislation or through external restrictions imposed by creditors, L

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 mnconformity 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 Type Deficit Public Assistance Nonmajor Governmental $ (116,176)

Cooperative Forestry Assistance Nonmajor Governmental (4,375)

Neighborhood Community Center Nonmajor Governmental (17,142)

Municipal Complex Nonmajor Governmental (111,198)

Natural Resource Conservation Service Nonmajor Governmental (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.

Debt Governmental General Service Activities Fund Fund Net Assets/Fund Balance, October 1, 2004 $ 2,129,354 1,214,080 48,039 Prior Period Adjustment (23,491) (116,413) 92,922 New Funds for 2005 Donation Fund (5,747)

Public Assistance Fund 103,432 Neighborhood Community Center Fund (34,000)

Municipal Complex Fund (92,199)

Restated Net Assets/Fund Balance, October 1, 2004 $ 2,105,863 1,069,153 140,961 NOTE D - INVESTMENTS As of September 30, 2005, the City had the following investments:

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

CR-3 Pooled Investment Account $ 359,303 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

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS L

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

Governmental Business-Type L

Cash Debt Service Reserve $

Activities Activities 930,495 L

UnSpent State appropriations 715,678 I Unspent Walmart bridge loan proceeds 171,750 Customer Deposits 448,417 Police Forfeiture Total $

6,178 177,928 2,094,590 L

Investments CR-3 Decommissioning $ 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 L

credit on the balance sheet.

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

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

Beginning Ending Balance Additions Deletions Balance LW Governmental Activities Capital assets, not being depreciated:

Land $ 226,980 226,980 LW Construction in progress 25,689 452,942 478,631 Total capital assets not being depreciated 252,669 452,942 705,611 Capital assets, being depreciated:

Ll Building 1,383,373 97,974 -- 1,481,347 Improvements other than buildings 1,193,482 24,283 -- 1,217,765 Infrastructure 4,954,246 4,954,246 L Machinery and equipment 1,344,279 160,216 (2,225) 1,502,270 Total capital assets being depreciated 8,875,380 282,473 (2,225) 9,155,628 L Less accumulated depreciation for:

Building (737,971) (37,034) * (775,0.05)

Improvements other than buildings (928,119) (121,777) (1,049,896)

Infrastructure (2,237,380) (122,513) (2,359,893)

L Machinery and equipment (1,066,503) (300,454) 2,225 (1,364,732)

Total accumulated depreciation (4,969,973) (581,778) 2,225 (5,549,526) iW Total capital assets, being depreciated, net 3,905,407 (299,305) 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 $ 2,228,697 2,228,697 Construction in progress 62,064 125,706 (11,684) 176,086 Total capital assets not being depreciated 2,290,761 125,706 (11,684) 2,404,783 L Capital assets, being depreciated:

Building 6,686,089 257,455 -- 6,943,544 Improvements other than buildings 2,228,693 56,236 - 2,284,929 Machinery and equipment 11,191,739 241,817 -- 11,433,556 Total capital assets being depreciated 20,106,521 555,508 -- 20,662,029 Less accumulated depreciation for:

Building (2,856,246) (167,617) (3,023,863)

Improvements other than buildings (1,080,613) (119,954) (1,200,567)

Machinery and equipment (5,607,282) (1,515,173) (7,122,455)

L Total accumulated depreciation (9,544,141) (1,802,744) (11,346,885)

Total capital assets, being depreciated, net 10,562,380 (1,247,236) 9,315,144 L; Proprietary activities capital assets, net $ 12,853,141 (1,121,530) (11,684) 11,719,927 (Continued) 43

CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS L

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

General government Public safety

$ 54,971 191,414 L

9,669 Physical environment Transportation Economic environment 274,749 3,590 L

Parks and recreation 47,385

$ 581,778 L NOTE H - LONG-TERM LIABILITIES L Governmental Activities The following schedule summarizes the changes in the City's governmental long-term liabilities during the year L ended September 30, 2005:

City of Arcadia, Florida, Dedicated Pool Local Beginning Balance Additions Reductions Ending Balance Due Within One Year L Government Revenue Bonds, Series 1993 Sales Tax Revenue Note, Series 1995 -

$ 775,000 -- 50,000 725,000 50,000 L

First National Bank of Alachua 192,070 -- 28,466 163,604 30,378 Sales Tax Revenue Note, Series 2000 First National Bank of Alachua 53,677 -- 8,418 45,259 8,849 L Tax Increment Road Improvement Revenue Note, Series 2000 Section 108 Government Guaranteed 230,028 -- 26,808 203,220 28,697 L

Certificates, Series HUD 2001A 2,075,000 -- 65,000 2,010,000 70,000 Caterpillar Loan, 2004 41,965 -- 11,763 30,202 11,654 Walmart Bridge Loan, 2005 -- 297,633 -- 297,633 --

Compensated Absences 154,440 38,568 -- 193,008 --

Totals $ 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, L

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 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 .L Note, which is payable solely from the City's local option gas tax revenues and guaranteed entitlement revenues.

L (Continued)

L 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 IncrementRoadImprovement 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 GuaranteedParticipationCertificates, 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.

CaterpillarLoan, 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

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 L 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 L

begin during October 2007.

The following schedule summarizes the principal retirement of governmental long-term debt by fiscal year L

(excluding compensated absences):

1995 2000 2000 2001A 2005 L

Fiscal Year City of Sales Tax Sales Tax Tax Section 2004 Walmart Ending September 30, Arcadia Loan Revenue Revenue Increment Note Note Note 108 Loan Caterpillar Loan Bridge Loan Total Principal L

2006 $ 50,000 30,378 8,849 28,697 70,000 11,654 -- 199,578 2007 55,000 32,419 9,403 30,588 75,000 12,024 297,633 512,067 2008 55,000 34,580 9,987 32,604 80,000 6,524 -- 218,695 2009 55,000 36,920 10,616 34,732 90,000 -- -- 227,268 2010 Thereafter -.

60,000 450,000, -

29,307 6,404 37,041 95,000 39,558 1,600,000

--

--

-- 227,752 2,089,558-L Totals - $725,000- 163,604 45,259 203,220 2,010,000 30,202 297,633 3,474,918 L

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

Beginning Ending Due within L Balance Additions Reductions Balance One year Utility Acquisition Bonds, Series 1993 $ 1,015,000 40,000 975,000 45,000 L Utility Revenue Bond of 1979 514,000 -- 26,000 488,000 25,000 State Revolving Fund Loan - State of Florida Department of Enviromental Protection 50,692 5,298 -- 55,990 L Utilities Refunding Revenue Note, Series 2002A 1,420,000 - 445,000 975,000 475,000 Less deferred loss on refunding Utility Refunding Revenue Bonds, Series 2003 (40,051) 9,150,000

-

-

(10,013) 95,000 (30,038) 9,055,000

--

95,000 L

Less deferred discount on refunding (86,400) - (5,400) (81,000) --

Less deferred loss on refunding Compensated Absences (811,587) 82,151 17,196

-- (50,724)

-

(760,863) 99,347

-

--

L Totals $11,293,805 22,494 539,863 10,776,436 640,000 Utility Acquisition Bonds, Series 1993 - On October 18, 1993, the City adopted Resolution R-93-24 authorizing L

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

(Continued)

L 46 L

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

I' CITY OF ALACHUA, FLORIDA NOTES TO FINANCIAL STATEMENTS The following schedule summarizes the principal retirement of the business-type debt by fiscal year:

I Utility Utility State Utility Refundinj PI Utilities Refunding L

Fiscal Year Ending September 30, 2006 Revenue Bond of 1979

$ 25,000 Acquisition Bonds, Series 1993 45,000 Revolving Fund Loan Revenue Note Series 2002'A 475,0(00 Revenue Bonds Series 2003

-95,000 Totals 640,000 L

2007 26,000 45,000 55,990 140,0( 00 460,000 726,990 2008 2009 27,000 29,000 50,000 55,000 360,0( 00 270,000 555,000 707,000 639,000 L

2010 30,000 55,000 655,000 Thereafter Totals 351,000

$ 488,000 725,000 975,000 55,990 975,0(00

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570,000 7,105,000 9,055,000 8,181,000 11,548,990 L

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:

- -. Governimental Activities Business-Type Activities L

Fiscal Year Ending September L

30, Principal Interest Total Principal Interest Total 2006 $ 199,578 187,925 387,503 640,000 510,215 1,150,215 L 2007 512,067 176,805 688,872 726,990 473,752 1,200,742 2008 218,695 164,880 383,575 707,000 446,438 1,153,438 2009 227,268 152,149 379,417 639,000 409,778 1,048,778 2010 227,752 138,663 366,415 .655,000 386,440 1,041,440 2011-2015 2016-2020 2021-2022 1,074,558 815,000 200,000 517,943 234,334 13,340 1,592,501 1,049,334 213,340 3,700,000 4,481,000 1,508,655 617,790 5,208,655 5,098,790 L

$3,474,918 5,060,957 11,548,990 4,353,068 15,902,058 1,586,039 L

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.

L 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. L L

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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:

Estimated Balance September 30, 2005 Utility Revenue and Refunding Bonds, Series 1978 $ 1,085,000 Utility Revenue and Refunding Bonds, Series 1981 2,440,000 Utility Revenue and Refunding Bonds, Series 1981A 160,000 Total $ 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 Payable Fund Amount General Fund Nonmajor Governmental Funds $ 633,927 Electric Fund 9,281 Water Fund 232 Wastewater Fund 1,702 Water Fund Nonmnajor Governmental Funds 301 Wastewater Fund 162 Wastewater Fund General Fund 166,942 Nonmajor Proprietary Fund Internal Service Fund 15,051 Total $ 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.

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COTEOF MAACHUA, FLORAME NOTES TO FINANCALU STATEMENTS L

Interfund transfers: L Nonmajor Transfers In:

Internal L General Governmental Service Total Transfers Out:

General Electric

$

925,000 350,527 350,527 925,000 L

Wastewater Nonmajor Enterprise Fund Total Transfers Out $ 925,000 67,475 418,002 14,000 14,000 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 L

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

Governmental Business-Type L

Activities Activities Debt service $ 930,495 L

Walmart bridge loan 169,311 Police forfeiture Other purpose 6,178 15,678 L

Total $ 175,489 946,173 L

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 L 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 L

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. L 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

(Continued)

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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 NOTES TO FINANCIAL STATEMENTS L

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 Legislature. These acts provide that employers, such as the City, be required to contribute 7.83% of the L

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

• Auxiliary Reserve Policy L

• 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 Original Final Actual Final Budget Revenues Taxes $ 3,527,768 3,527,768 3,622,127 94,359 Licenses and permits 280,000 280,000 303,955 23,955 Intergovernmental revenues 537,054 537,054 623,461 86,407 Charges for services 634,455 679,889 702,875 22,986 Fines and forfeitures 130,000 130,000 126,064 ( 3,936)

Interest 30,500 30,500 57,150 26,650 Miscellaneous 61,186 302,822 239,526 ( 63,296)

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

Interest and fiscal charges -- 874 ( 874)

Capital outlay 464,497 482,797 263,001 219,796 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 925,000 925,000 925,000 Transfers out ( 265,913) ( 280,913) ( 350,527) ( 69,614)

Total other financing sources (uses) 659,087 644,087 574,473 ( 69,614)

Net change in fund balance ( 736,045) ( 736,045) 274,715 1,010,760 Fund balance - beginning of year (restated) 1,069,153 1,069,153 1,069,153 -

Fund balance - end of year $ 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.

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

Service Revenue Project ASSETS Fund Funds Funds Total L Cash and cash equivalents Accounts receivable

$ 184,278 337,298 145,187 521,576 145,187 L

Due from other governments 445,156 394,781 839,937 Prepaids Restricted assets - cash and cash equivalents 495 171,750 495 171,750 L

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

LIABILITIES AND FUND BALANCES Liabilities: i. . . . . , .

Accounts payable $ 174,293 393,821 568,121.'

Accrued expenses Interest payable 38,982 707 3,317 43,66W 8 44,375 42,299. L Due to other funds 301 391,823 242,104 4 634,228 Payable from restricted assets:

Accounts payable -- 2,435 2,439 L Total liabilities Fund balances:

39,283 570,140 682,039 1,291,462 L

Reserved for:

Debt service Capital projects 144,995 169,311 144,995 169,311 L

Unreserved, undesignated in Special revenue funds Capital projects

-- 212,809

( 139,632) (

212,809 139,632)

L Total fund balances 144,995 212,809 29,679 387,483 L 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 Special Capital Service Revenue Project Fund Funds Funds Total Revenues Intergovernmental revenues c 942,133 473,038 1,415,171 Interest 807 3,434 4,241 Miscellaneous 23,087 145,451 168,538 Total revenues 807 968,654 618,489 1,587,950 Expenditures Current:

General Government 1,736 462 2,198 Public safety 780,725 I .- .780,725 Physical environment 24,100 541,967 566,067 LJ Economic environment 78,459 78,459 Parks and recreation 9,219 64,383 73,602 Debt Service L Principal 151,884 26,808 178,692 Interest and fiscal charges 178,277 18,593 196,870 Capital outlay 19,472 420,830 440,302 Total expenditures 330,161 959,112 1,027,642 2,316,915 Excess (deficiency) of revenues over expenditures ( 329,354) 9,542 409,153) ( 728,965)

Other financing sources (uses)

Proceeds from note 297,633 297,633 Transfers in 333,388 68,504 16,110 418,002 Total other financing sources (uses) 333,388 68,504 313,743 715,635 Net change in fund balances 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

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

I Community State and Redevelopment Agency Donation Community Highway L

ASSETS Fund Fund Safety Fund L

Cash and cash equivalents Due from other governments

$ 324,884 12,414 9,188 I

Prepaids 495 Total assets $ 325,379 12,414 9,188 L LIABILITIES AND FUND BALANCES L Liabilities:

Accounts payable Accrued expenses

$ 8,162

- 707 L

Interest payable Due to other funds 3,317

- 1,435 L Total liabilities 11,479 -- 2,142 L

Fund balances:

Unreserved, undesignated 313,900 12,414 7,046 Total fund balances 313,900 12,414 7,046 TOTAL LIABILlTIES AND FUND BALANCES $ 325,379 12,414 9,188 L

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Cooperative Public Forestry Assistance Assistance Fund Fund Total 337,298 416,243 19,725 445,156 495 416,243 19,725 782,949 166,131 -- 174,293 707 3,317 366,288 24,100 391,823 532,419 24,100 570,140

( 116,176) ( 4,375) 212,809

( 116,176) ( 4,375) 212,809 416,243 19,725 782,949 61

CITY OF ALACHUA, FLORIDA NONMAJOR SPECIAL REVENUE FUNDS L

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For The Year Ended September 30, 2005 L

Community State and L

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

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

• 5,465-L Total revenues 147,282 17,622 48,284 726,287 L Expenditures Current:

L General Government 1,736 Public safety Physical environment 39,338 736,178 L Economic environment 78,459 Parks and recreation Debt Service 9,219 L Principal 26,808 Interest and fiscal charges Capital outlay 18,593 11,900 2,853 L

Total expenditures 123,860 10,955 51,238 739,031 C

Excess (deficiency) of revenues over expenditures 23,422 6,667 ( 2,954) ( 12,744)

C Other financing sources (uses)

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

L Net change in fund balances 81,452 6,667 7,046 ( 12,744)

Fund balances - beginning of year (restated) 232,448 5,747 - ( 103,432) L Fund balances - end of year $ 313,900 12,414 7,046 ( 116,176)

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State Domestic Cooperative Law Preparedness Forestry Enforcement L Equipment Assistance Block Grant Support Fund Fund Fund Total 5,190 19,725 4,264 942,133 3,434 23,087 hi 5,190 19,725 4,264 968,654 1,736 hi 471 4,738 780,725 24,100 24,100 78,459 6i - 9,219 26,808 18,593 4,719 19,472 A - 5,190 24,100 4,738 959,112

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

CiT OF ALACHUA, FLORIDA NONMAJOR CAPITAL PROJECT FUNDS L

COMBINING BALANCE SHEET September 30, 2005 L L

Neighborhood Community Center Municipal Complex CDBG -

Walmart Distribution L

Fund Fund Center Fund ASSETS Accounts receivable $ 20,545 Due from other governments 67,269 L Restricted assets - cash and cash equivalents Total assets $ 20,545 _- 67,269 L LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable Accrued expenses

$ -- 814 L Due to other funds 37,687 111,198 66,191 Payable from restricted assets:

Accounts payable L

Total liabilities 37,687 111,198 67,005 L Fund balances:

Reserved for capital projects L Unreserved, undesignated ( 17,142) ( 111,198) 264 Total fund balances ( 17,142) ( 111,198) 264 L

TOTAL LIABILITIES AND FUND BALANCES $ 20,545 - 67,269 L L

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Bridge Loan - Natural Walmart Resource Distribution Conservation Center Fund Service Fund Total 124,642 145,187 327,512 394,781 171,750 171,750 171,750 452,154 711,718 393,014 393,828 43,668 43,668 27,028 242,104 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 Neighborhood CDBG -

Community Municipal Walmart Center Complex Distribution Fund Fund Center Fund Revenues Intergovernmental revenues $ 2_ - 67,269 Miscellaneous 20,545 - 264 Total revenues 20,545 -- 67,533 Expenditures Current:

General government 462 L

Physical environment Parks and recreation Capital outlay 64,383 22,304 202,935 67,269 L Total expenditures 86,687 203,397 67,269 L

Excess (deficiency) of revenues over expenditures Other financing sources (uses)

_( 66,142) ( 203,397) 264 L

Proceeds from note Transfers in 15,000 L

Total other financing sources (uses) 15,000 L Net change in fund balances Fund balances - beginning of year (restated)

( 51,142) 34,000

( 203,397) 92,199 264 L

Fund balances - end of year $( 17,142) ( 111,198) 264 L L

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

( 128,322) ( 11,556) - ( 409,153) 297,633 -- 297,633 1,110 16,110 297,633 -- 1,110 313,743 169,311 ( 11,556) 1,110 ( 95,410) 1,110) 125,089 169,311 ( 11,556) 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 Police Employees' Officers' Pension Trust Pension Trust Totals Additions:

Contributions:

Employer $ 15,239 5,567 20,806 Plan members 457 457 Total contributions 15,239 6,024 21,263 Investment earnings: 2,667 1,194 3,861 Total additions 17,906 7,218 25,124 Deductions:

Distributions L

582,999 711,037 1,294,036 Administrative fees 2,500 764 3,264 L

Total deductions 585,499 711,801 1,297,300 Change in net assets (567,593) (704,583) (1,272,176)

L Net assets held in trust for pension benefits: L Net assets - beginning of the year 567,593 704,583 1,272,176 L

Net assets - end of the year L

=$ -- _ _ _

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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 GOVERM"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 MPrivate 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 rvt opne rcieScin UFoiaIsiueo P nttt fCA UCne o ulcCmayAdt im Mebr.UAeia 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 would be material in relation to a major federal program being audited may occur and not be detected within a timely L

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.

c, P a L Bradenton, Florida December 15, 2005 L L

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CITY OF ALACHUA, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30,2005 CFDA Pass-through Number 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 14.228 05DB-2Q-03-11-02-E 12 $ 67,269 Community Development Block Grant - Section 108 Loan Guarantee 14.248 010D-SE99-99-15-X01 2,010,000 Total U.S. Department of Housing and Urban Redevelopment 2,077,269 U.S. Department of Justice Passed through Florida Department of Law Enforcement Law Enforcement Block Grant Program 16.592 2005-LEBG-ALAC-2-L4-001 4,264 Total U.S. Department of Justice 4,264 U.S. Department of Transportation Passed through Florida Department of Transportation State and Community Highway Safety 20.600 FS-05-27-5 48,284 Total U.S. Department of Transportation 48,284 U.S. Department of Agriculture Natural Resources Conservation Service Emergency Watershed Protection Program NA 69-4209-5-1633 405,769 Passed through Florida Department of Agriculture and Consumer Services Cooperative Forestry Assistance 10.664 04-01 19,725 Total U.S. Department of Agriculture 425,494 U.S. Department of Homeland Security Passed through Florida Department of Law Enforcement State Domestic Preparedness Equipment Support Grant 97.004 05-CJ-L2-03-11-02-042 5,190 Passed through Department of Community Affairs:

Public Assistance Grant - Hurricane Charley 97.036 05-PA-Co/o-03-11-02-706 18,435 Public Assistance Grant - Hurricane Frances 97.036 05-PA-G 0/*-03-11-02-024 240,593 Public Assistance Grant - Hurricane Jeanne 97.036 05-PA-E=03-11-02-701 422,856 Total U.S. Department of Homeland Security 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 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS L

NOTE A - GENERAL L

The accompanying schedule of expenditures of federal awards present the activity of all federal financial assistance programs of the City of Alachua, Florida. The City of Alachua reporting entity is defined in Note A of L

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: Unqualified Opinion Internal control over financial reporting:

Material weakness(es) identified? _ yes X no L Reportable condition(s) identified not considered to be material weaknesses? X yes no Ll Noncompliance material to basic financial statements noted? _ yes x no Federal Awards Section Type of auditor's report issued on compliance for major programs: Unqualified Opinion Internal Control over compliance:

Material weakness(es) identified? _ yes X no Reportable condition(s) identified not considered to be material weakness(es)? _ yes X no Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? _ yes X no 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: $300,000 Auditee qualified as low-risk auditee? 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 and the general ledger. There are no procedures for reconciling detailed capital asset records to the general ledger L

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 historical records, and attempt to reconstruct the capital asset records of the enterprise funds. These records L

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 clerk enters invoices into the accounting system for payment, prints checks, and prepares the mailing of the checks L

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.

L 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.

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' 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 PriorYear 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 andRecommendations.

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, and City Manager L

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

L As required by the Rules of the Auditor General (Section 10.554(l)(h)6.b.), we determined that the annual financial report for the City of Alachua for the fiscal year ended September 30, 2005, filed with the Florida Department of L

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 L

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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.

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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 Clovis Watson, Jr., MPA The Good Life City Manager

- Community Celebrating a Century 1905-2005 Jean Calderwood Mayor Bonnie Burgess Vice-Mayor James Lewis Commissioner March 13, 2006 Orien Hills The Honorable William 0. Monroe Commissioner State of Florida Auditor General Gib Coerper Claude Pepper Building, Room 401 Commissioner I I1 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 Commission and Staff have implemented the following recommendations in response to the Independent Auditor's comments.

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 Admninistration has reworked the accounts payable process in order to limit the accounts payable clerk's L

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

oat at0ua 15001 NW 140th St, Alachua, Florida 32615 Box 9 32616 L

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 ofMIObua  :

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)

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3 TO OUR SHAREHOLDERS & CUSTOMERS 7 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 , I q,

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W e,like everyone in America, felt the competitive for our customers. For example, Weffects of a tumultuous year. a bond refinancing this year will save more Fortunately, we escaped disasters such as than $13 million for our customers over the hurricanes and were privileged to send the next 30 years.

crews to help those less fortunate. In fact, Keeping rates affordable was a we gratefully report that we had a good primary focus last year. We successfully year, during which we further connected responded to Hurricanes Frances and ourselves to our community and to our Jeanne in 2004, but even so, we used neighbors. what we learned to update our strategy, In the pages that follow, we will further mitigating potential financial impact.

describe what makes us strong and moves We have integrated a risk-based strategy us forward. Our stability is grounded in the into our own planning. This approach quality and number of our relationships. In enhances stability by shifting resources short, we are connected. We use those con- to targeted areas of need, which will be nections to get good prices from our vendors, reassessed annually. For 2006, we've a AD to deliver services that our customers want, reserved $56.9 million to cover any unantici-and to employ the best technology in pro- pated expenses, such as those triggered Cr, ducing clean, safe, affordable and efficient by natural disasters. We've seen immediate Cr, electric, natural gas, water, wastewater and results in terms of positive feedback from

_.a telecommunications services. the financial markets. (Dr Perhaps the clearest indicators of Being connected to diversified fuels our financial stability and success each year sources for the production of electricity is a a are our bond ratings. Both Moody's and distinct advantage, as well. Although natural Cr, S:)

Standard and Poor's once again gave us gas prices sky-rocketed this year, our fuel (2 z

their "Double A" ratings. There are more diversity protected our customers from the -o than 2,000 municipal utilities in the nation, extreme prices other utilities were forced to and only 14 share this distinction. We have charge. About 65 percent of our electric fuel ;0 achieved these designations every year needs are met with coal. We can also burn since the late 1980s. cheaper alternatives to natural gas when Access to the low interest financing available, such as fuel oil. For the natural afforded by these ratings has given us gas we do need, we've offset some of the the flexibility to make proactive capital price impact through long-term secure con-improvements, reduce debt and keep rates tracts. And, of course, we have natural gas

available for direct use in the home, where quality of life in our community, continues to it is still very cost-effective for appliances help us attract and retain a superior staff.

such as water heaters, stoves and dryers. This year we added two key members We have proposed an additional environ- to our executive team. Both are valued for mentally secure, solid fuel-burning electric sound but innovative thinking, which is a generating unit that would help keep rates hallmark of our organization.

affordable, and we are retrofitting our In recognition of our renewable energy current coal-burning unit to perform far program, GRU was awarded the Green better than new federal environmental Power Beacon Award, granted jointly by standards while still providing cost-effective the U.S. Department of Energy, the U.S.

electric generation. Environmental Protection Agency and the We are proud of the fact that Center for Resource Solutions. In addition, although we had to raise our electric base the American Society of Civil Engineers rates slightly this year, it is the first time we recognized GRUgreen', our landfill gas-have had to do so in more than a decade. to-energy program as Project of the Year LO 0

0 CN Water and wastewater customers also saw for 2005. Our annual report also won increases, but natural gas rates remained recognition this year, taking the American 0

0 (N unchanged. A typical residential electric, Public Power Association's first place Award water and wastewater customer saw an of Excellence, for providing in-depth and increase of less than $5 per month. accessible data.

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connected with our customers is through ships that provide quality of life services to a continuous surveying strategy designed our customers, connections that reduce costs to determine what services they want and and enhance comfort, and relationships that need. Since 2002, we've contracted with provide added value to our community. This Ca 0

RKS Research and Consulting, a professional past year has been remarkable for GRU, a)

(j) public opinion polling group. This year, our largely because we remain connected.

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(4 Our customer rankings compare us favorably with our peer institutions. In fact, Michael L. Kurtz 4

our business scores are on par with some General Manager of the top ranked utilities in the nation. And our hard-earned reputation, and the high

NOTABLE ACCOMPLISHMENTS OF 2005

• Refinanced bonds to save S1 3.2 million over the

• Assisted ingenerating $484,200 ingrants and next 30 years donations to help struggling residents, including:

- $340,000 federal money awarded through the Received aAA rating and Aa2 rating from Standard Central Florida Community Action Agency and Poor's and Moody's Investors Service, respectively - S62,000 granted by Alachua County to support ConnectFREE

• Earned the 2005 Green Power Beacon Award - $68,800 donated by citizens to help pay utility for green power marketing excellence bills for disadvantaged customers

• Earned the 2005 Project of the Year Award - $13,400 raised from the business for excellence incivil engineering community to support our Adopt-A-School

• Earned the APPA's Award of Excellence

• Formed abuying alliance (Colectric) that helped G)

Q for annual reports save us more than half amillion dollars (D

• Earned good Value Ratings from residential

• Expanded our broadband product line by selling the and commercial customers first gigabit Ethernet service inGainesville, capable Co

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• Reached the 56 percent level of electric lines feature films per second undergrounded Q

• Launched aRebate Program to encourage

• Attracted top management talent for two key conservation and save customers up to -a

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• Received the "Tree City USA' designation for 0 the 5th year inarow 0

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6 STRENGTH BUILDS AS SERVICE EXPANDS

One measure of a well-connected particular initiative, ConnectFREE, we con- EXPANDED Organization is how far it reaches into nect disadvantaged families to the safe and the community. This year, we extended our reliable water supply we produce for our NETWORK AND services, upgraded our infrastructure and community.

formed new partnerships. In 2001, we secured a grant to start INFRASTRUCTURE As much as possible, we try to ensure the ConnectFREE program. Through that all members of our community have the ConnectFREE, we identified low-income INCREASE OUR basic quality of life services that we offer. families that had to rely. upon private wells We do not turn our backs on those in need, as their only source of water. These families CUSTOMERS but neither do we place a burden on our were within our service area, but were not available resources. in an area that had an established water In addition to providing flexible pay- system infrastructure. They could not afford QUALITY OF LIFE ment options to keep ratepayers connected the fees to pay for the construction them-during periods of high fuel prices, we selves. Through this program, City water facilitate community donations that help services have been extended to 18 new low-income families stay connected. Inone families.

Another initiative in which we work to we have proposed the construction of a 220 meet the needs of our less fortunate megawatt solid fuel electric generating unit customers is the Social Services Summit. to be built at our Deerhaven Generating We network with representatives from local Station. In keeping with our commitment to churches, government agencies and non- fuel diversity, the proposed circulating flu-profits to connect those providing assistance idized bed generating unit would burn a COMMUNITY with those who seek it. Annually, during combination of fuels, including coal, petro-the summit, we meet with representatives leum coke and biomass (in this case wood of these organizations and map out the waste). Gainesville is situated in the midst of COLLABORATION most effective strategy for securing and a large southern pine forest, which supports disseminating aid for the coming year. a large silvaculture industry. The biomass KEEPS CUSTOMERS Through these other efforts such as GRU's from these operations could fuel up to 30 Project Share, we help keep low-income megawatts of power on a continual basis.

CONNECTED customers connected by finding funds to We have determined that Gainesville help them pay their bills. needs this additional power by 2011 to As a result of our collective efforts, provide additional base load capacity for 1,350 of our customers received nearly our growing population. We've participated

$340,000 from the Low Income Home in numerous community workshops and City Energy Assistance Program in 2005. Commission meetings to gather public input Through Project Share, our own generous on how to meet that need in a manner that customers kicked in another $68,800 is consistent with community wishes. The to help pay utility bills for almost 500 City Commission has prudently undertaken customers who couldn't. an independent review before committing In an effort to help keep all of our to the proposed energy supply plan, which customers' bills affordable in the future, will be completed in 2006.

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PROACTIVE PLANNING WILL ENSURE AMPLE ENERGY FOR OU RCOMMU NITY

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P0 CONSERVATION STRETCH OUR 10 CUSTOMERS' ENERGY DOLLARS

ENHANCED EFFICIENCY This fall, we embarked on a conservation Another partnership that continued REDUCES COST, program to improve energy efficiency for to maximize the value of our resources this our customers. We took a close look at a year is The Energy Authority (TEA). We EMPOWERS group of homes to determine if those cus- are one of several equity owners of TEA, tomers could reduce energy costs simply a nonprofit public utilities corporation that CUSTOMERS by repairing leaks in their air ducts. To date, coordinates marketing and distribution of we have inspected and repaired ducts as excess electric generating resources for its needed in 100 pilot program homes. It's members. On a 24/7/365 basis, TEA 0 working. Energy efficiency has improved. a ensures that we either get the best possible We will be extending this program to reap price for our excess capacity or are able (D an even greater savings in the coming year. to purchase power at the lowest price if our 'CD CD This year, we joined a group of non- available capacity is more expensive than Co a

competing service providers that combine the market. Not only does this enhance 7-purchases for equipment and parts. When our revenue-generating capacity, it mini- (D we negotiate and buy together, we and mizes our customers' power costs. It also our Colectric Partners qualify for enormous reduces by thousands of manhours the time C

volume discounts. In the past nine months it would take us to research and negotiate CD 0(D alone, these bulk-rate contracts have saved these contracts.

0 70 us more than half a million dollars. We q will save millions more over the next two decades, just by buying together. 0 0

11

OPPOSITEl:G RU monitors and pays Iii0 a leading role in setting commuit.y ..

A.a . .resource qualify standards.

, I1 4, . , I 1. I I I'll -1 I_ I" -111- -11,1, , I - I 11-1-1-1.111--- . .... - 1111ri.11-1-1,11.-- -- 11...... ... -- 11-1 ,- ,

In an innovative campaign, we enlisted adjacent to major east/west and north/south Ithe cooperation of our customers to reduce arteries, it iseasily accessible to vehicular wastewater spills. Preventing these spills traffic. Work flow also will improve as work protects public health and safety, as well groups consolidate into shared physical as the environment. It also reduces system space.

expenditures - cleaning up wastewater We'll see further savings when we go spills represents a significant cost to waste- online with our new Customer Information water utilities. Although we have one of System (CIS) in January 2007. This software the lowest spill rates in the nation, we want harnesses emerging technology to fully inte-to continue to improve. We've employed grate myriad processes. Once it's up and research conducted by the Environmental running, our new CIS will simplify customer Protection Agency to target the largest billing, decrease repair response time and source of spill-producing blockages: cooking eliminate financial record-keeping duplication.

grease. It turns out that something as simple Finally, we increased our participation as keeping grease out of kitchen drains can in teams working to solve environmental prob-LO, help eliminate the number one cause of lems. GRU continues to work cooperatively spills. Therefore, we created "Think before with agencies like the Florida Department you put it in the sink," a hands-on, user- of Environmental Regulation. As a principal

° friendly campaign to educate customers. stakeholder, we provide research support I- Our "Grease Team" distributed to customers to help determine thresholds like the Total o °nearly 5,000 foil-lined receptacles to help Maximum Daily Load - the level of impurity Cs raise awareness and keep the wastewater a waterway can absorb without becoming D

from overflowing. polluted. Determining those levels is a chal-E <We selected a 120-acre tract to con- lenge. Meeting them is another. We have a, also been instrumental in creating Basin

'_ struct our new East Gainesville Operations 5 2Center as a base for field work on the east Management Action Plans to address 0 side of our service area. Located directly these challenges.

0) 12

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70

~0 LEADERSHIP >3 Qu 0

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& EXPERTISE Cri ND CO NTRI BUTE TO COMMUN ITY 13

North Central Florida, our home, is is minimal. Beazer has stated that the chemi-largely unspoiled. One of its greatest cals will not reach the aquifer for 100 years natural resources is the Floridan Aquifer, a or more, and by that time, they would be huge underground body of pristine drinking diluted and harmless. Such a finding, if water - and we plan to keep it that way. supported by scientific data, would be good The Cabot-Koppers Superfund site news indeed. Unfortunately, it did not hold is located only two miles from the 60-acre up to an independent analysis. Our team of Murphree well field, from which we pump internationally recognized experts concluded all of our community's drinking water. that Beazer East, Inc. has severely underesti-Beginning in 1916, wood treatment chemi- mated the potential threat, which could be cals that we now know to be hazardous much more imminent. With the help of the were stored in open unlined pits at the Environmental Protection Agency and Superfund site. Although the site is now Senator Bill Nelson (D-Fla.), we've pushed operated with techniques that are not haz- for the installation of specialized on-site ardous, the problem remains in the ground. monitoring wells to provide early warning We've assembled a team of world-renowned of contamination. Beazer East, Inc. began ENLISTED AID installing those wells in August. We will experts to evaluate the problem, and they determined that contamination from the site continue to play an active role in monitoring AND SERVICE TO is a potential threat to our well field. and pressing for full remediation.

Beazer East, Inc. isthe company now In another part of town, we've OTHERS PROTECTS responsible for the clean-up of the site, and embarked upon a plan that transforms has stated that the threat of contamination a different Superfund clean-up site into 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. This year, residents fleeing the effects We broke ground in February on "Depot of Hurricane Katrina left gas meters on Park." Because the site formerly housed a throughout New Orleans' Ninth Ward.

manufactured gas plant, there were few Overburdened local utility workers lacked uses for which it was suitable. Finally, we the manpower to alleviate the situation. For collaborated with the community to clean two weeks in September, our Field Services and restore the area. When it is complete, and Gas Measurement employees were we will have dug up and treated any stationed in a tent camp near the danger C)

.

remaining contaminated soil, and land- zone. During the day, they methodically scaped a meditation pond, which will canvassed dangerous districts locating and 0 double as an additional water retention "safing off" gas services to prevent tragedy. a pond for downtown. In addition to the Field Services crews,

_.

Our employees also helped keep Electric, Water and Wastewater employees other communities connected this year. assisted all along the gulf coast in every When a 250-pound natural gas line was way we could serve our neighbors in need 0 D

accidentally severed one weekend in due to Katrina and Jeanne. Our employees Leesburg, Florida, our employees dropped also assisted in south Florida after Wilma weekend and vacation plans to immediately added to the worst storm season in memory. -o assist through Mutual Aid Agreements.

N) 15

r0 LOCAL BUSINESSES

0) : ==@&RESIDENTS o SUPPORT 16 TECHNOLOGY TO HARNESS MORE POWER-

C0 NNE CTE-0:T THE HIOTEST H NNOVATIONS FOR THE BRIGHTEST FUTURE GRU pioneered a partnership with our disposed of under federal guidelines.

customers to bring green energy to our Generally, operators simply burn the gas community. Customers voluntarily contribute to get rid of it.

money each month to support the In our community, we are using that GRUgreen' Energy program. methane gas to generate electricity. We Our community is not situated in a installed three generators at a local closed GC a.

climatic region that can use wind, hydro or landfill that produces several megawatts per CD geothermal energy, and even solar is better hour of energy. In this way, a community suited for a desert climate than the rain- waste product becomes a community asset.

abundant "sunshine" state. So we tapped And the community recognizes and supports into an energy source that was going to the effort. Our customers and contributors (D waste. Literally. Most municipalities must are supporting nearly 70 percent of the C9 0

deal with the issue of methane gas build-up energy being produced. Inaddition, we in landfills. Naturally biodegrading organic have several solar demonstration projects.

refuse produces gas. Lots of it. Methane, We are committed to connecting with the CD when released into the atmosphere, con- fuels of the future.

tributes to global warming and must be _0 0

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voluntarilydonate thousands of dollars to support tHe colletof -green-:energy. ebeamn, Inc.,te  ;,

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

W e are constantly growing in our average person to hit "send."

Wunderstanding of the power of new Next year will mark the 10th anniver-technology to transform and disseminate sary of GRUCom, our telecommunications information. This year we've seen tremen- arm. Originally premiered to connect GRU LO~ dous leaps in how fast and how vast we facilities with commercial and government 0

0 0N can transmit information. When it comes entities, it has evolved to serve as a high I

to hyperspace, speed matters. We're on it. speed Internet access provider and public 0

(N 0T We've launched a Gigabit Ethernet safety radio beacon. We also lease out tower service, and thereby accelerated the trans- space for an additional source of revenue.

a) mission of information to GRUCom-connected The only true limit on our ability to fully

-

cl customers. In fact, we've given our customers capitalize on this community asset is regula-C C one of the fastest information tracks in the tory. In 2005, legislation was proposed for nation. In our community, data blasts across the state of Florida that would have limited a) more than 250 miles of fiber optic track at the ability of local governments to continue one thousand megabits per second. That's to lead in the deployment of innovative 0 so fast that even a transmission bloated with broadband service. We worked with the a) the equivalent of 200 full-length feature films Florida Municipal Electric Association and

-A hits the receiver in about the time it takes an other communities to successfully protect the a,

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right of municipal utilities to provide telecom- air emission requirements. We will be munications services. We will continue to advanced beyond the necessary compliance monitor legislation and defend the rights so we can also meet future requirements of our customers to access superior, cost- without additional capital outlay.

effective service. Another proactive program is our G) 2.

new Conservation Rebate Program in which a C

Our forward-thinking financial strategy

=3 also paid off this year when the U.S. we've developed a package of incentives to CD Environmental Protection Agency passed motivate our customers to conserve. Beginning Z5-CD new air emissions rules that directly affect this year, consumers who install new energy-many utilities in Florida, which will have efficient air conditioners and heaters, or 0 cD to meet the new standards by 2010. We those who employ specified energy-saving

=3 find that we are in great shape to comply. upgrades, will see a double benefit: lower CD Because we are consistently "Double A" bills and money back to offset their costs 0CD 0

bond-rated, our bond issues have a lower through our six new electric rebate programs.

interest rate and therefore are highly attrac-tive to investors when we need capital. By I So 0- I 2010 we will have retrofitted our Deerhaven 70 r,_

Unit 2 to better meet all state and federal 19

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Se)PARK E 20 (D GENERATION OF IDEA

STRENGTHENED O ne of our most important and farthest- Our staff works individually and as RELATIONSHIPS reaching programs connects us to the a team to support the schools throughout the future of our community. We work extensively year. During our annual Business Partners MULTIPLY OUR to help educate the next generation of energy Golf Tournament we team up with our busi-users. We play our part in ensuring a safe ness community to raise funds for our adopted ABILITY TO and aesthetically pleasing environment, with school, Williams Elementary. This year alone, abundant resources in which to raise our we raised $13,400 for the school, and our children. employees generously donated time to men- PROVIDE FOR OUR We collaborated with our local school tor students.

board to create the Energy Conservation We've also made a significant contri- COMMUNITY School Curriculum. Starting in 2003, we bution in beautifying the world the children began pulling together the best available will inherit. We've embarked upon a number materials from organizations such as of projects to place facilities underground.

Rebuild America Energy Smart Schools, As of October 2005, 56 percent of our the Department of Energy and the American electric lines are underground. 3 Public Power Association. We enlisted the In addition, we've completed a major 0 help of our elementary and middle school project in cooperation with the City's Public teachers to design teaching aids about Works Department and the Department of CD (D

CD energy production, use and conservation. Transportation to transform the streetscape With their help, we created ways to make of University Avenue. Undergrounding, black learning about energy hands-on and fun, octagonal power poles, reliable aerial cable, Q two criteria that enhance life-long retention new mast-arm traffic signals, colonial-style ID Co of information. street lamps, upgraded landscaping and faux Cs Q

70 Games like "Bingo Save" and "The brick crosswalks now combine to create a (D

_0 CD Pay Me Game" challenge students to evaluate welcoming gateway into the heart of the city.

0 energy use in their homes and community This year, we've strengthened our

-o to discover, in terms of real dollars, what relationships at every level, and forged new 0

their behavior costs. This year, the curricu- ones. In doing so, we've multiplied our ability lum materials are being used in a pilot to provide reliable, affordable and clean 0, program with nine area schools. Such pro- energy for customers and our community 21 grams will give our children the tools they well into the future.

need to assume responsibility as stewards At GRU, we stay connected.

of the future.

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2004-2005 STATISTICS Energy Supply Deerhaven Generating Station Net Capability .......................... m ga ats MW .~~~422 Kelly Generating Station Net Capability ..........................

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

Southwest Landfill .......................... .1 t Capability MW X X .N Combined System .......................... ""Net Cbiabilityf,.1,MW Energy Delivery - Electric System Service Area ..............................

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

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

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

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

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

LO i 0 Energy Delivery - Natural Gas System I

0I Service Area ..............................

Distribution Mains .......................... i.1 4 s.2miles Delivery Points.............................

0 CN

- f -  ; c.ircuit5 3 miles .1;34 i

0 Water System 0-

01) Walter E. Murphree Water Treatment Plant O

Treatment Capacity ........................

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

73 C:

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

0) Water Service Area .......................

C

• ) Distribution Mains.........................

54 mtill.;'io: gall on / day M GD) peak day.... i-Wastewater System mites; .692

0) Kanapaha Water Reclamation Facility C)

Treatment Capacity ........................ sq9m.nile .112 0)

Main Street Water Reclamation Facility 1.9 MGD.*, Av. Anua Dail -2low (ADI:.

Treatment Capacity .......................

C

.2 Combined Treatment Capacity .................

I (D Collection Service Area......................

22 Gravity Mains ............................. .8m7ilHest .5 Force Mains ..............................

Lift Stations ...............................

Telecommunications Miles of Fiber Optic Cable ....................

On-net Locations ...........................

Maximum Bandwidth .......................

- ----- ___

FISCAL YEAR 2005 HIGHLIGHTS Financial Net revenues 7649 163 82,998,479 .7.'%

Aggregate ebt service ,876,978 267276 -6.7%

Aggregate bond coverage ratio 307 3,1 1 .3%

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%

Cash and investments t W Algit Rate stabilization and revenue funds 5, 934 43,-,'.3 &ii Customers (12 months average) fia, Residential electric 77,918 7435 1.9%

Non-residential electric 934i 9,203 .5" Total electric 8760 p5,638 g5 9%

Water i 649 62,890 i " '9%

Wastewater ii1%< 55 82 CD574L3 Natural gas, Retail 31,70 30i901 62.6%

Y ~~~~~i i i i i , i 7 (D.......... pjijjj i .

(jDi~',R Sales of energy (gigawatt-hours) .o Residential 875.3 873.6 0. v General service/large power 92.0i,6% 926.1 .

Lighting 24.7 .4% (D Total Retail 1,824.4 < 0.4% >

Sales for resale (wholesale) 113 1Q, i 2-% 0 Total Native (retail plus wholesale) 3 ... 68D 3 Interchange 4..4 5 .1 -.... o0 Grand Total 2,040.0 2,0204 1.0%

0 Sales of water (million gallons) 79 i8.4% 8,401.

Wastewater billed (million gallons) . 5,321.9 .2 42  % -.

Natural gas, Retail (million therms) i3h22.4 Ai i 23

CUSTOMERS & SALES NATURAL GAS CUSTOMERS NATURAL GAS SALES (thousands of customers] (millions of therms) 0 5 10 15 20 25 30 35 0 2 4 6 8 10 12 14 16 18 20 22 24 26 2001 2001 2002 2002 2003 I- 2003 2004 2004No 2005 I- 2005 WATER CUSTOMERS WATER SALES (thousands of customers) (millions of gallons) 0 10 20 30 40 50 60 70 80 0 1000 2000 3000 4000 5000 6000 1000 8000 9000 2001 2001 2002 2002 2003 2003 0n 0 2004 2004 CN 0 2005 2005 0

WASTEWATER CUSTOMERS WASTEWATER BILLINGS

-5z (thousands of customers) (millions of gallons) 0 0 10 20 30 40 50 60 70 0 1000 2000 3000 4000 5000 6000 C

2001 2001 C

2002 200j 2003 200:

a

0) 2004 200 5) a)

2005 200!

.5

.0 ELECTRIC CUSTOMERS ELECTRIC SALES thousands of customers) (gigawatt hours]

24

• Residential+ C4ommercial/Industrial

• Residenitial+ Other+ Interchange 0 10 20 30 40 50 60 70 80 90 0 250 500 750 1000 1250 1500 1750 2000 2250

- , -.- - 11I I 2001 mmmmum 2001 FAMEM 2002 2002 1, , k 2003 2003 2004 2004 MEMEMM 2005 2005

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MANAGEMENT'S DISCUSSION AND ANALYSIS TABLE 1 The City of Gainesville, Florida owns and operates a combined utility Combined Utility System Net Assets (inthousands) system (System) doing business as Gainesville Regional Utilities (GRU) which provides five separate utility functions. The utility functions consist of an elec- September 30 2005 2004 2003 tric generation, transmission and distribution system (Electric System), water Current and other assets $ 345,937 $ 367,648 $ 420,434 production and distribution system (Water System), a wastewater collection Capital assets, net 732,361 710,010 682,740 and treatment system (Wastewater System), a natural gas distribution system Total assets 1,078,298 1,077,658 1,103,174 (Gas System) and a telecommunication system (GRUCom). Each of these sys-tems is accounted for internally as a separate enterprise fund but reported as Long-term debt outstanding 434,983 418,697 432,926 a combined utility system for external financial reporting purposes. Current and other liabilities 291,160 305,382 325,039 We offer readers of GRU's financial statements this management discussion Total liabilities 726,143 724,079 757,965 and analysis of GRU's financial statements for the fiscal years ended Net assets September 30, 2005 and 2004. It should be read in conjunction with the Invested in capital assets, financial statements that follow this section.

net of related debt 297,056 299,671 263,207 REQUIRED FINANCIAL STATEMENTS Restricted 48,187 48,744 79,487 Balance Sheet. This statement includes all of GRU's assets and liabilities and Unrestricted 6,912 5,164 2,515 provides information about the nature and amounts of investments in resources Total net assets $ 352,155 $ 353,579 $ 345,209 (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 Changes in net assets can be further explained using the following condensed System and assessing the liquidity and financial flexibility of GRU. statements of revenues, expenses and changes in net assets.

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- TABLE 2 ment measures the success of the combined utility system's operations over the Combined Utility System Changes inNet Assets past year. fin thousands)

Statement of Cash Flows. The primary purpose of this statement is to provide September 30 2005 2004 2003 information about the combined utility system's cash receipts and cash pay- Operating revenues $ 252,217 $ 240,755 $ 225,624 ments during the reporting period. This statement reports cash receipts, cash Interest income 4,390 4,156 6,298 payments, and net changes in cash resulting from operating, investing and Gain/(loss) financing activities. on sale of investments (168) 2,720 Notes to financialStatements. The notes provide additional information that is Total revenues 2S6A439 247,631 231,922 essential to fully understanding the data provided in the financial statements. Operating expenses 216,174 198,516 180,972 The notes to the financial statements can be found on pages 35-46 of this Interest expense, net 19,445 18,657 20,362 report.

Total expenses 235,619 217,173 201,334 FINANCIAL ANALYSIS OF THE COMBINED UTILITY SYSTEM Income before contributions The Utilities' System net assets decreased by $1.4 million from 2004 to and transfers 20,820 30,458 30,588 2005 and increased $8.4 million from 2003 to 2004. Table 1 focuses on the Capital contributions, net 5,036 4,922 3,657 net assets. Operating transfer to City of Gainesville (27,280) (27,010) (25,915)

Change in net assets (1 424) 8,370 8,330 Net assets, beginning of year 353,579 345,209 336,879 Net assets, end of year $352,155 $353,579 $345,209

CAPITAL ASSET AND DEBT ADMINISTRATION Outstanding Debt (inthousands)

CapitolAssets. GRU's investment in capital assets as of September 30, 2005, amounts to $732.4 million (net of accumulated depreciation). This investment September 30 2005 2004 2003 in capital assets includes land, generation, transmission and distribution sys- Senior Lien revenue bonds $ 298,935 $ 309,035 $ 318,620 tems, buildings and fixed equipment, and furniture, fixtures and equipment.

Subordinated revenue bonds 71,600 74,500 77,300 The net increase in the investment in capital assets (net of accumulated depre-Tax-exempt Commercial Paper 80,591 51,844 53,700 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- Taxable Commercial Paper 16,231 17,031 17,815 lated depreciation and changes for the years ended September 30, 2005, Total $467,357 $452A410 $467,435 2004 and 2003.

On September 21, 2005, the City entered into an interest rate swap agree-Combined Utilities System Capital Assets (net of accumulated depreciation) ment with a November 16, 2005, effective date with Bear Stearns Financial (in thousands)

Products, Inc. (BSFP) for an initial notional amount of $55.1 million amortiz-September 30 2005 2004 2003 ing down to zero on October 1, 2026. Under the terms of this swap, the City Generation $ 173,998 $ 175,696 $ 168,365 would pay BSFP 3.20% interest on certain payment dates and, in return, BSFP Transmission, distribution would pay the City a floating rate based on a specified index.

and collection 350,178 349,673 331,446 On September 21, 2005, the City entered into an interest rate swap agree-Treatment 67,919 68,291 48,528 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 General plant 30,201 32,157 31,152 million amortizing down to zero on October 1, 2026. Under the terms of this Plant held for future use 6,054 6,054 6,054 swap, the City would pay GSMMDP 3.224% interest on certain payment Plant unclassified 5,458 5,178 25,737 dates and, in return, GSMMDP would pay the City a floating rate based on Construction work inprogress 98,553 72,961 71,458 a specified index.

Total net utility plant $732,361 $710,010 $682,740 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-Major capital asset events included the following: tion projects.

• Water treatment net expansion was $1.6 million in 2005 and $2.6 On January 30, 2003 the City issued Utilities System Revenue Bonds, million in 2004 and included $1.5 million for Murphree Lime Slaker Series 2003A and 2003B in the amounts of $33,000,000 and $7,625,000 replacement. respectively. The 2003A Bonds mature on various dates from October 1,

• Electric transmission and distribution expansion was $8.3 million 2015 through October 1, 2024. The 2003B Bonds mature on various dates in 2005 and $9.3 million in 2004 and included $2.4 for the landfill from October 1, 2004 through October 1, 2013. The 2003A Bonds matur-renewable gas project. ing on or after October 1, 2013 are subject to redemption at the option of the

• Fiber optic service expansion was $504,000 in 2005 and $6.7 City on or after October 1, 2013 at 100%. The 2003B Bonds maturing are million in 2004. not subject to redemption prior to maturity.

• Electric production plant increased $6.4 million in 2005 and $16.6 On March 20, 2003, the City entered an interest rate swap agreement with million in 2004 and included boiler control upgrades of $4 million at the an August 28, 2003 effective date with JP Morgan Chose Bank UP Morgan)

Deerhaven Generation Unit in 2004. for an initial notional amount of $121,525,000 amortizing down to zero on The Utility's 2006 capital budget is $62.1 million and was $57.8 million October 1, 2013. Under the terms of this swap, the City would pay JP in 2005. These projects will be funded from a combination of internal equity Morgan 3.41% interest on certain payment dates and, in return, JP Morgan and debt. would pay the City a floating rate based on a specified index. On August 20, Additional information on capital assets may be found in Note 3 on page 2003, the City issued Utilities System Revenue Bonds, Series 2003C in the 38 of this report. 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, Long-Term Debt. At September 30, 2005 and September 30, 2004, GRU had 2003 and $6,235,000 of the 1996A Bonds maturing October 1, 2004 total long-term debt outstanding of $467.4 million and $452.4 million, through October 1, 2008 and to pay an amount to terminate this swap agree-respectively, comprised of revenue bonds and other long-term debt.

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

• In order to pay the unanticipated costs associated with the hurricanes, GRU used Rate Stabilization funds; however, as FEMA reimbursements The most significant changes in GRU's financial condition are summarized are received, those moneys will be deposited back into the Rate below:

Stabilization Fund. It is anticipated that FEMA reimbursements will total

• Operating sales revenue increased $17.5 million, or approximately approximately $6.5 million.

7.9%, and $15.1 million, or approximately 6.7%, in fiscal 2005 and

• In November 2003, GRU purchased the service facilities and billing 2004, respectively. Included in this amount is approximately $13.0 mil-rights to 1,144 customer accounts from Clay Electric Cooperative at a lion and $8.2 million associated with higher fuel costs incurred in fiscal cost of $1.6 million.

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.

CURRENTLY KNOWN FACTS OR CONDITIONS THAT MAY HAVE ASIGNIFICANT

• Fiscal 2005 year end fuels payable increased $8.0 million, or approxi- EFFECT ON GRU'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS mately 300%, compared to fiscal 2004 year end. The primary reason for The primary factors affecting the utility industry include environmental the increase was the significantly higher cost of natural gas in 2005. regulations, restructuring of the wholesale energy market, the formation of Additionally, there was a buildup of coal and oil inventories as a safe- independent bulk power transmission systems and the increasing strategic and guard against potential non-availability of gas. price differences among various types of fuels.

• Net capital contributions from developers increased $115,000 in fiscal Utilities, and particularly electric utilities, are subject to increasing federal, 2005 over fiscal 2004 and increased $1.3 million in fiscal 2004 over state and local statutory and regulatory requirements with respect to the siting fiscal 2003. The drop in fiscal 2005 was due to a leveling off of housing and licensing of facilities, safety and security, air and water quality, land use development in the area versus the increased activity seen in develop- and other environmental factors.

ment in fiscal 2004. The system's Deerhaven and JR Kelly generating stations are subject to

• Gross utility plant in service increased $26.5 million, or 2.6%, and net Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR) which capital assets increased $22.4 million, or 3.1%, in fiscal 2005. In fiscal were promulgated in2005. As a result, significant capital and operating and 2004, gross utility plant in service increased $51.2 million, or 5.2%, and maintenance expenditures will be required prior to 2009 and 2010.

net capital assets increased $27.3 million, or 4.0%. This is summarized Restructuring of wholesale markets and the formation of independent trans-under 'Capital Assets," on page 38. mission systems have slowed considerably. No state legislation is pending or

• Long-term debt increased $ 14.9 million, or 3.3%, in fiscal 2005 because proposed at this time for retail competition inFlorida. Any such restructuring of the issuance of Commercial Paper Notes totaling $31.0 million, offset of the Florida retail electric utility industry would be expected to affect the by scheduled debt poydown of principal. Long-term debt decreased System. Currently, there is no initiative concerning retail electric deregulation

$15.0 million, or 3.2%, in fiscal 2004 because of scheduled debt pay- inFlorida or nationwide.

down of principal. See 'Long-Term Debt" on page 27, and the detail, on On October 1, 2005, GRU implemented an overall electric system rate pages 39-42. increase of 3%. Customer charges for all classes increased by 5%. For

• The number of customers for electric, water, wastewater and gas servic- Residential and General Service Non-Demand classes, each had a second es increased 1.8%, 3.2%, 3.4% and 3.6%, respectively, in fiscal 2005, rate tier increase with no increase to the first tier. General Service Demand and 3.3%, 3.1%, 2.9%, and 1.8%, respectively, in fiscal 2004. and Large Power classes demand charges were also increased.

• GRU is in the process of remediation efforts at a former manufactured gas GRU also increased rates for both the water and wastewater systems by plant site. The costs incurred to date total $2.6 million and GRU estimates 15%. A further modification of the rate structure was made by the Gainesville that remaining costs of the project will be approximately $9.1 million. City Commission effective October 1, 2005. Fire hydrant charges will be However, to date GRU has recovered $3.3 million from insurance, includ- incorporated into base water rates across all classes.

ing $450,000 of that total in fiscal 2005. After recognizing collection There were no changes ingas rates.

fees paid, a net recovery of $2.2 million has been realized which will The rate increases noted above may affect the financial condition and directly reduce the amount to be recovered through customer billings. results of operations.

GRU has accrued a regulatory asset and liability to account for the cost To meet increased costs of service, GRU also increased connection fee and cost recovery of the expense, which is being amortized as costs are charges by 3.3% and 9.3%, for the water and wastewater systems, respec-incurred and customer revenues are received. Further explanation of this tively.

activity is presented in note 13, page 45 of this report. GRU currently forecasts the need for new electric supply by about 2011, in

• GRU's service area incurred approximately $7.4 million of damage to its order to maintain a 15% reserve margin. In 2002, GRU initiated an facilities as a result of two hurricanes in September 2004. Requests for Integrated Resource Planning process to investigate options to satisfy its cus-Federal Emergency Management Agency (FEMA) funding have been sub- tomer demand and supply needs. In early 2005, management proposed to mitted. The bulk of the $7.4 million in storm-related expenses were the City Commission a plan that would include construction of a 220 accrued as part of fiscal 2004 activity and reported in current liabilities. megawatt solid fuel unit capable of generating 30 megawatts from biomass No amounts have been accrued for any possible FEMA recoveries as of and a blend of coal and up to 50% petroleum coke. The plan would also fiscal year end 2005, as such recoveries have yet to be confirmed by reduce carbon intensity of the system by 14% while maintaining cost effective FEMA as being realizable. and reliable electrical supplies. InAugust 2005, the City Commission

• 3 A 3 A A 9

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• 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 Utilit W, (adepoment ofthe-CiyofGainevile, Flri ) as ofSeptembr30, and ash fows fo the e ten eded, in anrmit ith: ccuntingporit

,,- 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 enAud Standardss e also 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..-. -,,p its with;certain rovisios of l , regulations, c nta cts, and We e'conducted audits is inacordanewithtadardsgenerally other matters.he purpoe ,of th e ort stodescri 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 na ofthat testing, and not to provide opinion on the internal contr er finan-.

oF the Unitd States. Those andards requirey'neral 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 Government Audi n 3tandards" an sould

'satemnts e free of materitl missatem t. Werare not engaged t perform cn,-, der'edin assig theresults of our audit.

audit of Gainvesvoille Regial Utliti' Internal conttrol--,ovet

- financil report- -an Man r tagementsDiscussiolie d ,o, n c bascainnciletaemets Te spsemntaonnfrmaiouicluedinth

, 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.

sisfordesigningaudit edures thatare appopriate intecur-

-iingasa 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'eepressno such opinion.'iAn auditalsoincludes examining, -reqiredsuppleentary nfrmain However,,w i not uditte informa--

on a test basi,evidence supportin he amous and di s in he inan closs tion a e n pin on it.

cial statments, assessing the accountingprinciplesused and significantesi- Our audit wastconductedrfar.the purpose ofsormingatn opinionton ths e

-mates made bymanagement,and e ing te overa fina cial ament epr ie eo presentation.Wed believe thatouraudits prov ide areasonable rIs scdass presentedfor purposes ofaddition--

perormtheo'uito otai hets~d~, c~iuanc~~oostwhthevthmfienII I: 0I5 opinmon, I 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 cashflos ta as a wh ole. , , r-e p-

, itsproprieary f '-oftypes, in conformity wt nd acoung prcipe gerally.

ac td . d inptdin

- the d andog lorida S,t

2005 2004 Assets Current assets Cash and cash equivalents $ 1,435,928 $ 3,100,747 Investments 289,231 Accounts receivable, net of allowance for uncollectible accounts of $1,049,992 in2005 and $940,717 in2004. 36,437,195 32,197,451 Prepaid rent, lease/leaseback 10,686,909 10,686,909 Fuels contracts 4,844,014 3,093,569 Deferred charges 4,784,233 2,904,822 Inventories Fuel 9,825,661 7,182,475 Materials and supplies 7,411,188 7,553,569 Total current assets 75A25,128 67,008,773 Restricted assets Utility deposits - cash and investments 3,900,543 3,706,280 Debt service - cash and investments 21,974,746 22,421,714 Rate stabilization - cash and investments 50,984,006 61,091,124 Construction Fund - cash and investments 10,566,567 18,205,560 Utility plant improvement fund - cash and investments 29,104,500 29,095,045 Investment inThe Energy Authority 2,251,685 1,987,205 Decommissioning reserve - cash and investments 6,181,620 5,648,230 Total restricted assets 124,963,667 142,155,158 Prepaid rent, lease/leaseback 130,024,059 140,710,968 Other noncurrent assets 15,524,360 17,773,706 Capital assets Utility plant in service 1,057,056,211 1,031,144,740 Plant unclassified 5,720,667 5,177,664 Less: accumulated depreciation and amortization 435,022,865 405,327,781 Net utility and unclassified plant 627,754,013 630,994,623 Plant held for future use 6,053,926 6,053,926 Construction in progress 98,552,735 72,961,047 Net capital assets 732,360,674 710,009,596 Total assets $1,078,297,888 $1,077,658,201 Continued on next page.

2005 2004 Liabilities and net assets Current liabilities Fuel payable $ 12,134,923 $ 4,125,676 Accounts payable and accrued liabilities 2,850,419 9,580,402 Operating lease, lease/leaseback 12,461,916 12,461,916 Deferred credits 6,367,311 1,725,904 Due to other funds 4,755,711 4,121,905 Total current liabilities 38,570,280 32,015,803 Payable from restricted assets Utility deposits 4,041,439 3,850,178 Rate stabilization deferred credit 50,984,006 61,091,124 Construction fund accounts payable and accrued liabilities 2,877,580 1,593,056 Debt payable, current portion 16,536,750 16,052,500 Accrued interest payable 8,411,103 8,753,375 Total payable from restricted assets 82,850,878 91,340,233 Long-term debt Utilities system revenue bonds 289,550,000 298,935,000 Subordinated utilities system revenue bonds 68,500,000 71,600,000 Commercial paper notes 92,770,500 65,822,250 Unamortized loss on refinancing (24,647,778) (27,509,929)

Unamortized bond premium/discount 8,809,829 9,849,194 Total long-term debt 434,982,551 418,696,515 Operating lease - lease/leaseback 151,608,509 164,069,621 Other noncurrent liabilities 18,130,579 17,957,380 Total liabilities 726,142,797 724,079,552 Net assets Invested in capital assets, net of related debt 297,055,621 299,670,237 Restricted 48,187,290 48,744,149 Unrestricted -

6,912,180 5,164,263 Total net assets 352,155,091 353,578,649 Total liabilities and net assets $1,078,297,888 $1,077,658,201

=

See accompanying notes.

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2005 2004 Operating revenue Sales and service charges $ 239,901,044 $ 222,382,854 Transfers from rate stabilization 3,972,826 11,060,752 Other operating revenue 8,342,803 7,311,535 Total operating revenue 252,216,673 240,755,141 Operating expenses Operation and maintenance 152,246,424 137,825,854 Administrative and general 25,372,471 23,938,149 Depreciation and amortization 38,554,797 36,752,375 Total operating expenses 216,173,692 198,516,378 Operating income 36,042,981 42,238,763 Non-operating income (expense)

Interest income 4,389,747 4,156,003 Interest expense, net of AFUDC (19,445,194) (18,656,887)

Gain/(loss) on sale of investments (167,756) 2,720,587 Total non-operating expense (15,223,203) (11,780,297)

Income before contributions and transfers 20,819,778 30AS8S466 Capital contributions Contributions from developers 5,227,336 5,167,619 Reduction of plant costs recovered through contributions (191,028) (245,924)

Net capital contributions 5,036,308 4,921,695 Operating transfer to City of Gainesville General Fund (27,279,644) (27,010,442)

Change in net assets (1A23,558) 8,369,719 Net assets, beginning of year 353,578,649 345,208,930 Net assets, end of year $352,155,091 $353,578,649 See accompanying notes.

2005 2004 Cash flows from operating activities Cash received from customers $ 235,852,561 $ 219,972,966 Cash payments to suppliers for goods and services (134,267,782) (116,969,729)

Cash payments to employees for services (45,044,540) (43,109,125)

Cash payments for operating transactions with other funds (8,604,599) (8,116,428)

Other operating receipts 10,541,426 14,160,352 Net cash provided by operating activities 58A77,066 65,938,036 Cash flows from noncapital financing activities Transfers to other funds (27,279,644) (27,010,442)

Net cash used in noncapital financing activities (27,279,644) (27,010,442)

Cash flows from capital and related financing activities Principal repayments on long-term debt (16,252,500) (15,025,250)

Interest paid on long-term debt (20,826,831) (18,031,898)

Other receipts 85,131 72,631 Acquisition and construction of fixed assets (including allowance for funds used during construction) (47,009,854) (47,791,846)

Proceeds from new debt and commercial paper 31,000,000 Cash received for connection charges 3,385,879 2,437,528 Net cash used in capital and related financing activities (49,618,175) (78,338,835)

Cash flows from investing activities Interest received 3,305,496 2,554, 172 Purchase of investments (245,158,401) (447,704,385)

Investment in The Energy Authority (1,161,361) (114,601)

Distributions from The Energy Authority 896,881 1,342,398 Proceeds from investment maturities 262,172,155 481,017,390 Net cash provided by investing activities 20,054,770 37,094,974 Net change in cash and cash equivalents 1,634,017 (2,316,267)

Cash and cash equivalents, beginning of year 30,552,034 32,868,301 Cash and cash equivalents, end of year $ 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 $ 36,042,981 $ 42,238,763 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization 38,554,797 36,752,375 Operating leose/leaseback revenue (1,774,203) (1,774,203)

Increase (decrease) incash attributable to change in assets and liabilities:

Receivables (4,239,744) (4,969,003)

Prepaid expenses (1,750,445) (2,724,359)

Inventories (2,500,805) (801,636)

Deferred charges 9,334,615 14,442,559 Accounts payable and accrued liabilities 2,563,788 8,357,808 Due to other funds 633,806 957,560 Utility deposits 191,261 121,383 Other liabilities and deferred credits (18,578,985) (26,663,208)

Net cash provided by operating activities $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 USE OF ESTIMATES The preparation of financial statements in conformity with accounting prin-ORGANIZATION ciples generally accepted in the United States requires management to make Gainesville Regional Utilities (GRU or the Ufility) is a combined municipal estimates that affect the reported amounts of assets and liabilities; disclosure utility system operating electric, natural gas, water, wastewater, and telecom-of contingent assets and liabilities at the date of the financial statements; and munications (GRUCom) utilities. GRU consists of the combined Utility Funds of the reported amount of revenue and expenses during the reporting period.

the City of Gainesville, Florida (City). GRU is a unit of the City and, accord-Actual results could differ from those estimates.

ingly, the financial statements of GRU are included in the annual financial reports of the City. RECLASSIFICATIONS Certain acmounts for the prior year have been reclassified to conform with BASIS OF ACCOUNTING current year presentation.

The financial statements are presented on the accrual basis of accounting.

Under this basis, revenues are recognized in the period earned and expenses INVESTMENTS are recognized in the period incurred. GRU applies all applicable Financial Investments are reported at fair value in the balance sheets based on quoted Accounting Standards Board (FASB) pronouncements issued on or before market prices. All short-term commercial paper with maturities less than one November 30, 1989, in accounting for and reporting its operations. In accor- year have been reported at cost which approximates fair value. During fiscal dance with government accounting standards, GRU has elected not to apply 2005, GRU implemented GASB Statement No. 40, Deposit and Investment FASB pronouncements issued after that date. In accordance with the Utilities Disclosures, an amendment to GASB Statement No. 3. GASB Statement No.

System Revenue Bond Resolution as Supplemented and Amended (Bond 40 modified some of the disclosure requirements related to deposits and Resolution), rates are designed to cover operating and maintenance expense, investments. More information is provided in Note 5, "Deposits and debt service and other revenue requirements, which exclude depreciation Investments".

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 RISK MANAGEMENT/FUTURES AND OPTIONS CONTRACTS when these costs are recognized for financial statement purposes. The effects GRU conducts a risk management program with the intent of reducing the of these differences are recognized in the determination of net income in the impact of fuel price spikes for its customers. The program utilizes futures and period that they occur, in accordance with GRU's accounting policies. GRU options contracts that are traded on the New York Mercantile Exchange has adopted the uniform system of accounts prescribed by the Federal Energy (NYMEX) so that prices may be fixed or reduced for given volumes of gas that Regulatory Commission (FERC) and substantially all provisions of the National the utility projects to consume during a given production month. Based on Association of Regulatory Utility Commissioners (NARUC). Rates are feedback and direction from GRU's Risk Oversight Committee, consultation approved annually by the City Commission. and recommendations from reputable risk management sources, and close monitoring of the market on a daily basis, GRU makes every effort to take rea-Gainesville Regional Utilities reports net assets in the following sonable steps to minimize the customers' exposure to fuel spikes while, at the classifications:

same time, attempting to reduce costs.

Invested incapital assets, net of related debt. This component of net assets con- The information below provides a summary of results based on GRU's risk sists of capital assets, net of accumulated depreciation and reduced by the management activity during Fiscal Years 2005 and 2004.

outstanding balances of any bonds, or other long-term borrowings that are attributable to the acquisition, construction, or improvement of those assets. If September 30 2005 2004 there are significant unspent related debt proceeds at year-end, the portion of Deposits $5,400,000 $3,100,000 the debt attributable to the unspent proceeds is not included in the calculation Gain $1,299,700 $ 773,460 of invested in capital assets, net of related debt. Rather, that portion of the Gains or losses from hedging transactions are applied to GRU's monthly debt is included in the same net assets component as the unspent proceeds.

fuel expenses as an offset to fuel cost.

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 INVENTORIES covenants), contributors, or laws or regulations of other governments or Inventories are stated at cost using the weighted average unit cost method constraints imposed by law through constitutional provisions or enabling for materials, and the last-in, first-out (LIFO) method for fuel. Obsolete and legislation. unusable items are reduced to estimated salvage values. The cost of fuel used for electric generation is charged to expense as consumed.

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."

CAPITAL ASSETS Transfers to the General Fund GRU budgets an annual transfer to the general Property and equipment are recorded at cost. Maintenance and repairs are fund based on a City Commission approved formula. See Note 11 for details.

charged to operating expense as incurred. The average cost of depreciable plant retired iseliminated from the plant accounts and charged to accumulated FUNDS INACCORDANCE WITH BOND RESOLUTIONS depreciation. Associated cost of removal net of salvage ischarged to depre- Certain restricted funds of GRU are administered in accordance with bond resolutions. These funds are as follows:

ciation expense as incurred.

Plant unclassified includes property and equipment related to projects

• Debt Service Fund placed into service that have not been classified in the related asset category

• Subordinated Indebtedness Fund within utility plant in service.

• Rate Stabilization Fund

• Construction Fund DEPRECIATION AND NUCLEAR GENERATING PLANT DECOMMISSIONING

• Utility Plant Improvement Fund An independent evaluation of GRU's depreciation rates and accumulated The Debt Service Fund accounts for funds accumulated to provide payment reserve was performed by an outside consultant in 2004. The study recom-of principal and interest on or redeem outstanding debt.

mended an update to depreciation rates and allowance reserve balances.

The Subordinated Indebtedness Fund, grouped in the Debt Service Fund for Depreciation of utility plant is computed using the straight-line method over financial reporting purposes, accounts for funds accumulated to pay principal estimated service lives ranging from 6 to 50 years. GRU implemented the rec-and interest on subordinated indebtedness.

ommended rates in fiscal 2005. This change adjusted the overall depreciation The Rate Stabilization Fund accounts for funds accumulated to stabilize rate to 3.27% of average depreciable property for 2005. In fiscal 2004, the rates over future periods through the transfer of funds to and from operations rate was 3.50%. Depreciation expense includes a provision for decommis-as necessary and to provide operating reserves for the Utility.

sioning costs related to the jointly-owned nuclear power plant (see Note 6).

The Construction Fund accounts for funds accumulated for the cost of acqui-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 sition and construction of the system.

The Utility Plant Improvement Fund accounts for funds used to pay for cer-electric energy in relation to the quantity of heat expected to be produced over tain capital projects or debt service, the purchase or redemption of bonds, or the life of the nuclear fuel core. These costs are charged to customers through otherwise provide for the repayment of bonds.

the fuel adjustment clause.

When both restricted and unrestricted resources are available for use, it is REVENUE RECOGNITION GRU's policy to use restricted resources first, then unrestricted resources as Revenue is recorded as earned. GRU accrues for services rendered but they are needed.

unbilled, which amounted to approximately $15,891,000 and $13,400,000 for 2005 and 2004, respectively. Fuel adjustment revenue is recognized OPERATING, NON-OPERATING REVENUES based on the actual fuel costs. Amounts charged to customers for fuel are GRU has defined operating revenue as that revenue which is derived from customer sales or service while non-operating revenues include interest on based on estimated costs, which are adjusted for any differences between the investments and any gain from the sale of such investments.

actual and estimated costs once actual fuel costs are known. If the amount recovered through billings exceeds actual fuel costs, GRU records deferred ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) fuel as a liability. If the amount recovered through billings is less than the actual An allowance for interest on borrowed funds used during construction of fuel costs, GRU records deferred fuel as an asset, for amounts to be collected $306,000 and $771,000 in 2005 and 2004, respectively, is included in through future rates. As of September 30, 2005 and 2004, deferred fuel costs construction in progress and as a reduction of interest expense. These amounts were a receivable in 2005 of $2,394,000 and a liability in 2004 of are computed by applying the effective interest rate on the funds borrowed to

$367,000. The deferred fuel balances are reported as part of either current finance the projects to the monthly balance of projects under construction. The deferred charges or credits on the balance sheets. effective interest rate was approximately 3.96%.

TRANSACTIONS WITH THE CITY OF GAINESVILLE CONTRIBUTIONS INAID OF CONSTRUCTION As an enterprise fund of the City of Gainesville, transactions occur between GRU recognizes capital contributions to the water, wastewater and GRU and the City's governmental funds throughout the year in the ordinary GRUCom divisions, from developers and other third parties as revenues in the course of operations. Below is a summary of significant transactions: period received. Contributions to the electric and gas divisions are also reported Administrative Services. GRU is billed monthly for various administrative and as capital contribution revenues; however, the related capital asset amounts insurance services provided by the City's governmental functions. are also expensed in the same period consistent with the requirements of the FERC Uniform System of Accounts.

Nonmetered and Metered Service Charges. GRU bills the City's governmental funds on a monthly basis for all nonmetered, metered and other administrative CASH AND CASH EQUIVALENTS services. 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 INACCUMULATED DEPRECIATION A summary of capital assets, changes in accumulated depreciation and related depreciation provisions expressed as a percentage of average depreciable plant follows:

PLANT INSERVICE Transmission, Distribution and CWIP/Plant held Treatment Generation Collection General Unclassified for Future Use Combined Balance, October 1, 2004 $106,485,440 $353,036,776 $508,717,127 $62,905,397 $5,177,664 $ 79,014,973 S1,115,337,377 Capital additions and transfers 3,361,175 8,067,277 16,893,468 2,453,415 31,318,339 57,935,455 120,029,129 Sales, retirements and transfers 815,103 859,327 1,790,622 1,398,813 30,775,336 32,343,766 67,982,967 Balance, September 30, 2005 $109,031,S12 S360,244,726 $523,819,973 $63,959,999 $5,720,667 $104,606,662 $1,167,383,539 Accumulated depreciation, October 1, 2004 $ 38,194,156 $177,341,277 S159,043,942 $30,748,406 n/a n/a $ 405,327,781 Depreciation expense 3,732,712 9,764,885 16,388,221 4,179,478 263,263 n/a 34,328,559 Retirements/adjustments 815,103 859,327 1,790,622 1,168,423 n/a n/a 4,633,475 Accumulated depreciation, September 30, 2005 $ 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 INSERVICE Transmission, Distribution and CWIP/Plant held Treatment Generation Collection General Unclassified for Future Use Combined Balance, October 1, 2003 $ 85,372,532 $336,363,796 $479,214,863 $58,422,894 $25,737,464 $77,512,387 $1,062,623,936 Capitol additions and transfers 22,505,311 18,280,589 32,840,116 6,690,080 59,756,294 63,108,309 203,180,699 Sales, retirements and transfers 1,392,403 1,607,609 3,337,852 2,207,577 80,316,094 61,605,723 150,467,258 Balance, 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 Accumulated depreciation, October 1, 2003 $ 36,844,915 $167,998,270 $147,770,014 $27,270,893 n/a n/a S 379,884,092 Depreciation expense 2,741,644 12,254,184 14,611,780 5,757,721 n/a n/a 35,365,329 Retirements/adjustments 1,392,403 2,911,177 3,337,852 2,280,208 n/a n/a 9,921,640 Accumulated depreciation, September 30, 2004 $ 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 2004 Utilities System Revenue Bonds Series 1983 (1983 Bonds), interest payable semi-annually to October 1, 2014 at a rate of 6.0% $ 4,675,000 $ 4,67 '5,000 1992 Series B (1992 B Bonds), interest payable semi-annually to October 1, 2013 at various rates between 6.5% and 7.5% 24,630,000 24,630,000 1996 Series A (1996 A Bonds), interest payable semi-annually to October 1, 2026 at rates between 5% and 5.75% 120,750,000 123,180,000 2002 Subordinated Series A (2002 Series A),

interest at variable rates; 2.75% at September 30, 2005 31,600,000 34,500,000 2002 Subordinated Series B (2002 Series B), interest at variable rates; 2.70% at September 30, 2005 40,000,000 40,000,000 2003 Series A (2003 A Bonds), interest payable semi-annually to October 1, 2024 at rates between 4.625% and 5.25% 33,000,000 33,000,000 2003 Series B (2003 B Bonds), interest payable semi-annually to October 1, 2013 at a 4.4% interest rate (Federally Taxable) 7,000,000 7,625,000 2003 Series C (2003 C Bonds), interest payable semi-annually to October 1, 2013 at rates between 4.0% and 5.0% 108,880,000 115,925,000 Utilities System Commercial Paper Notes Series C (C Notes), interest at variable market rates; 2.65% at September 30, 2005 80,591,250 51,843,750 Utilities System Taxable Commercial Paper Notes Series D (DNotes), interest at variable market rates; 3.76% at September 30, 2005 16,231,000 17,031,000 467,357,250 452,409,750 Current portion of long-term debt (16,536,750) (16,052,500)

Unamortized loss on refinancing (24,647,778) (27,509,929)

Unamortized premium/discount 8,809,829 9,849,194 Total long-term debt $434,982,551 $418,696,515

4.LONG-TERM DEBT (CON1INUED) 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 The 1983 Bonds mature on October 1,2014. Those Bonds are subject to redemption prior to maturity.

redemption at the option of the City as a whole at any time or inpart on any Utilities System Commercial Paper Notes, Series C Notes (tax-exempt) in a interest payment date, at a redemption price of 100% plus accrued interest to principal amount not to exceed $85 million may continue to be issued to refi-the date of redemption.

nance maturing Series C Notes or provide for other costs. Liquidity support for The 1992 B Bonds mature at various dates from October 1, 2001 to the Series C Notes is provided under a long-term credit agreement dated as October 1, 2017. Those bonds maturing on or after October 1, 2004 to of March 1, 2000 with Bayerische Landesbank Girozentrale. This agreement October 1, 2007, amounting to $14.3 million were redeemed at the option has been extended to November 30, 2015. The obligation of the bank may of the City on October 1, 2002.

be substituted by another bank which meets certain credit standards and The 1996 A Bonds mature at various dates through October 1, 2026.

which is approved by GRU and the Agent. Under the terms of the agreement, Those Bonds maturing on or after October 1,2010 are subject to redemption GRU may borrow up to $85 million with same day availability ending on the at the option of the City on or after October 1, 2006 as a whole or in part at termination date, as defined in the agreement. Series C Notes of $3.2 million any time at a redemption price of 102% in 2006, 101 %in2007, and 100%

and $2.3 million were redeemed during 2005 and 2004, respectively.

thereafter. A portion of the bonds maturing from October 1, 2004 through In June 2000, a Utilities System Commercial Paper Note Program, Series D October 1, 2008 ($6.2 million) were advance-refunded to the maturity dates.

(taxable) was established in a principal amount not to exceed $25 million.

The bonds were defeased, in substance, and will be paid from escrowed Liquidity support for the Series D Notes is provided under a long-term credit funds. There were $5,125,000 in defeased bonds outstanding as of agreement dated June 1, 2000 with SunTrust Bank. This agreement has been September 30, 2005.

extended to July 23, 2008. The obligation of the bank may be substituted by The 2002A Subordinated Utilities System Revenue Bonds mature on another bank that meets certain credit standards and is approved by GRU.

October 1, 2017. The 2002B Subordinated Utility System Revenue Bonds Under the terms of the agreement, GRU may borrow up to $25 million with mature on October 1, 2032. The 2002A and 2002B Series Bonds were same day availability ending on the termination date, as defined in the agree-issued as multi-modal variable interest-rate bonds, initially issued as variable- ment. Series D Notes of $833,000 and $800,000 were redeemed during rate auction notes. As such, interest rates are reset by an auction process each 2005 and 2004, respectively.

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 inwhole 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.

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 Period ending September 30 Principal Interest Requirements ("

2006 $ 16,536,750 $ 20,114,722 $ 36,651,472 2007 17,317,250 19,513,303 36,830,553 2008 22,101,250 18,794,701 40,895,951 2009 25,246,750 17,838,173 43,084,923 2010 26,396,250 16,563,212 42,959,462 2011 -2015 136,541,250 62,499,789 199,041,039 2016 - 2020 82,520,000 36,666,345 119,186,345 2021 -2025 54,801,250 21,462,209 76,263,459 2026 - 2030 48,519,500 11,363,383 59,882,883 2031 -2033 37,377,000 2,941,467 40,318,467 Total $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 2004 Long-term debt outstanding at beginning of year $418,696,515 $432,926,230 Changes in long-term debt Series 2005A TECP issued 31,000,000 Fixed rate debt redeemed - Senior Lien and Subordinated (12,485,000) (13,000,000)

TECP redeemed during the year (3,218,750) (2,252,500)

Taxable CP redeemed (833,000) (800,000)

Change in unamortized loss/bond discount 1,822,786 1,822,785 Long-term debt outstanding at end of year $434,982,551 $418,696,515 Current portion of long-term debt $ 16,536,750 $ 16,052,500

4.LONG-TERM DEBT (CoNliNUED)

Fiscal Year Auction-Rate Notes Interest Rate Under the terms of the Bond Resolution relating to the sole of the Utilities Ending Sept 30 Principal Interest Swaps, Net Total System Revenue Bonds, payment of the principal and interest issecured by an 2006 $ 3,100,000 $ 789,250 $ 387,450 $ 4,276,700 irrevocable lien on GRU's net revenue (exclusive of any funds which may be 2007 3,200,000 704,000 345,600 4,249,600 established pursuant to the Bond Resolution for decommissioning and certain other specified purposes), including any investments and income thereof. 2008 3,300,000 616,000 302,400 4,218,400 The Bond Resolution contains certain restrictions and commitments, includ- 2009 - 525,250 257,850 783,100 ing GRU's covenant to establish and maintain rates and other charges to pro- 2010 - 525,250 257,850 783,100 duce revenue sufficient to pay operation and maintenance expenses, amounts 2011-2015 5,100,000 2,626,250 1,289,250 9,015,500 required for deposit inthe debt service fund, and amounts required for deposit 2016-2017 16,900,000 704,000 345,600 17,949,600 into the utility plant improvement fund.

Total $31,600,000 $6A90,000 $3,186,000 $41,276,000 DERIVATIVES GRU is a party to certain interest rate swap agreements, which are not Credit Risk. As of September 30, 2005, the fair value of the swap was nega-recorded in the financial statements. Following isa disclosure of key aspects five, therefore the City is not subject to credit risk. However, should interest of the agreements. 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-Objective of the interest rate swap. To protect against the potential of rising inter- gate the potential for credit risk, the City has negotiated additional termination est rates, the City has entered into three separate floating-to-fixed interest rate event and collateralization requirements inthe event of a ratings downgrade.

swap transactions. Failure to deliver the Collateral Agreement to the City as negotiated and Terms, fair values and credit risk. The terms, fair values and credit ratings of the detailed inthe Schedule to the International Swap and Derivative Agreement outstanding swaps as of September 30, 2005, were as follows. The notional (ISDA) for each counterparty would constitute and event of default with respect amounts of the swaps match the principal amounts of the associated debt. to that counterparty.

Associated Bond Issue 2002A 2005C* 2006. Basis Risk. The swaps expose the City to basis risk. The swap effective on July Notional Amounts $31,600,000

$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 Effective Date 7/3/02 3.2001% 37224% not be realized. As of September 30, 2005, BMA was 2.75% for the week of Fixed Payer Rate 4.100%

3.2ofIB 68 32 LI September 28, 2005, while the last 35-day rollover rate was 2.75%. The Variable Receiver Rate BMA 68% of LJBOR 68% of UIBOR Fair Value $11,188,333) $ (183,289) 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 Termination Date 10/1/17 September 29, 2005, the three-month LIBOR rate was at 4.02% trading at Counterparly Credit Rating Aa3/A+/M- Aaa/AA Aaa/AA+ approximately 68.40 of BMA.

• See 'Basis Risk' inNote 4, 'Long-Term Debt' and Note 17, 'Subsequent Event,' Termination Risk. The swap agreement will be terminated at any time if certain for details. 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 fair Value. All the swap agreements currently have negative fair values as of merger, or an event of default and illegality. The swap can also be terminated September 30, 2005. Due to historically low interest rates, our fixed payer if credit ratings fall below established levels.

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:

5.DEPOSITS AND INVESTMENTS Issuer Percent of Total Investments Deposits are held in qualified public depository institutions insured by the Cargill, Inc. - Commercial Paper 6.00%

Federal Depository Insurance Corporation and, as required by the Bond Chorta, tIC. - Commercial Paper 5.49%

Resolution, in banks, savings and loan associations, trust companies of the Federal Home Loan Bank 37.99%

United States or national banking associations having capital stock, surplus and undivided earnings aggregating at least $10 million.

Cash and investments are contained in the following balance sheet accounts In accordance with state laws and the Bond Resolution, GRU is authorized as of September 30:

to invest in obligations which are unconditionally guaranteed by the United States of America or its agencies or instrumentalities, repurchase agreement 2005 2004 obligations unconditionally guaranteed by the United States of America or its Restricted assets $ 124,963,667 $ 142,155,158 agencies, corporate indebtedness, direct and general obligations of any state Current assets:

of the United States of America or of any agency, instrumentality or local gov- Cash and cash equivalents 1,435,928 3,100,747 ernmental unit of any such state (provided such obligations are rated by a Investments 289,231 nationally recognized bond rating agency in either of its two highest rating Total cash and investments 126,399,595 145,545,136 categories), public housing bonds, and certain certificates of deposit.

Less cash and cash equivalents (32,186,051) (30,552,034)

Investments in corporate indebtedness must be rated in the highest rating cat-Less Jnvestment in TEA (2,251,685) (1,987,205) 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. Less CR3 Decommissioning Reserve (6,181,620) (5,648,185)

As of September 30, 2005, GRU had the following investments and matu-rities (amounts are in thousands). Less accrued interest receivable and accounts receivable (460,162) (692,662)

Maturities in Years Total investments $ 85,320,077 $106,665,050 Investment Type Fair Value Less than 1 1-5 Commercial Paper $ 21,914 $ 21,914 $ 6.JOINTLY-OWNED ELECRIC PLANT U.S. Agencies 63,406 12,005 51,401 GRU-owned resources for supplying electric power and energy requirements Total $85,320 $33,919 $S51A01 include its 1.4079% undivided ownership interest in the Crystal River Unit 3 Interest Rote Risk. GRU's investment policy limits its investments to securities (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 with terms of ten years or less to reduce exposure to rising interest rates, unless

$7,603,000, respectively. CR3 operation and maintenance costs, which rep-investments are matched to meet specific cash flow needs. Additionally, the resent GRU's part of expenses attributable to operation of CR3, are recorded average portfolio term is not to exceed seven years. GRU's Bond Resolution in accordance with the instructions as set forth in the FERC uniform system of further limits investments in the Utility Plant Improvement Fund and Rate accounts. Payments are made to Progress Energy in accordance with the CR3 Stabilization Fund to five years.

participation agreement.

Credit Risk. GRU's investment policy and Bond Resolution limits investments in GRU, as a part of this participation agreement, is responsible for its share state and local taxable or tax exempt debt, corporate fixed income securities of future decommissioning costs. Decommissioning costs are funded and and other corporate indebtedness to investments that are rated by both expensed annually and are recovered through rates charged to customers. The Moody's and Standard and Poor's in either of their two highest rating cate- most recent decommissioning cost estimates provided by Progress Energy in gories. As of September 30, 2005, all of GRU's commercial paper investments March 2005, estimated GRU's share of total future decommissioning costs to were rated P-1 or better by Moody's Investors Services and A-1 or better by be $7,744,000. At September 30, 2005, GRU has funded $6,182,000 of Standard and Poor's. this cost.

Concentration of Credit Risk. State law does not limit the amount that may be invested inany one issuer. It does require, however, that investments be diver- 7.RESTRICTED NET ASSETS sified to control risk of loss from over concentration of assets. As of September Certain assets are restricted by bond resolution and other external require-30, 2005, GRU had more than 5%of the investment portfolio of the following: 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) nent full and part-time employees who are eligible for normal, early, or disability retirement are eligible for these benefits. Individual benefits are the 2005 2004 same for all employees, but the cost to the City may vary. Contributions by the Restricted net assets City to fund these benefits are neither mandated nor guaranteed. The actuar-Total restricted assets $124,963,667 $142,15 55,158 ial costs of these plans are determined and funded by the City. The City Unspent debt proceeds (10,462,249) (18,12 '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 Payable from restricted assets (66,314,128) (75,28 9,149 GRU retirees for the fiscal years ended September 30, 2005 and 2004 was Restricted net assets $48,187,290 $48,74 a4 $1,272,000 and $1,181,000, respectively.

Net assets are restricted as follows: 10. DISAGGREGATION OF RECEIVABLES AND PAYABLES 2005 RECEIVABLES Debt covenants For the years ended September 30, 2005 and 2004 respectively, net Debt service $ 10,649,485 $ 12,013,669 accounts receivable represent 92.5% and 94.0% from customers for billed Utility plant improvement 29,104,500 29,095,045 and unbilled utility services, and 7.5% and 6.0% from other receivables.

Total restricted pursuant There are no receivables expected to take longer than one year to collect.

to debt covenants 39,753,985 41,108,714 PAYABLES Other restrictions 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%

Investment in to standard vendor payables, 11.4% and 12.1 % to accrued vacation payable, The Energy Authority 2,251,685 1,987,205 21.0% and 21.2% to intergovernmental payables and 8.4% and 4.6%

Nuclear decommissioning to other payables.

reserve 6,181,620 5,648,230 Total other restrictions 8,433,305 7,635,435 11. TRANSFERS TO GENERAL FUND Restricted net assets $48,187,290 $48,744,149 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 8.RETIREMENT PLANS 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 The City sponsors and administers one defined benefit pension plan and service on the outstanding bonds and subordinated debt or to make other nec-two defined contribution plans (collectively, the Plans) that include GRU and essary transfers under the Bond Resolution. The formula-based fund transfer to other City employees. The Plans do not make separate measurements of assets the general fund for the years ended September 30, 2005 and 2004 was and pension benefit obligations for individual units of the City. Such informa-

$27,279,644 and $27,010,442, respectively.

tion is presented in the City of Gainesville, Florida, September 30, 2005, Comprehensive Annual Financial Report. 12. DEFERRED CHARGES The General Employees Pension Plan (Employees Plan), a contributory Deferred charges are presented on the balance sheets under current assets defined benefit pension plan, covers all employees of GRU, except certain lim-and as other noncurrent assets.

ited personnel who elect to participate only in a defined contribution plan.

The largest deferred charge is for estimated environmental costs of The City accounts for and funds the costs of the Employee Plan as they

$9,779,000 and $10,797,000 at September 30, 2005 and 2004 respec-accrue. Such costs are based on contribution rates determined by the most tively. See Note 13 for details on the manufactured gas plant remediation recent actuarial valuation. The total contributions by GRU, including amortiza-portion of this item.

tion of prior service costs, were $1,326,000 and $1,800,000 for the years Also included in deferred charges is unamortized bond issuance costs of ended September 30, 2005 and 2004, respectively.

approximately $5,752,000 and $6,286,000, respectively, at September 30, Certain limited employees are eligible to participate in defined contribution 2005 and 2004. These costs are being amortized straight-line over the life of plans managed by outside fiscal agents for the City. Under the first plan, the the bonds, which approximates the effective interest method.

City contributes a percentage of an employee's annual salary and employees IOther significant deferred charges include electric distribution plant acqui-contribute a specified percentage. All employees have the option to partici-sition costs of $3,589,000 and $3,800,000 for September 30, 2005 and pate in the second defined contribution plan. The total defined contribution 2004, respectively, which are being amortized over the expected life of the cost for GRU for the years ended September 30, 2005 and 2004, was acquired assets. Accrued fuel adjustment was a deferred debit of $2,394,000

$102,000 and $115,000, respectively.

and a deferred credit of $367,000 at September 30, 2005 and 2004, 9.POSTREFIREMENT BENEFITS respectively.

Remaining smaller items make up the balance of the deferred charges.

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-

13. ENVIRONMENTAL LIABILITIES 15. INVESTMENT INTHE ENERGY AUTHORIlY GRU is subject to numerous federal, state and local environmental regula- In May 2000, GRU became an equity member of The Energy Authority tions. Under the Comprehensive Environmental Response Compensation and (TEA), a power marketing joint venture. In May 2002, TEA began trading nat-Liability Act, commonly known as 'Superfund,' GRU has been named as a ural gas on behalf of GRU. As of September 30, 2005, this joint venture was potentially responsible party at one hazardous waste site. In addition, in comprised of six municipal utilities across the nation, all of which are partici-January 1990, GRU purchased the natural gas distribution assets of a company pating in the electric marketing and five of which participate in the gas and pursuant to the related purchase agreement, assumed responsibility for program. GRU's ownership interest was 7.1 % in the electric venture and 7.7%

the investigation and remediation of environmental impacts related to the in the gas venture, and it accounted for this investment using equity accounting.

operation of the former manufactured gas plant. Based upon GRU's analysis To become a member, GRU paid an initial capital contribution of $1,000,000 of the cost to clean up these sites, GRU has accrued a liability to reflect the and a membership fee of $867,360. The membership fee was amortized over costs associated with the cleanup effort. Fiscal year 2005 and 2004 expen- 24 months and, consequently, eliminated at September 30, 2002. GRU has ditures which reduce the liability balance were $297,000 and $464,000 reflected the capital contribution as an investment in TEA. The investment bal-respectively. In addition, GRU was able to recover a net of $301,000 and ance has been adjusted for GRU's subsequent share of TEA's net income or

$1,900,000 through insurance coverage in 2005 and 2004, respectively. loss. In calculating GRU's share of net income or loss, profit on transactions When applied against the reserve, it leaves a balance of $6,931,000 and between GRU and TEA have been eliminated. Such transactions primarily

$7,528,000 as of September 30, 2005 and 2004, respectively. GRU is relate to purchases and sales of electricity between GRU and TEA.

recovering the costs of this clean-up through customer charges. A regulatory GRU had electric purchases transactions with TEA of $11,747,684 and asset was established as a deferred charge in the accompanying balance $15,258,036 and sales transactions of $2,507,996 and $1,761,596 in fis-sheets to represent the balance of customer charges. Fiscal 2005 and 2004 cal years 2005 and 2004, respectively. TEA's profit on these transactions has billings were $718,000 and $758,000, respectively. This, plus the affect of been reflected as a reduction to GRU's reported revenue or expense. As of the insurance recovery, reduced the deferred asset balance to $7,529,000 September 30, 2005, GRU's investment in TEA was $2,251,685 verses and $8,547,000 as of September 30, 2005 and 2004, respectively. $1,987,205 on September 30, 2004.

Although some uncertainties associated with environmental assessment and GRU provides guarantees to TEA and to TEA's bank to secure letters of credit remediation activities remain, GRU believes that the current provision for such issued by the bank to cover purchase and sale contracts for electric energy, costs is adequate and additional costs, if any, will not have a material adverse natural gas and related transmission. In accordance with the membership effect on GRU's financial position, results of operations or liquidity. 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

14. LEASE/LEASEBACK for electric energy marketing transactions entered into by TEA on behalf of its On December 10, 1998, GRU entered into a lease/leaseback transaction members is $9,600,000 as of September 30, 2005. GRU's aggregate obli-for all of the Deerhaven Unit 1 and a substantial portion of the Deerhaven Unit gation for TEA's natural gas marketing transactions, under similar agreements 2 generating facilities. Under the terms of the transaction, GRU entered into a and executed guaranties, is $18,800,000 as of September 30, 2005.

38-year lease and simultaneously a 20-year leaseback. At the end of the The following is a summary of the unaudited financial information of TEA leaseback period term, GRU has an option to buy out the remainder of the for the twelve-month periods ended September 30, 2005 and 2004:

lease for a fixed purchase option amount.

Under the terms of the transaction, GRU continues to own, operate, main- 2005 2004 tain and staff the facilities. Condensed statement of operations The proceeds received by GRU from this transaction were approximately Total revenue $1,274,442,000 $ 743,556,000

$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 Total cost of sales of a collateralized Guaranteed Investment Contract (GIC), both with an AAA and expenses 1,140,975,000 564,226,000 rated insurance company. The deposit instruments will mature in amounts suf- Operating income $ 133,467,000 $179,330,000 ficient to meet the annual payment obligations under the leaseback including the end of term fixed purchase option if elected by GRU. Net revenue $ 134,670,000 $ 96,532,000 The net benefit of this transaction, after payment of transaction expenses, was approximately $35 million and resulted in a deferred gain, which is Condensed balance sheet being amortized as income on a straight-line basis over the leaseback period Assets of 20 years. Current assets $ 287,510,000 $ 133,241,000 Amortization of the net benefit was $1,775,000 in both 2005 and 2004, Noncurrent assets 7,574,000 18,155,000 respectively, and was reported as a component of other operating revenue.

Total assets $ 295,084,000 $151,396,000 Continued on next page.

15. INVESTMENT INTHE ENERGY AUTHORITY (cONTINUED) 17. SUBSEQUENT EVENT 2005 In November 2005, the City issued three series of 2005 Utilities System Liabilities Revenue Bonds. The 2005 A Bonds in the amount of $196,950,000 were Current liabilities $ 262,584,000 $ 110,547,000 issued to (a) provide funds for the payment of the cost of acquisition and con-Noncurrent liabilities 2,572,000 14,334,000 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 Total liabilities 265,156,000 124,881,000 1, 2021 to October 1, 2036. The Bonds are subject to redemption at the Members' capital 29,928,000 26,515 ,000 option of the City on or after October 1, 2015, in whole or part, at a redemp-Total equity and tion price of 100%.

liabilities $295,084,000 $151,396,000 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 TEA issues separate audited financial statements on a calendar year basis. construction of certain improvements to the System and lb) to refund the Series D Commercial Paper Notes. Those Bonds mature at various dates from

16. RISK MANAGEMENT October 1, 2007 to October 1, 2021. The Bonds are subject to redemption GRU is exposed to various risks of loss related to theft of, damage to, and prior to maturity at the option of the City, in whole or in part, at a redemption destruction of assets, errors and omissions, injuries to employees, and natural price so specified.

disasters and insures against these losses. GRU purchases plant and machinery The 2005 Series C Bonds in the amount of $55,135,000 were issued to insurance from a commercial carrier. There have been no significant reduc- provide funds to refund $53,190,000 in aggregate principal amount of the tions in insurance coverage from that in the prior year, and settlements have 1996 Series A Bonds. Those Bonds were issued as Variable Rate, Revenue not exceeded insurance coverage for the past three fiscal years. The City is Bonds which initially bear interest at Daily Rates. Those Bonds mature at vari-self-insured for workers' compensation, auto liability, and general liability but ous dates through October 1, 2026. The Bonds are subject to mandatory and carries excess workers' compensation coverage. These risks are accounted for optional redemption prior to maturity and to option and mandatory tender for under the City of Gainesville's General Insurance Fund. GRU reimburses the purchase. Liquidity support is provided by Sun Trust Bank.

City for premiums and claims paid on its behalf, recording the appropriate In connection with the 2005 Series C Bonds, the City entered into an interest expense. However, GRU does maintain its own insurance reserve, for the self- rate swap agreement with a November effective date with Goldman Sachs insured portion, in the amount of $2,106,000, based on an actuarially com- Mitsui Marine Derivative Products, L.P. (GSMMDP) for an initial notional puted liability The present value calculation assumes a rate of return of 4.5% amount of $45,000,000 amortizing down to zero on October 1, 2021.

with a confidence level of 75%. This reserve is recorded as a fully amortized Under the terms of this swap, the City would payGSMMDP the BMA deferred credit. All claims for fiscal 2005 were paid from current year rev- Municipal Sway Index Rate on certain payment dates and, in return, GSM-enues. MDP would pay the City 77.14% of one month's LIBOR.

Changes in the claims liability for the last two years are as follows:

Beginning Ending Fiscal Year Balance Claims Payments Balance 2003-2004 $2,422,000 $973,000 $657,000 $2,106,000 2004-2005 $2,106,000 $903,200 $903,200 $2,106,000 14 III i

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• 00 00 2005 2004 2003 2002 2001 Revenue Electric fund Sales of electricity $ 174,046,209 $ 159,117,761 $ 154,865,704 $ 147,794,301 $ 159,398,907 Other electric revenue 2,692,565 2,887,861 2,273,293 2,313,536 2,731,147 Transfers from/(to) rate stabilization (134,672) 6,451,678 (401,377) (267,583) (6,311,744)

Interest/Investment income 2,326,225 4,161,700 4,197,325 4,873,647 5,712,572 Total electric fund revenue 178,930,327 172,619,000 160,934,945 154,713,901 161,530,882 Gas fund Gas sales 26,044,659 24,500,658 22,926,678 15,913,737 21,638,160 Other gas revenue (expenses) (25,177) (19,825) (29,329). 29,208 (11,333)

Transfers from/(to) rate stabilization 761,130 (1,130,506) (1,122,811) (683,493) (953,843)

Interest/Investment income 429,646 2I9,627 408,040 313,548 462,527 Total gas fund revenue 27,210,258 23,569,954 22,182,578 15,573,000 21,135,511 Water fund Sales of water 13,826,209 13,998,249 12,533,489 13,350,022 12,879,286 Other water revenue 1,549,635 1,156,849 1,451,087 785,894 1,763,409 Transfers from rate stabilization 1,534,938 3,065,791 2,620,711 3,400,560 1,083,493 Interest/investment income 279,053 328,649 569,102 696,999 1,265,816 Total water fund revenue 17,189,835 18,549,538 17,174,389 18,233A75 16,992,004 Wastewater fund Wastewater billing 17,418,564 16,933,546 15,957,966 16,038,915 15,696,526 Other wastewater revenue 2,351,726 1,512,204 2,055,284 1,218,747 2,413,499 Transfers from rate stabilization 1,816,821 3,362,600 3,252,677 5,089,796 1,893,022 Interest/Investment income 555,058 471,352 824,618 1,019,672 1,732,733 Total wastewater fund revenue 22,142,169 22,279,702 22,090,545 23,367,130 21,735,780 GRUCom fund Sales to customers 8,565,405 8,081,031 8,009,457 6,943,275 5,150,833 Transfers to rate stabilization (5,391) (688,811) (543,194) (435,905) (138,900)

Interest/investment income 79,455 90,022 31,100 21,187 183,160 Total GRUCom fund revenue 8,639A69 7A82,242 7,497,363 6,528,557 5,195,093 Total revenue $254,112,058 $244,500,436 $229,879,820 $218,416,063 $226,589,270 Continued on next page.

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- 0 00 @0' 00 00 Se 2005 2004 2003 2002 2001 Operation, maintenance and administrative Electric fund Fuel expense $ 89,398,658 $ 76,259,729 $ 69,667,757 $ 60,010,484 $ 67,450,729 Operation and maintenance 30,539,416 32,132,279 26,532,262 23,739,551 23,256,589 Administrative and general 12,320,230 11,466,706 10,202,723 12,305,262 10,480,361 Total electric fund expense 132,258,304 119,858,714 106,402,742 96,055,297 101,187,679 Gas fund Fuel expense 16,881,895 14,593,903 12,950,876 7,926,883 13,658,209 Operation and maintenance 1,388,368 1,166,824 1,184,334 572,690 483,139 Administrative and general 3,107,252 2,919,393 2,775,614 2,871,282 2,829,406 Total gas fund expense 21,377,515 18,680,120 16,910,824 11,370,855 16,970,754 Water fund Operation and maintenance 5,497,667 5,235,332 4,784,731 4,361,166 4,693,510 Administrative and general 3,590,193 3,688,337 3,248,742 3,447,597 2,407,524 Total water fund expense 9,087,860 8,923,669 8,033,473 7,808,763 7,101,034 Wastewater fund Operation and maintenance 6,174,582 5,842,395 5,778,075 5,167,674 5,441,505 Administrative and general 4,212,466 4,224,198 3,658,970 3,933,172 2,827,428 Total wastewater fund expense 10,387,048 10,066,593 9A437,045 9,100,846 8,268,933 GRUCom fund Operation and maintenance 2,365,838 2,321,615 2,618,525 2,377,170 2,033,441 Administrative and general 2,142,330 1,651,046 1,286,735 1,240,869 742,638 Total GRUCom fund expense 4,508,168 3,972,661 3,905,260 3,618,039 2,776,079 Total operation, maintenance and administrative 177,618,895 161,501,757 144,689,344 127,953,800 136,304,479 Net revenue in accordance with bond resolution Electric 46,672,023 52,760,286 54,532,203 58,658,604 60,343,203 Gas 5,832,743 4,889,834 5,271,754 4,202,145 4,164,757 Water 8,101,975 9,625,869 9,140,916 10,424,712 9,890,970 Wastewater 11,755,121 12,213,109 12,653,500 14,266,284 13,466,847 GRUCom 4,131,301 3,509,581 3,592,103 2,910,518 2,419,014 Total net revenue in accordance with bond resolution $ 76,493,163 $ 82,998,679 $ 85,190,476 $ 90,462,263 $ 90,284,791 Aggregate bond debt service $ 24,876,978 $ 26,673,276 $ 25,502,972 $ 29,312,587 $ 29,765,188 Aggregate bond debt service coverage ratio 3.07 3.11 3.34 3.09 3.03 Total debt service $ 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

3- MANE 0 l.  !

• 0IIz p. S 3, , .i 2005 2004 REVENUE Sales of electricity Residential sales $ 47,696,845 $ 47,256,059 General service and large power 36,866,017 36,653,483 Fuel adjustment 73,264,660 60,251,088 Street and traffic lighting 3,476,840 3,372,439 Utility surcharge 2,856,803 2,810,511 Sales for resale 6,371,563 5,814,701 Interchange sales 3,513,481 2,959,480 Total sales of electricity 174,046,209 159,117,761 Other electric revenue Service charges 1,928,241 1,864,268 Pole rentals 550,542 740,535 Miscellaneous 213,782 283,058 Total other electric revenue 2,692,565 2,887,861 Transfers (to) from rate stabilization (134,672) 6,451,678 Interest income 2,326,225 4,161,700 Total revenue 178,930,327 172,619,000 OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Fuel expense Retail and purchased power 86,844,092 74,066,795 Interchange 2,554,566 2,192,934 Total fuel expense 89,398,658 76,259,729 Power production 19,503,775 19,675,195 Transmission 916,712 723,008 Distribution 10,118,929 11,734,075 Total operation and maintenance 119,938,074 108,392,007 Administrative and general Customer accounts 3,889,275 3,552,746 Administrative and general 8,430,955 7,913,961 Total administrative and general 12,320,230 1 1A66,707 Total operation, maintenance and administrative expense 132,258,304 119,858,714 Net revenue in accordance with bond resolution Retail 45,713,108 51,993,740 Interchange 958,915 766,546 Total net revenue in accordance with bond resolution $ 46,672,023 $ 52,760,286

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2005 2004 REVENUE Sales of gas Residential $ 12,701,421 $ 12,879,972 Interruptible/commercial 13,075,593 11,399,803 Other sales 267,645 220,883 Total sales of gas 26,044,659 24,500,658 Other gas revenue (expense) (25,177) (19,825)

Transfers (to) from rate stabilization 761,130 (1,130,506)

Interest income 429,646 219,627 Total revenue 27,210,258 23,569,954 OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Fuel expense 16,881,895 14,593,903 Operation and maintenance 1,388,368 1,166,824 Total operation and maintenance 18,270,263 15,760,727 Administrative and general Customer accounts 2,058,540 1,925,827 Administrative and general 1,048,712 993,566 Total administrative and general 3,107,252 2,919,393 Total operation, maintenance and administrative expense 21,377,515 18,680,120 Total net revenue in accordance with bond resolution $ 5,832,743 $ 4,889,834

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2005 2004 REVENUE Sales of water General customers $ 10,719,360 $ 11,079,601 University of Florida 765,828 617,004 Fire protection 1,094,539 1,077,233 Generating stations 48,880 42,422 Utility surcharge 1,197,602 1,181,989 Total sales of water 13,826,209 13,998,249 Other water revenue Connection charges 1,430,329 1,081,822 Miscellaneous 119,306 75,027 Total other water revenue 1,549,635 1,156,849 Transfers from rate stabilization 1,534,938 3,065,791 Interest income 279,053 328,649 Total revenue 17,189,835 18,549,538 OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Source of supply 9,657 9,194 Pumping 1,301,027 1,287,963 Water treatment 2,567,984 2,231,437 Transmission and distribution 1,618,999 1,706,738 Total operation and maintenance 5A97,667 5,235,332 Administrative and general Customer accounts 1,070,461 1,103,301 Administrative and general 2,519,732 2,585,036 Total administrative and general 3,590,193 3,688,337 Total operation, maintenance and administrative expense 9,087,860 8,923,669 Total net revenue in accordance with bond resolution $ 8,101,975 $ 9,625,869

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2005 2004 REVENUE Wastewater billings Billings $ 15,892,998 $ 15,567,106 Utility surcharge 1,525,566 1,366,440 Total wastewater billings 17,418,564 16,933,546 Other wastewater revenue Connection charges 2,146,578 1,355,706 Miscellaneous 205,148 156,498 Total other wastewater revenue 2,351,726 1,512,204 Transfers from rate stabilization 1,816,821 3,362,600 Interest income 555,058 471,352 Total revenue 22,142,169 22,279,702 OPERATION, MAINTENANCE AND ADMINISTRATIVE EXPENSE Operation and maintenance Collection 1,388,654 1,481,035 Treatment and pumping 4,785,928 4,361,360 Total operation and maintenance 6,174,582 5,842,395 Administrative and general Customer accounts 876,059 867,403 Administrative and general 3,336,407 3,356,795 Total administrative and general 4,2122A66 4,224,198 Total operation, maintenance and administrative expense 10,387,048 10,066,593 Total net revenue in accordance with bond resolution $11,755,121 $12,213,109

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2005 2004 REVENUE Sales to customers $ 8,565,405 $ 8,081,031 Transfers to rate stabilization (5,391) (688,811)

Interest income 79,455 90,022 Total revenue 8,639,469 7A82,242 Operation, maintenance and administrative expense Operation and maintenance 2,365,838 2,321,615 Total operation and maintenance 2,365,838 2,321,615 Administrative and general Customer accounts 421,979 219,836 Administrative and general 1,720,351 1,431,210 Total administrative and general 2,142,330 1,651,046 Total operation, maintenance and administrative expense 4,508,168 3,972,661 Total net revenue in accordance with bond resolution $4,131,301 $3,509,581

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'Net revenue inaccordance 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 Electric Gas Water Wastewater GRUCom Combined Current assets Cash and cash equivalents $ 379,249 $ 238,714 $ 16,201 $ 508,049 $ 293,715 $ 1,435,928 Accounts receivable, net 28,922,826 2,780,466 1,700,802 2,170,919 862,182 36,437,195 Prepaid rent, LILO - 10,686,909 10,686,909 Fuels contracts 2,702,868 2,141,146 4,844,014 Deferred charges 4,121,996 472,688 77,506 96,919 15,124 4,784,233 Inventories Fuel 9,825,661 9,825,661 Materials and inventories r 77n

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/,411,100 Total current assets 62,419,091 6,050,542 2,396A50 2,775,887 1,783,158 75S25,128 Restricted assets Utility deposits, cash and investments 3,900,543 - - - - 3,900,543 Debt service fund, cash and investments 12,946,654 1,215,926 2,774,454 4,251,851 785,861 21,974,746 Rate stabilization, cash and investments 42,217,677 6,126,569 47,029 784,780 1,807,951 50,984,006 Construction fund, cash and investment 3,824,335 2,098,675 1,725,785 1,749,895 1,167,877 10,566,567 Utility plant improvement fund, cash and investments 18,606,827 4,912,447 448,368 2,353,832 2,783,026 29,104,500 Investment in The Energy Authority 2,251,685 - - - - 2,251,685.

Decommission reserve, cash and investments 6,181,620 - - - - 6,181,620 Total restricted assets 89,929,341 14,353,617 4,995,636 9,140,358 6,544,715 124,963,667 Prepaid rent, U1LO 130,024,059 - - - - 130,024,059 Other noncurrent assets 8,807,264 4,921,647 800,067 872,063 123,319 15,524,360 Capital assets Utility plant in service 646,124,832 43,491,338 143,777,237 192,737,692 30,925,112 1,057,056,211 Plant unclassified 746,645 253,161 2,409,066 1,636,612 675,183 5,720,667 Less: accumulated depreciation and amortization 278,423,610 22,079,249 52,630,709 69,915,555 11,973,742 435,022,865 Net utility and unclassified plant 368,447,867 21,665,250 93,555,594 124,458,749 19,626,553 627,754,013 Plant held for future use 6,053,926 - - - - 6,053,926 Construction in progress 51,771,098 5,486,896 18,476,734 17,206,236 5,611,771 98,552,735 Net capital assets 426,272,891 27,152,146 112,032,328 141,664,985 25,238,324 732,360,674 Total assets $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 Electric Gas Water Wastewater GRUCom Combined Current liabilities Fuels payable $ 10,819,146 $ 1,315,777 $ - $ 12,134,923 Accounts payable and accrued liabilities 1,467,074 339,628 477,878 489,796 76,043 2,850,419 Operating lease, LILO 12,461,916 12,461,916 Deferred charges 5,069,010 1,486,947 (49,926) (124,628) (14,092) 6,367,311 Due to other funds 1,032,402 1,258,242 2,053,055 354,228 57,784 4,755,711 Total current liabilities 30,849,548 4,400,594 2A81,007 719,396 119,735 38,570,280 Payable from restrited assets Utility deposits 4,041,439 4,041,439 Rate stabilization deferred credit 42,217,677 6,126,569 47,029 784,780 1,807,951 50,984,006 Construction fund: accounts payi table and accrued liabilities 1,850,678 125,351 468,485 332,819 100,247 2,877,580 Debt payable, current portion 8,321,195 1,214,928 2,112,259 2,920,618 1,967,750 16,536,750 Accrued interest payable 4,615,859 610,908 1,450,323 1,529,422 204,591 8,411,103 Total payable from restricted assets 61,046,848 8,077,756 4,078,096 5,567,639 4,080,539 82,850,878

-rm debt Utilities system revenue bonds 166,164,973 15,487,726 51,350,597 48,196,904 8,349,800 289,550,000 Subordinated utilities system revenue bonds 34,657,950 12,170,880 6,317,750 15,353,420 - 68,500,000 Commercial paper notes 35,883,914 6,167,765 11,603,959 19,084,377 20,030,485 92,770,500

• Unamortized loss on refunding (17,573,721) (928,673) (3,069,374) (3,076,010) - (24,647,778)

Unamortized bond prem/disc 6,139,824 68,864 1,343,844 1,210,435 46,862 8,809,829 Total long4erm debt 225,272,940 32,966,562 67,546,776 80,769,126 28A27,147 434,982,551 Operating lease, LLO 151,608,509 - - - - 151,608,509 Other noncurrent liabilities 11,174,644 6,242,594 214,799 488,637 9,905 18,130,579 Total liabilities 479,952,489 51,687,506 74,320,678 87,544,798 32,637,326 726,142,797 Net assets Invested in capital assets, net of related debt 199,828,517 (4,557,805) 44,969,615 60,680,513 (3,865,219) 297,055,621 Restricted 33,465,200 5,392,114 1,305,339 4,745,623 3,279,014 48,187,290 Unrestricted 4,206,440 (43,863) (371,151) 1,482,359 1,638,395 6,912,180 Total net assets 237,500,157 790,446 45,903,803 66,908A95 1,052,190 352,155,091 Total liabilities and net assets $717,452,646 $52A77,952 $120,224,481 $154,453,293 $33,689,516 $1,078,297,888

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, 00 . . @0' Gas Water Wasewater GRUCom Combned Opeing Mven Sales and service charges $ 174,046,207 $ 26,044,659 $ 13,826,209 $ 17,418,564 $ 8,565,405 $ 239,901,044 Transfers from/

(to) rate stabilization (134,672) 761,130 1,534,938 1,816,821 (5,391) 3,972,826 Other operating revenue 4,466,769 (25,178) 1,549,635 2,351,726 (149) 8,342,803 Total operating revenue 178,378,304 26,780,611 16,910,782 21,587,111 8,559,865 252,216,673 Operating expenses Operation and maintenance 119,938,074 18,270,263 5,497,667 6,174,582 2,365,838 152,246,424 Administrative and general 12,320,230 3,107,252 3,590,193 4,212,466 2,142,330 25,372,471 Depreciation and amortization 23,495,403 2,117,994 4,369,222 6,265,931 2,306,247 38,554,797 Total operating expenses 155,753,707 23A95,509 13,457,082 16,652,979 6,814,415 216,173,692 Operating income 22,624,597 3,285,102 3A53,700 4,934,132 1,745,450 36,042,981 Non-operating income/

(expense)

Interest income 2,644,945 481,270 441,151 689,329 133,052 4,389,747 Interest expense (10,300,422) (1,562,395) (2,986,081) (3,618,333) (977,963) (19,445,194)

Loss on sale of investments (126,695) (7,517) (14,008) (18,998) (538) 1167,756)

Total non-operating income (expense) (7,782,172) (1,088,642) (2,558,938) (2,948,002) (845,449) (15,223,203)

Income before contributions and transfers 14,842,425 2,196,460 894,762 1,986,130 900,001 20,819,778 Capital contributions Contributions from developers 191,028 - 2,048,041 2,988,267 - 5,227,336 Reduction of plant cost recovered from contributions (191,028) - - - - (191,028)

Net capital contributions - 2,048,041 2,988,267 - 5,036,308 Operating transfer to City of Gainesville general fund (17,680,627) (1,280,405) (3,452,311) (4,560,163) (306,138) (27,279,644)

Change in net assets (2,838,202) 916,055 (509,508) 414,234 593,863 (1,423,558)

Net assets, beginning of year 240,338,359 (125,609) 46,413,311 66,494,261 458,327 353,578,649 Net assets, end of year $237,500,157 $ 790,446 $45,903,803 $66,908,495 $1,052,190 $352,155,091

Balance Sales, Retirements Balance

eptember 30, 2004 Additions & Transfers September 30, 2005 PLANT INSERVICE Electric utility fund Production plant $ 345,711,967 $ 7,287,542 $ 859,327 $ 352, 140, 182 Nuclear fuel 7,324,809 779,735 8, 104 ,544 Transmission and distribution plant 226,663,660 9,989,959 1,684,103 234,969,516 General and common plant 50,416,108 1,510,845 1,016,363 50,910,590 Plant unclassified 1,985,375 18,329,351 19,568,081 746,645 Total electric utility fund 632,101,919 37,897,432 23,127,874 646,871,477 Gas utility fund Distribution plant 35,771,254 1,347,808 - 37,119,062 General plant 1,567,273 228,739 74,371 1,721,641 Plant acquisition adjustment 4,650,635 - - 4,650,635 Plant unclassified 153,456 1,676,252 1,576,547 253,161 Total gas utility fund 42,142,618 3,252,799 1,650,918 43,744,499 Water utility fund Supply, pumping and treatment plant 24,796,288 2,020,777 347,962 26,469,103 Transmission and distribution plant 110,326,885 2,484,448 15,442 112,795,891 General plant 4,393,588 282,680 164,025 4,512,243 Plant unclassified 1,261,108 5,935,863 4,787,905 2,409,066 Total water utility fund 140,777,869 10,723,768 5,315,334 146,186,303 Wastewater utility fund Pumping and treatment plant 81,689,152 1,340,398 467,141 82,562,409 Collection plant 97,420,599 2,529,627 83,548 99,866,678 Reclaimed water plant 4, 172,492 37,163 7,528 4,202,127 General plant 5,843,746 404,945 142,213 6,106,478 Plant unclassified 1,387,654 4,561,091 4,312,133 1,636,612 Total wastewater utility fund 190,513,643 8,873,224 5,012,563 194,374,304 GRUCom utility fund Distribution plant 29,711,601 504,464 - 30,216,065 General plant 684,683 26,206 1,842 709,047 Plant unclassified 390,071 815,782 530,670 675,183 Total GRUCom utility fund 30,786,355 1,346452 532,512 31,600,295 Total plant in service $1,036,322,404 $62,093,675 $35,639,201 $1,062,776,878 Plant held for future use, electric $ 6,053,926 $ - $ - $ 6,053,926 Construction in progress Electric utility fund $ 43,323,067 $ 27,712,852 $ 19,264,821 $ 51,771,098 Gas utility fund 3,603,189 3,559,959 1,676,252 5,486,896 Water utility fund 12,481,650 11,979,802 5,984,718 18,476,734 Wastewater utility fund 9,370,965 12,437,465 4,602,194 17,206,236 GRUCom utility fund 4, 182,176 2,245,377 815,782 5,611,771 Total construction in progress $ 72,961,047 $57,935,455 $32,343,767 $ 98,552,735

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Balance Sales, Retirements Balance September 30, 2004 Additions & Transfers September 30, 2005 Electric utility fund Production plant $ 170,182,905 $ 9,380,740 $ 859,327 $ 178,704,318 Nuclear fuel 7,158,372 384,145 7,542,517 Transmission and distribution plant 62,383,090 7,121,839 1,684,103 67,820,826 General and common plant 21,546,455 3,537,680 885,366 24,198,769 lr7 10^ -

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1-n I OU Plant unclassified I J/, IOV Total electric utility fund 261,270,822 20,581,584 3A28,796 278A23,610 Gas utility fund Distribution plant 15,372,810 1,062,184 - 16,434,994 General plant 952,690 89,144 57,246 984,588 4,535,251 115,386 4,650,637 Plant acquisition adjustment

- 9,030 9,030 Plant unclassified Total gas utility fund 20,860,751 1,275,744 57,246 22,079,249 Water utility fund Supply, pumping and treatment plant 10,193,236 818,873 347,962 10,664,147 Transmission and distribution plant 35,467,403 3,057,995 15,442 38,509,956 General plant 3,323,681 221,362 120,580 3,424,463 Plant unclassified - 32,143 - - 32,143 Total water utility fund 48,984,320 4,130,373 483,984 52,630,709 Wastewater utility fund Pumping and treatment plant 28,000,920 2,913,839 467,141 30,447,618 Collection plant 31,485,721 2,670,114 83,548 34,072,287 Reclaimed water plant 397,163 150,916 7,528 540,551 General plant 4,640,163 271,219 103,390 4,807,992

- 47,107 - 47,107 Plant unclassified Total wastewater utility fund 64,523,967 6,053,195 661,607 69,915,555 GRUCom utility fund 9,402,503 2,209,787 - 11,612,290 Distribution plant General plant 285,418 60,073 1,842 343,649

- 17,803 - 17,803 Plant unclassified Total GRUCom utility fund 9,687,921 2,287,663 1,842 11,973,742

• Total $405,327,781 $34,328,559 $4,633A7S $435,022,865 The Honorable Mayor and Members of the Cty Commission employees in the- normal, course ot pertorming their assigned tunctions. We noted

--:City of Gamies illeho ida ho m i ing the internal contro over therfinoncial reporting an its rperation

We have audited the financial statementsof Gainesville Regional lUtiities a tht tbe mateiatea s.

mentof theCityofGainesvilleFlorida as-of and or e year ended September30, Complince and her Matters

'.2005, and have issued our reportth N.ovem er025.Wecondu- A .r o bining ' u et aille :i ed our audit 'in acrdancewith auditing :staas generollyaccepted -inthe United- -Utilities' fnancial satements are free of materil misstatement, we perfori ed ests of

.States-and the standads applicable'-ainancialudits containedin Government its compliance with certain provisions of laws, regulationsan contraoslin Auditing Stdards issuedby the ComptrollerGenera of the United States, once withwhic cdhaveadired maerial effectontedeterminatonofina

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.videan opinion ontheintemrna control over iFiautcal roportinr 'Our consideration i to management of Ginevile eo entrnl ontr ver cil reporting would not necessarily disce all matters n a etr d Novem 1 5 This reportis ed olely for the in rmatt and use ot the t Comission .

in'theinrernalcontrolthatmightbe material eaknesses.Amaterialweknesss reportable conditi inwhi'ch thedesign or operation of onelormoreo theinteal -imanagement, andeeraland staregulatoryagencesandisnointenedobeand cont c ts es not reduce too reliv w lelthe rsk that issateents l t be use y anyone et an hese s c.atusedbyerrororfraud inamounts thatwouldbematlerial in reltion to the financial foradod Floridat b ed may occuran not b detecte wit in a t t dit y, e

RICK BRYANT Commissionerv JACK DONOVAN.

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=PEGEEN HANRAH" CRAIG LOWE Commissioner <-

CHUCK CHESTNUT vCom~mission~er;D Mayor Pro Tem.

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Vision for the future Annual Report 2005l OUC 00 The ReliableOne'

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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

L* 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 rates, but environmental stewardship, as well. To that end, Commission. To our customers and stakeholders it means OUC management is focused on developing a long-term Outstanding performance, Unsurpassed value and generation plan that balances technology, fuel flexibility and Customer commitment. In 2005 we lived up to that environmental stewardship.

tradition of excellence. With these goals in mind, OUC formally entered a Outstanding performance. It is not always easy strategic partnership with the Department of Energy and the maintaining our position as the most reliable utility in the Southern Company to build a 300 megawatt coal state of Florida, but we managed to do it again in 2005. In gasification plant at the Stanton Energy Center.

recent comparison data from the Florida Public Service The proposed Integrated Gasification Combined Cycle Commission, OUC again topped the state's investor-owned project allows OUC to efficiently meet base load utilities in overall electric reliability and performance. requirements while demonstrating state-of-the-art At the center of this performance is our team of highly environmental technology. The gasifier, which is an add-on motivated employees. Our philosophy is to give our to the combined cyde unit, will allow us to switch between employees the resources, equipment and training necessary natural gas and coal for increased fuel flexibility.

to provide superior performance. And they have consistently Electric generation is not the only area facing increased risen to the occasion year after year. It's no wonder in our customer demands for balancing supply and the recent customer opinion polling that 92% of our customers environment. The water industry is dealing with a said we live up to our name, "The Reliable One." tightening of the Florida potable water supply. As a result, Unsurpassed value. Superior performance comes at a we have joined a consortium of other water utilities in a cost. We realize that value is just as important to our project that has the potential to produce more than 50 customers and stakeholders as performance. million gallons per day of alternative water supply.

Maintaining competitive rates and a strong financial Planning for the future. Planning for the future is position during one of the most volatile fuel markets in something that OUC has always done well. In 2005, recent history was a challenge. We lessened the impact of we took steps to further analyze our business and how to escalating costs on customers through the use of our position ourselves to meet future demands through a stabilization fund; however, we were forced to raise fuel rates strategic planning process.

late in the year. We also provided additional value to our OUC senior management spent months drilling down owners, the citizens of Orlando, by increasing the amount of into every area of the organization to develop our "View of funds transferred to the City for the year. the World." We identified new opportunities and potential Despite all these demands, our rates still remain some of threats. We conducted a full evaluation of the way we the lowest in the state - providing our customers with the currently do business and the way we would need to operate value they have come to expect. In fact, Moody's Investor to meet dhe demands of not only the industries in which we Service, Standard & Poor's and Fitch Investor Services operate, but also the communities we serve.

acknowledged our financial strength when they assigned A key component ofour strategic planning process was OUC excellent bond ratings. Moody's reported "the credit the development of five specific goals for the organization.

rating on OUCs revenue bonds is the highest rated city- We call the goals our DREAM for the future. Details of our owned electric utility in the U.S." DREAM are outlined on the following pages of this report.

Customer commitment One of the key factors the Most importantly, a good strategic plan needs a mission rating agencies noted was the rapid growth of our service that every employee can buy into .. . one that is easy to territory and the opportunities for expansion. Orlando is understand . .. one as simple as . .. OUC.

one of the fastest growing cities in the nation - consistently outpacing other cities in new home construction. This surge Outstanding performance.

in development has benefited our two commercial business Unsurpassed value.

products - OUCooling, our chilled water division, and Customer commitment.

OUConvenient Lighting, our commercial lighting division. It's as simple - and important - as that.

Both businesses had outstanding years and are well positioned to meet future customer needs. /61- 41110--.

Meeting customer needs is a priority at OUC. As the Tommy Boroughs Ke Ksionek hometown utility provider, our customers expect OUC to BoardPresident General ManagerrCEO provide not only adequate power generation at competitive 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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STRATEGIC PLAN GOAL #1

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+<OUC promises and delivers dedicated 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 frequent hurricanes expected in the jobs easier. OUC's new mobile most reliable utility in the state is coming years, planning ahead is dispatching program features laptop hard work - but we did it again critical to the success of OUC's computers in all trouble crew trucks.

in 2005. In recent data from the exceptional vision. Thanks to this program, details Florida Public Service Commission, Reliability was increased for our about outages and trouble calls are OUC topped the state's investor- customers even more by the available at the click of a button.

owned utilities in overall electric completion of two new substations. Service dispatchers also can see reliability and performance. real-time map displays of where This incredible reliability In comparison data, crews are located in the field.

achievement came after OUC The Energy Delivery Business experienced the ferocity of 40 years OUC topped the state's Unit made internal changes in worth of hurricanes in 50 days. investor-owned utilities in 2005 with a reorganization that After Hurricanes Charley, Frances overall electric reliability created three new areas, eliminated and Jeanne damaged OUCs energy two and restructured three existing and performance.

delivery system in 2004, the Energy areas with the goal being to create Delivery Business Unit worked more operational efficiencies.

tirelessly to restore the system to its The $7.5 million Kaley substation With an eye toward the future, pre-storm condition. was energized on December 5, 2004 but with unrelenting focus on the Throughout the year, OUC and the $8.5 million Lake Nona present, OUC worked to ensure evaluated the electrical system and substation on March 4, 2005. our name of "The Reliable One" strengthened it, where possible, to For employees in the field, rung true in 2005. V prepare for the future. With more 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.

'I , 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 stability for customers by is bringing the future of This combined-cycle burning whichever fuel is clean coal technology to facility gives OUC most economical at the OUC in the form of an time - coal or natural gas.

innovative plant that tremendous ability to As Hurricane Katrina already is attracting provide future rate stability showed, just one hurricane attention from around for customers by burning or disaster can cripple the world. the availability of a fuel whichever fuel is most The proposed plant, to source. At OUC, be built at the Curtis H. economical at the time - promoting fuel diversity is Stanton Energy Center coal or natural gas. a main component of our in east Orange County, approach to power calls for a $57 million $13 million for coal cars generation. Maintaining investment by OUC in and $235 million to a mixture of fuel sources the core technology of build a combined-cycle helps us better manage the Orlando Gasification generating plant, which any supply disruptions.

Project (OGP). The will be capable of meeting By splitting costs with bulk of the plant's base load demand and Southern Company -

expense is covered by a can be operated without and with the grant from

$235 million grant from the gasifier. the DOE - OUC's the U.S. Department of The combined-cycle financial risks are limited, Energy (DOE) and the plant, together with the while the potential rest by Atlanta-based OGP, will make up an benefits are enormous.

Southern Company, the integrated gasification The new plant will nation's second-largest combined-cycle facility. generate enough power YL1_

Control Center Operator Denny Denson power producer. This combined-cycle to light about 30,000 OUC also will pay facility gives OUC homes and will serve as monitors fuel flow to the boiler on Stanton Energy Center Unit 2. for more traditional tremendous ability to a global demonstration equipment: about provide future rate model for the viability of 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 Following months of 20-year renewal of its OUC is committed detailed analysis, the consumptive-use permit to promoting water nationally recognized (CUP) in 2004, OUC conservation while also consulting firm of CH2M spent much of 2005 Hill recommended against pursuing innovative working with our partners a merger of OUC's water alternative water to make progress on the service and the City's CUP requirements for supply opportunities wastewater service. The generating new alternative that benefit study found that OUC's water supplies. our cormmrunity. water and the City's An agreement with wastewater operations were Orange County and In October, the OUC dissimilar. However, both the St. Johns River and Board voted to approve organizations were found South Florida Water participation in a to be very efficient and Management Districts calls preliminary design study well run.

for OUC to develop at least and environmental The minimal potential five million gallons a day information document for benefits did not outweigh (mgd) of alternative water the St. Johns River/Taylor the considerable challenges Creek River Water Supply and risks of a merger.

Water Pumped vs. Active Meters Project. The project has the Indeed, the study found that in the best-case

.A potential to produce more than 50 mgd of treated scenario, savings might surface water for the region have reached only one

.ra V C_ and reduce demand on the Floridan Aquifer.

OUC is committed percent of the utilities' combined operating budgets. Mergers generally to promoting water must offer a minimum of conservation while also seven to eight percent pursuing innovative savings even to be alternative water supply considered.

1997 1998 1999 2000 2001 2002 2C03 2004 opportunities that benefit A high level of our community. cooperation between OUC Another study, begun and the City marked the supply to supplement in early 2005 with OUC evaluation process. As current and future and the City of Orlando, recommended by the groundwater withdrawals. analyzed all of the consultants, the OUC and The agreement calls for options surrounding a City of Orlando staff who construction of alternative possible consolidation of participated in the study water supply facilities to be the City and OUC's will continue working completed by 2013. water operations. closely together in the 2 0 0 5 A N N U A L R E P O R T

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i- future to identify were proud that the OUC annuaif ensure the eight water treatmenti. `-

opportunities to increase Water Quality Laboratory quality and safety of plants, the odor~u-efficiency and reduce costs. continued to receive OUC's drinking water. hydrogen sulfide is Throughout the year, National Environmental In addition to testing, removed from the water OUC's water operations Accreditation Conference OUC remains vigilant and the amount of continued to produce our Certification. The program in monitoring and chlorine that must be signature high-quality, is administered through protecting water facilities added is reduced. The great-tasting tap water the Florida Department with multi-level security result is fresh-tasting proudly dubbed H2 OUC. of Health. procedures and intrusion- water with a sparkling The safety of our drinking OUC's staff performs detection systems. appearance.

water is OUC's highest about 20,000 chemical Thanks to the ozone Kf priority, which is why we and bacteriological tests treatment process at our

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- STRATEGIC PLAN GOAL #2

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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 OUC employees, retirees historic triple-hurricane OUC assisted power and contract workers season of 2004, this year contributed more than and water restoration OUC's service territory $23,000 to the American dodged a direct hurricane efforts in communities Red Cross and United strike. Despite that good that were among the Way Hurricane Katrina fortune, Central Florida hardest hit by Relief Funds. With a did not escape the effects dollar-for-dollar match Hurricane Katrina.

of Hurricanes Katrina from OUC, the total and Wilma. relief contributions Hurricane Katrina voluntary conservation topped $46,000.

crippled the production in many ways, including Almost two months and delivery of natural gas darkening the company after Hurricane Katrina, in the Gulf of Mexico and sign at the top of OUC's OUC was ready when hampered delivery of downtown building to Hurricane Wilma's outer gasoline and diesel fuel. visually remind customers edges blew through our OUC joined statewide to conserve. service area October 24.

calls for customers to OUC assisted power Less than 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> conserve energy and and water restoration after completing its own implemented measures to efforts in communities Wilma repairs, OUC lower demand and that were among the sent a convoy of crews, maximize the use of hardest hit by Hurricane trucks and equipment to available fuels. Katrina. On September 9, Key West to assist with Through the fast OUC water specialists power restoration. After response of our employees, traveled to Hattiesburg, finishing restoration OUC maintained the Mississippi, to assist with work in Key West, the generating capacity to drinking water restoration crews headed north to meet the needs of our near the Gulf Coast. A Lake Worth and began OUC General Manager and CEO customers thanks to the few days later, electric working to restore Ken Ksionek (right) thanks water employee crews departed for James Wirtz and the rest of the OUC water fuel diversity OUC uses power to the community crews for volunteering to travel to the to produce electricity. Gulfport, Mississippi, on of 26,000 south of Gulf Coast to assist with restoration efforts However, we also September 11 to help West Palm Beach.

after Hurricane Katrina.

recognized the energy their rebuilding efforts.

needs around the state At home, during the and encouraged month of September, l2 0 0 5 A N N U A L R E PO 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 highest grade Fitch gives utilities. impacting customer rates. OUC's "The Reliable One," they think of Moodys rated OUC AaI. payments are deposited into the City's OUC's outstanding record of electric general fund, which is used to support and water service. But being 'The Fitch Investors Services called parks and recreation facilities, public Reliable One" also describes OUC's works and police and fire protection.

OUC one of its highest rated approach to the financial side of The Environmental Division's maintaining the second-largest public public power utilities due to excellent financial and operational utility in the state of Florida. our competitively priced rates, planning also produced valuable Whether planning capital project and efficient and diversified results for OUC in 2005. All of the expenditures, refinancing debt or Stanton Energy Center power plants managing assets, OUC's financial power supply portfolio. met their permit limits, and we team repeatedly has shown that it commissioned the use of storm water makes valuable decisions for both Because of OUC's strong financial from the Orange County landfill as the near- and long-term interests of standing, we were in position to help an alternative water source at Stanton.

our customers. the City of Orlando partially address Over the years, OUC's longstanding In 2005, the bond rating agencies its budget shortfall this past year. commitment to the environment has again bestowed some of their highest Thanks to our history of sound fiscal led us to invest more than $200 million rankings on OUC - naming us decisions, OUC was able to increase in state-of- the-art environmental among the best-run companies in our payment to the City for the protection equipment at Stanton to America. 2005-2006 fiscal year. safeguard the air, water and quality Both Standard & Poor's and Fitch We did so while maintaining our of life in Central Florida.

gave OUC an AA rating - the excellent reliability and without 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.

From Central Florida best way to help defray DVD or video full of to New England to the added costs. OUC conservation information; West Coast, rising fuel already has a tiered or request a free in-home costs strained business conservation rate structure survey to identify areas OUC's Diverse Fuel Mix and citizen budgets in place to reward with the greatest potential (Figures Based oii GCenpeiation) across the country this customers who use less for energy savings and past year. As prices rose energy with lower charges then apply for rebates steadily, many utilities per kilowatt hour. through several cost-Coal - 64.3% were forced to raise fuel OUC emphasizes year- saving energy-efficiency charges to compensate round energy rebate programs.

for increasing costs. conservation by For customers OUC was no publicizing conservation experiencing financial exception, as forecasts tips on our Web site, difficulties paying their show a projected $79.5 through bill inserts, bills, OUC's Project million increase in fuel- customer newsletters, CARE provides related costs for the 2006 emergency assistance.

calendar year. Thanks in Since its inception in Natural Gas - 23.4% OUCs mix large part to OUC's fuel 1994, Project CARE diversification, we of resources has raised more than consistently have made for generating $800,000 and helped smaller and less frequent electricity is thousands of customers fuel charge increases than in Orange and Osceola a benefit other utilities. As it is for counties.

to customers.

many utilities, the price OUC also is proud of fuel is a "pass-through" to work with 2-1-1 cost that generates no and radio and television Community Resources, income for OUC. advertising. a local gateway to more Additionally, OUC's We strengthened our than 3,800 social mix of resources for program to include programs and services.

generating electricity is a presentations at As a leader in the Central benefit to customers in neighborhood meetings Florida community, that we are not as and greater community OUC knows how valuable vulnerable to upswings in education on this topic. these programs are during price in one type of fuel. OUC also offers a variety difficult financial times.

This fuel diversity is a of programs for customers Regular announcements critical advantage for who want to make their about Project CARE are OUC and our customers. homes more energy distributed in customer As prices continue to efficient. Customers can bills, newsletters and increase, energy take a free online home online at www.ouc.com.

conservation is often the 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.

OUCooling, our chilled- central chilled water facility.

Revenue water division, maintained By outsourcing these (In Millions of Dollars) its rapid growth rate, services to OUC, property

$14- thanks largely to the owners guarantee the 12 - expanding customer base reliability of chilled water.

10- in downtown Orlando. With OUCooling, all of 8-_ Construction in the equipment used to 6 _ _ downtown is ongoing - cool water for air-4 as one new high rise is conditioning systems is 2 _ _ finished, work begins on housed in centralized the next. For example, facilities. There, water is 2002 2003 2004 2005 the Sanctuary Downtown, cooled to 37 degrees and a new 18-story, 667,000 piped to participating square-foot commercial buildings before returning With OUCooling, all of the equipment used to cool water for air conditioning systems is housed in centralized facilities.

and residential tower, to the chiller plant at 52 opened its doors to degrees to repeat the cycle.

residents in 2005. OUC's new North OUCoolingprovides the Central water chiller 1" i air conditioning needs plant kicked into

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for residents and operation in late 2004.

substantial cost savings At its future full capacity, for the developer. the new facility - larger Instead of a condo than the first downtown association billing OUCooling plant -

residents and maintaining will supply 12,000 tons its own on-site cooling of chilled water in its system, OUCoolingbills delivery loop and will Keith Ric ra+/-CL C itU;;

gtw d<samo,, plipes th at residents for their open up more of Jistibui Vat>l S o Gw'")

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T71 it0j~~si n~~ '0 Ccritia> F>)>(d3 individual usage and downtown to OUC's as ce)f biiifdrt a>'> .d>7e3; P100> operates the system at a valuable service.

2 0 0 5 A N N U A L R E P O R T

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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.

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Lighti ng In2005, OUConvenient Lighting sold more than 4,200 new fixtures to fixture/pole groupings to produce the desired blend of style and function.

Revenue (1n Millions of Dollars) customers across Central After the record-setting

$8-J Florida. The business has hurricane season of 2004, been so successful - with OUC launched a new 6-more than 9,700 fixtures business venture aimed at 4-installed in the past three keeping businesses running years and many more should an extended power 2- scheduled for installation- outage occur.

that it seems like every Although OUC is 0* new Central Florida "The Reliable One," we 2002 2003 2004 2005 lighting project is an cannot control all of OUC job. Mother Nature's forces OUConvenient Lihting works with commercial partners to plan, install and maintain customized streetlights.

From new home when it strikes our communities to apartment system. Therefore, complexes to industrial we began offering park projects, Backup Generation OUConvenient Lighting service to customers works with commercial as an extra protection partners to plan, install against unpredictable and maintain streetlights events. Power-related for various types of downtime is developments. To ensure inconvenient, and it solutions that work for can cause scheduling Fo> deve-lopets choosing OLUCHnnveti ernt Liqrtci'n individual customers, problems, lost con)twge d to be a cc it effect ye de-isin .r 2005 customized service productivity and revenue, packages are available that and damage to valuable combine dozens of business reputations.

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0on I I OUC Customer Service Representative Lizvette Melendez offers top-notch service with a smile to customers in St. Cloud.

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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 resulted in satisfaction jumping 18 Providing convenient paying relationships with our customers is at percent for first-call resolution. options prompted OUC to partner the heart of what we do. We live up OUC is planning changes to our with participating 7-Eleven stores in to being 'The Reliable One" by automated call response program to Orange and Osceola counties.

being a customer-focused utility and improve customers' ability to get the Customers can now pay their bills at providing exceptional services. Vcom9 self-service kiosks. Vcom Whether in person, over the phone service offers bi-lingual, 24-hour or online, making contact with A 2005 customer opinion customer assistance and the ability to OUC has never been faster or easier. survey found that 92 percent conduct multiple transactions at once.

OUC regularly surveys customers of respondents identify us Even easier, customers can pay and holds focus groups to measure their bills from anywhere, at as "The Reliable One."

satisfaction and ensure that we are anytime, through OUC's Web site.

meeting those high expectations. A With our new eCheck payment 2005 customer opinion survey found information they need quickly. system, the amount due is that 92 percent of respondents New selection menus, easier deducted directly from a customer's identify us as "The Reliable One." navigation, the ability to complete checking account. This secure Customers also responded to certain tasks that currently require a payment option represents another changes in how we process outage Customer Service Representative and way OUC is working to connect calls. The quicker response times, more information options will with customers in the method most especially during busy periods, highlight the system's new features. convenient to them. Vr 2 0 0 5 A N N U A L R E PO 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 - 2005 when OUC asked UCF's Community in ways big and small - students to develop a new Service Award.

OUC and our employee character or characters to In another partnership, volunteers have worked to represent OUC's OUC worked with the be a positive influence in community and cities of Orlando and the lives of our customers. educational outreach St. Cloud this spring to OUC-sponsored events programs and to build the host neighborhood included the second character(s) into a 30- meetings throughout annual OUC Downtown second animation. The our service area to discuss Orlando Triathlon, the reams received feedback hurricane preparation.

OUC Half Marathon & from OUC's marketing In May and June, OUC 5K and the OUC Junior professionals, and one hosted 18 meetings in Achievement Bowl-A- Orlando, St. Cloud Thon. Employees from OUC worked with and Orange County, across OUC participated the cities of Orlando including one Spanish-in these events and and St. Cloud to host only presentation.

numerous others neighborhood hurricane Along with presenters throughout the year, preparation meetings. from the City of Orlando, BY THE NUMBERS_ demonstrating a strong the meetings featured OUC and its employees commitment to idea was selected for information on emergency I contributed more than community and family. development into a response, storm water,

[S213,700 to various As part of our focus on 30-second Jumbotron trees and other safety chanties and community science education, OUC animation that will be issues. Local NBC affiliate

' endeavors in 2005, partnered with the shown at the Citrus Bowl WESH 2 participated by including more than Florida Interactive during home UCF sending meteorologists to S46 0000 to the Hurricane Entertainment Academy football and bowl games. discuss weather patterns Katrina Relief Funds. Since 1993, OUC employees [ at the University of OUC has been a major and what to expect in

- have donated more than Central Florida. This sponsor of UCF athletics the hurricane season.

55,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> to 180 digital media project is and academics for more OUC publicized the L community organizations. the latest collaboration for than 10 years. And in meetings in radio, television OUC and UCF in a long- 2005, UCF alumni and and print ads, as well as standing partnership. OUC Director of Human through wwwouccom and This latest OUC-UCF Resources German targeted postcard mailings venture took shape in late Romero was awarded to nearby customers.

12 0 0 5 A N N U A L R E PO 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 OUC's current access to demographic The move is necessitated birlThaoisa )(4s, f (, - .cn-r;s)

Customer Information information, financial by the Florida Department 325 -

System (CIS) has been in billing information, of Transportation's (FDOT) use for many years and historical payment trends, plans to build a new 300 -

helps us deliver high services rendered and high-speed interchange quality customer service, other important for Interstate 4 and the 275 - provide accurate billing transactional details. 408 Expressway on land services and maintain Additional features will occupied by OUC's historical perspectives for provide trending analysis, existing Administration 2002 2003 2004 2005 each customer. proactive notifications of Building parking garage.

To keep up with In 2006, OUC will technological advances, a work with an owner's In 2006, OUC will team of employees has representative, real estate work with an owners been working to ensure a expert and architect to seamless transition to a representative, real estate evaluate options for our new, more sophisticated expert and architect to downtown headquarters:

system. The new evaluate options for our renovate the existing PeopleSoft Enterprise downtown headquarters: Administration Building Revenue Management with a new parking garage, system (PS/ERM) will special customer events, build a new facility, provide the framework and revenue protection purchase part of a building necessary functionality algorithms and more. with a third party or move integrated with robust Planning for future into an existing building.

business processes - to customer needs and our Through embracing improve OUC's ability to ability to provide a high change -be it in location truly "know" our customers level of customer focus is or technology - OUC and best meet their needs. at the forefront as we face ensures our vision for the PS/ERM will provide the challenges of moving future is always on the a comprehensive view of our corporate headquarters right track.

all aspects of a customer and main customer account, including service center.

2 0 0 5 A N N U A L R E P O R T

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Water service area:

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 community and represent the important, well-informed decisions local governing board lies in its diversity of our customer base. about rates and policies.

connections to Central Florida. That means each board member All Commissioners, with the Known as the Commission, OUC's has a strong inherent desire to exception of the mayor of Orlando governing board is comprised of ensure the enduring success of (an ex officio member), can serve up five citizens who live in our service OUC. Their exceptional vision is to two consecutive four-year terms.

area, have deep roots in the what guides them when making They serve without compensation.

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OUC's senior management team utility service, our top managers partnership to increase the use of I boasts experts in an array of fields, work for the present and plan for alternative water supply.

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finance. Having dedicated poised to begin work on such senior management team is perfectly I themselves to OUC's mission of innovative projects as a first-of-its- positioned to chart a steady course i

i providing affordable and reliable kind coal-gasification facility and a into the future.

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Financial and statistical highlights September 30  % Increase 2005 2004 (Decrease)

Combined Financial Highlights (Dollars in thousands)

Total operating revenues $ 754,260 $ 673,107 112.1%

Total operating expenses 645,034 574,772 12.2%

Interest and net other income 16,049 - 25,436 -36.9%

Interest expense 68,551 - 71,004 .- 3.5%

Income before contributions 56,724 52,767 - 7.5%

Dividend payment 34,034

• 31,660 :7.5%-

Utility plant, net 1,765,676 1,746,342 t.1%

Total assets 2,547,134 - 2,545,195 - 0.1%

Long-term debt, net 11,351,781 - 1,387,423 --2.6%

Net assets 762,500 725,203 5.1%

Senior bond ratings (1) AA, Aal, AA AA, Aa 1, AA Debt service coverage:

Current debt service 2.26 2.24 1.3%.

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 27,902,339 4.1%

Total active services 130,719 126,712  ;:3.2%

Average annual residential usage (gallons) 140,660 141,199 -0.4%

Average residential revenue per 1000 gallons $ 1.87 $ 1.81 3.6%

Rainfall (inches) 64.20 52.60 22.1%

Peak pumping (million gallons per day) 109 118 -8.1%

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.

2 0 0 5 A N N U A L R E P O R T I I L -

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The Reliable Ones 50O South Orange Avenue, Orlando, FL 32801 Phone: 407423.9100 Fax: 407236.9616 wwwouc.com