CITY of LAKELAND, FLORIDA WELLS FARGO SECURITIES $44,070,000* Due: October1asshownontheinsidecover RATINGS: See"RATINGS"Herein
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or exemption under the securities laws of such jurisdiction. The City has deemed this Preliminary Official Statement "final," except for certain permitted omissions, within the contemplation of Rule 15c2-12 promulgated by the Securities and Exchange Commission. Internal RevenueCodeof1986,asamended,furtherdescribedherein.See"TAXEXEMPTION" adjusted currentearnings,andholdersoftheBondscouldbesubjecttoconsequencesotherprovisions an adjustmentmadeindeterminingacorporateBondholder'salternativeminimumtaxbasedonsuch Bonds will,however,betakenintoaccountsolelyfortaxableyearsbeginningpriortoJanuary1,2018incomputing tax imposed on individuals or, for taxable years beginningpriorto January 1, 2018, on corporations. Interest on the federal incometaxpurposesandwillnotbetreatedasanitemofpreferenceincomputingthealternativeminimum other taxrequirementsreferredtoherein,underexistinglaw,interestontheBondsisexcludablefromgrossincomefor * Preliminary, subjecttochange Dated: September __,2018 See "INTRODUCTION"and"SECURITYFORTHEBONDS"herein. Obligations. Parity defined hereinafter City's the to respect with granted thereof pledge and thereon lien the to as respects all in parity on system power electric its of operation the from City the by derived herein) defined (as Revenues certain of "Bond Ordinance"). particularly as supplemented by Ordinance No. 5737 enacted by the City Commission on September 4, 2018 (collectively, the under andpursuanttoOrdinanceNo.4034enactedbytheCityCommissiononApril7,1999,asamendedsupplemented, Article VIII,Section2,ConstitutionoftheStateFlorida, the City's Charter, andother applicable provisionsof law and issuance oftheBonds.See"THEPROJECT"herein. the to related expenses and costs certain (2) paying and "City") (the Florida Lakeland, of City the of "System") (the system obtaininformation to hereto, the Appendices including Statement, essential tothemakingofaninformedinvestmentdecision. Official entire the read must Investors herein. York MellonTrustCompany,N.A.isactingastheinitialPayingAgentforBonds.See"THEBONDS-General" herein. Principal oftheBondsispayableonOctober1yearsandinamountssetforthinsidecover.TheBank ofNew notice procedureswithrespecttotheBonds. System" herein for information regarding DTC's book-entry system of registration including, but not limited to, payment and automated depositoryforsecuritiesandaclearinghousetransactions.See"THEBONDS-Book-EntryOnly fully registeredbondsinthenameofandheldbyCede&Co.,asnomineeforTheDepositoryTrustCompany("DTC"),an Dated: DateofDelivery NEW ISSUE-FULLBOOK-ENTRY to theBonds.Itisexpected that theBondswillbedeliveredthroughfacilitiesofDTC onoraboutSeptember27,2018. Orlando, Florida.RBCCapital Markets,LLC,St.Petersburg,Florida,isservingasFinancial AdvisortotheCitywithrespect Disclosure Counsel.Certain legal matterswillbepasseduponfortheUnderwriterbyits counsel,MarchenaandGraham,P.A., upon fortheCitybyTimothy J.McCausland,Esq.,CityAttorney,andbyNabors,Giblin &Nickerson,P.A.,Tampa,Florida, Holland &KnightLLP,Lakeland, Florida,BondCounsel,andcertainotherconditions. Certainlegalmatterswillbepassed ORDINANCE. OTHER THAN THE TRUST ESTATE, ALL IN THE MANNER AND TO THE EXTENT PROVIDED IN THE BOND ENTITLED TO PAYMENT OF SUCH PRINCIPAL AND INTEREST FROM ANY OTHER FUNDS OF THE CITY PROPERTY TO PAY SUCH BONDS OR THE INTEREST THEREON, NOR SHALL ANY BONDHOLDER BE THE AD VALOREM TAXING POWER OF THE CITY OR TAXATION IN ANY FORM ON ANY REAL OR PERSONAL BOND ORDINANCE. NO BONDHOLDER SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF RESPECTS WITH THE PARITY OBLIGATIONS, IN THE MANNER AND TO THE EXTENT PROVIDED IN THE FROM AND SECURED BY A LIEN UPON AND A PLEDGE OF THE TRUST ESTATE ON PARITY IN ALL CITY WITHIN THE MEANING OF THE CONSTITUTION OF FLORIDA, BUT SHALL BE PAYABLE SOLELY The Bonds and the interest thereon are payable from the Trust Estate (as defined herein) which consists principally consists which herein) defined (as Estate Trust the from payable are thereon interest the and Bonds The The BondsarebeingissuedpursuanttotheauthorityofSection159.11,FloridaStatutes,Chapter166, The Bonds are being issued for the principal purposes of (1) financing certain capital improvements to the electric power This coverpagecontainscertaininformationforquickreferenceonly.Itisnotasummaryofthisissue. The Bondsaresubjecttoredemptionpriortheirmaturity,asdescribedherein.See"THEBONDS-Redemption" Interest on the Bonds is payable semiannuallyon April 1 and October 1 in each year, commencing on April 1, 2019. The CityofLakeland,FloridaEnergySystemRevenueBonds,Series2018(the"Bonds")arebeinginitiallyissuedas The Bondsareofferedwhen, asandifissuedreceivedbytheUnderwriter,subject totheapprovaloflegalityby In theopinionofHolland&KnightLLP,BondCounsel,assumingcompliancewithcertainarbitragerebateand THE BONDS SHALL NOT BE OR CONSTITUTE GENERAL OBLIGATIONS OR INDEBTEDNESS OF THE PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER 5, 2018
Energy SystemRevenueBonds,Series2018
CITY OF LAKELAND, FLORIDA WELLS FARGO SECURITIES $44,070,000* Due: October1asshownontheinsidecover RATINGS: See"RATINGS"herein. ® MATURITY SCHEDULE
$44,070,000* CITY OF LAKELAND, FLORIDA ENERGY SYSTEM REVENUE BONDS, SERIES 2018
$______Serial Bonds
Initial Maturity Principal Interest CUSIP (October 1) Amount* Rate Yield Numbers** 2020 $2,760,000 2021 4,070,000 2022 3,020,000 2023 2,060,000 2024 1,580,000 2025 895,000 2026 400,000 2027 1,335,000 2028 990,000 2029 4,805,000 2030 4,260,000 2031 4,750,000 2032 4,410,000 2033 4,060,000 2036 2,335,000 2037 2,340,000
* Preliminary, subject to change. Term Bonds may be established by the City during pricing. ** CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. CUSIP data is provided for convenience of reference only. The City takes no responsibility for the accuracy of such numbers. CITY OF LAKELAND, FLORIDA
Mayor William "Bill" Mutz
City Commission Michael Dunn Scott Franklin Stephanie Madden Bill Read Justin Troller Phillip Walker
City Manager Tony Delgado
Finance Director Michael Brossart
City Attorney Timothy J. McCausland, Esq.
General Manager of Lakeland Electric Joel Ivy
Certified Public Accountants Crowe LLP Lakeland, Florida
Bond Counsel Holland & Knight LLP Lakeland, Florida
Disclosure Counsel Nabors, Giblin & Nickerson, PA Tampa, Florida
Financial Advisor RBC Capital Markets, LLC St. Petersburg, Florida
i No dealer, broker, salesman or any other person has been authorized by the City or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale in such jurisdiction. The information set forth herein has been furnished by the City and includes information obtained from other sources which are believed to be reliable. The Underwriter has reviewed the information in this Official Statement in accordance with and as part of its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof.
In connection with this offering, the Underwriter may overallot or effect transactions that stabilize or maintain the market price of the Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
UPON ISSUANCE, THE BONDS WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR WILL THE BOND ORDINANCE BE QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF A STATE, IF ANY, IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.
References to website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader's convenience. Unless specified otherwise, such websites and the information or links contained therein are not
ii incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, SEC rule 15c2-12.
Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements." Such statements generally are identifiable by the terminology used, such as "plan," "expect," "estimate," "project," "budget" or other similar words.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS OFFICIAL STATEMENT. ASIDE FROM ITS CUSTOMARY FINANCIAL REPORTING ACTIVITIES, THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD- LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR, SUBJECT TO ANY CONTRACTUAL OR LEGAL RESPONSIBILITIES TO THE CONTRARY.
This Official Statement is being provided to prospective purchasers in either bound or printed format ("original bound format"), or in electronic format on the following website: www.munios.com. This Official Statement may be relied on only if it is in its original bound format, or if it is printed or saved in full directly from such website or from www.emma.msrb.org.
iii TABLE OF CONTENTS
Page
INTRODUCTION ...... 1 THE PROJECT ...... 3 THE BONDS ...... 3 General ...... 3 Redemption ...... 4 Book-Entry Only System...... 6 Transfer and Exchange of Bonds ...... 8 SECURITY FOR THE BONDS ...... 9 General ...... 9 Rate Covenant...... 11 Debt Service Reserve Fund ...... 12 Additional Obligations ...... 13 Flow of Funds ...... 15 Parity Debt ...... 17 Swap Transactions ...... 18 Designated Maturity Obligations...... 20 SOURCES AND USES OF FUNDS ...... 22 DEBT SERVICE REQUIREMENTS...... 23 THE SYSTEM ...... 24 Administration ...... 24 Service Area ...... 28 Generation ...... 28 Transmission and Distribution System ...... 32 Interconnections and Interchange Agreements ...... 32 Fuels...... 33 Conservation ...... 36 Wholesale Power Exchange ...... 37 Florida Municipal Power Pool ("FMPP")...... 37 Florida Reliability Coordinating Council ...... 37 Generation Mutual Aid Agreement ...... 37 Customers ...... 38 Electric Rates ...... 38 Capital Improvement Plan ...... 47 Pension and Other Post-Employment Benefits ...... 47 Hurricane Irma ...... 47 Factors Affecting the Industry ...... 47 LITIGATION ...... 55 TAX EXEMPTION ...... 55 General ...... 55 Alternative Minimum Tax ...... 56 Original Issue Premium ...... 57 Original Issue Discount ...... 57
iv Other Tax Consequences ...... 58 Information Reporting and Backup Withholding ...... 59 RATINGS ...... 59 INVESTMENT POLICY OF THE CITY ...... 60 UNDERWRITING ...... 60 FINANCIAL ADVISOR ...... 61 CERTAIN LEGAL MATTERS ...... 62 FINANCIAL STATEMENTS ...... 62 CONTINUING DISCLOSURE ...... 63 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS ...... 63 CONTINGENT FEES ...... 64 MISCELLANEOUS ...... 64 CERTIFICATE CONCERNING THE OFFICIAL STATEMENT ...... 65
Appendices
Appendix A General Information Regarding the City of Lakeland, Florida
Appendix B Composite of Ordinance No. 4034, as amended
Appendix C Audited Financial Statements of the Department of Electric Utilities for the Year Ended September 30, 2017
Appendix D Form of Bond Counsel Opinion
Appendix E Form of Disclosure Dissemination Agent Agreement
v [THIS PAGE INTENTIONALLY LEFT BLANK] $44,070,000* CITY OF LAKELAND, FLORIDA Energy System Revenue Bonds, Series 2018
INTRODUCTION
The purpose of this Official Statement, which includes the cover page and appendices hereto, is to provide information concerning the City of Lakeland, Florida (the "City"), its electric power system (the "System"), and the City's proposed issuance of $44,070,000* aggregate principal amount of Energy System Revenue Bonds, Series 2018 (the "Bonds"). The Bonds are being issued pursuant to the authority of Section 159.11, Florida Statutes, Chapter 166, Florida Statutes, Article VIII, Section 2, Constitution of the State of Florida, the City's Charter, and other applicable provisions of law (collectively, the "Act") and under and pursuant to Ordinance No. 4034 enacted by the City Commission on April 7, 1999, as amended and supplemented, particularly as supplemented by Ordinance No. 5737 enacted by the City Commission on September 4, 2018 (collectively, the "Bond Ordinance"). Proposed purchasers of the Bonds should review "Appendix B - Composite of Ordinance No. 4034, as amended" in its entirety in order to make an informed investment decision.
The Bonds are being issued for the principal purposes of (1) financing certain capital improvements (the "Project") to the System and (2) paying certain costs and expenses related to the issuance of the Bonds. See "THE PROJECT" herein.
The Bonds and the interest thereon shall be secured by and payable from the Trust Estate (as further described herein under "SECURITY FOR THE BONDS"), which Trust Estate consists principally of certain Revenues (as defined herein) derived by the City from the operation of the System, on parity in all respects as to the lien thereon and pledge thereof granted with respect to the City's Energy System Revenue and Refunding Bonds, Series 2010 (the "Series 2010 Bonds"), Energy System Revenue and Refunding Bonds, Series 2016 (the "Series 2016 Bonds") and Variable Rate Energy System Refunding Bond, Series 2017 (the "Series 2017 Bond").
The Series 2010 Bonds, Series 2016 Bonds and Series 2017 Bond collectively shall be referred to herein from time to time as the "Parity Obligations." The Parity Obligations are currently outstanding in the aggregate principal amount of $363,475,000. The Parity Obligations and the Bonds and any other Obligations subsequently issued pursuant to the Bond Ordinance on a parity therewith collectively shall be referred to herein from time to time as the "Obligations." See "SECURITY FOR THE BONDS" herein. Under the provisions of the Bond Ordinance, the City may subsequently issue or incur other Parity Debt on parity with the Obligations. See "Appendix B – Composite of Ordinance No. 4034, as amended" attached hereto.
______*Preliminary, subject to change. 1 The City has also entered into various interest rate swap agreements in connection with certain of the Obligations. See "SECURITY FOR THE BONDS – Swap Transactions" herein.
The Bonds are issuable as fully registered bonds without coupons and will be registered initially in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Individual purchases of beneficial ownership interests in the Bonds will be made in book-entry form only in denominations of $5,000 or any integral multiple thereof. See "THE BONDS - Book-Entry Only System" herein. The Bonds shall be dated as of their date of delivery, bear interest at the rates per annum set forth on the inside cover page of this Official Statement, payable semiannually on April 1 and October 1 in each year, commencing April 1, 2019, and mature on October 1 in the years and principal amounts set forth on the inside cover page of this Official Statement. The Bank of New York Mellon Trust Company, N.A. is serving as the initial Paying Agent and Registrar for the Bonds.
The Bonds are subject to redemption prior to their maturity, as further described herein. See "THE BONDS - Redemption" herein.
The City has agreed to provide certain continuing disclosure information with respect to the City, the System and the Bonds pursuant to Rule 15c2-12(b)(5) of the Securities Exchange Commission. See "CONTINUING DISCLOSURE" herein and "Appendix E - Form of Disclosure Dissemination Agent Agreement" hereto.
The audited financial statements of the City's Department of Electric Utilities for the Fiscal Year ended September 30, 2017 (with comparative figures for the Fiscal Year ended September 30, 2016) are included as Appendix C. See "FINANCIAL STATEMENTS" herein for more information concerning such audited financial statements.
See also "Appendix A - General Information Regarding the City of Lakeland, Florida" attached hereto for some general background, demographic and statistical information concerning the City and for information regarding the City's pension plans and other post-employment benefit plans.
Brief descriptions of the City, the Bonds, the Bond Ordinance and the System and certain other matters are included in this Official Statement, including the Appendices hereto. All summaries herein of documents and agreements are qualified in their entirety by reference to such documents and agreements, and references herein to the Bonds are qualified in their entirety by reference to the form thereof and the information with respect thereto included in the Bond Ordinance and the aforesaid documents and agreements, copies of which are available from Michael Brossart, Finance Director, City of Lakeland, City Hall, 228 South Massachusetts Avenue, Lakeland, Florida 33801. The assumptions, estimates, projections and matters of opinion contained in this Official
2 Statement, whether or not so expressly stated, are set forth as such and not as matters of fact, and no representation is made that any of the assumptions or matters of opinion herein are valid or that any projections or estimates contained herein will be realized.
Unless the context clearly suggests otherwise, capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Bond Ordinance. See "Appendix B - Composite of Ordinance No. 4034, as amended."
THE PROJECT
The Project generally includes the acquisition and installation of a 125 megawatt peaking unit and various energy delivery and production capital improvements. The dual-fuel peaking unit is being acquired from Auburndale Peaker Energy Center, LLC, an indirect wholly owned subsidiary of Calpine Corporation, for $10.1 million. Installation of the unit at Lakeland Electric’s McIntosh generation site is expected to cost $26 million and is due to commence January, 2019. Start-up of the new unit is anticipated to occur in January, 2020.
Other energy delivery and production projects include, but are not limited to, major transmission and distribution line expansions, substation improvements, and boiler, turbine, generator and environmental upgrades at McIntosh Unit 3, McIntosh Unit 5 and the Winston power plant. The City currently estimates the total costs of the Project to be approximately $50,000,000. See "THE SYSTEM" herein.
THE BONDS
General
The Bonds will be dated their date of delivery, bear interest at the rates per annum set forth on the inside cover page of this Official Statement, payable semiannually on April 1 and October 1 in each year commencing on April 1, 2019, and mature on October 1 in the years and principal amounts set forth on the inside cover page of this Official Statement. The Bonds are issuable only in the form of fully registered bonds in denominations of $5,000 each or any integral multiple thereof. The Bank of New York Mellon Trust Company, N.A. is acting as the initial Registrar and Paying Agent for the Bonds (the "Registrar" and "Paying Agent").
Upon initial issuance, the Bonds will be registered in the name of and held by Cede & Co. as nominee for The Depository Trust Company ("DTC"), an automated depository for securities and a clearinghouse for securities transactions. So long as DTC or Cede & Co. is the registered Owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds held by Cede & Co. will be mailed directly to DTC or Cede & Co., which is to remit such payments to the
3 Participants (as defined herein) of DTC, which in turn are to remit such payments to the Beneficial Owners (as defined herein) of the Bonds. See the discussion under the caption "THE BONDS - Book-Entry Only System" below.
Redemption
Optional Redemption. The Bonds maturing on or before October 1, _____, are not redeemable prior to their stated dates of maturity. The Bonds maturing on or after October 1, _____, are subject to redemption prior to their stated dates of maturity, at the option of the City, in whole or in part on any date on or after October 1, _____ (in such manner of selection of maturities or amortization installments as the City shall determine and by lot within maturities or amortization installments) at the Redemption Prices (expressed as percentages of the principal amount) of 100% of the principal amount redeemed, plus interest accrued to the date of redemption.
Mandatory Sinking Fund Redemption for the Bonds. The Bonds maturing on October 1, ____ are subject to mandatory sinking fund redemption in part, by lot, on October 1, ____ and on each October 1 thereafter at a price of par, plus accrued interest to the date of redemption as follows:
Year Principal Amount
* ______*Maturity
Notice of Redemption. Notice of redemption shall be mailed, postage prepaid, at least 20 and not more than 60 days before the redemption date to all registered Owners of the Bonds or portions thereof to be redeemed at their addresses as they appear on the registration books to be maintained on behalf of the City by the Registrar. Failure to mail any such notice to a registered Owner of a Bond, or any defect therein, shall not affect the validity of the proceedings for redemption of any Bond or portion thereof with respect to which no failure or defect occurred.
Notwithstanding the foregoing, so long as Cede & Co. or any subsequent securities depository is the registered Owner of the Bonds, such notice of redemption shall only be sent to Cede & Co. or such subsequent securities depository. Notices are to be provided to the Beneficial Owners pursuant to arrangements established between the Participants and Beneficial Owners. See "THE BONDS - Book-Entry Only System" herein. Upon the discontinuance of the book-entry only registration system for the Bonds, the foregoing provisions shall apply with respect to the Beneficial Owners of the Bonds.
4 Each notice of redemption shall also be sent at least 20 days before the redemption date by registered or certified mail or overnight delivery service or telecopy to all registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds and to one or more national information services that disseminate notices of redemption of obligations such as the Bonds. Each notice of redemption also shall be published one time in THE BOND BUYER of New York, New York or, if such publication is impractical or unlikely to reach a substantial number of the Holders of the Bonds, in some other financial newspaper or journal which regularly carries notices of redemption of other obligations similar to the Bonds, such publication to be made at least 30 days prior to the date fixed for redemption. Failure of the notice of redemption to comply with the terms of this paragraph shall not in any manner defeat the effectiveness of a call for redemption if mailing of the notice thereof is given as prescribed above in the first paragraph under this subheading.
Under the Bond Ordinance, the City has the right to provide conditional notices of redemption, which notices may be withdrawn or rescinded on, or at any time prior to, the redemption dates set forth in such notices. See "Appendix B - Composite of Ordinance No. 4034, as amended" for more information regarding the specific content of any notice of redemption.
Redemption of Less than all Bonds. If less than all of the Bonds shall be called for redemption, the maturity or maturities (and each amortization installment may be treated by the City as a maturity) of Bonds to be redeemed shall be selected in such manner as the City in its discretion shall determine, and if less than all of a maturity shall be called for redemption, the Bonds within such maturity or amortization installment to be redeemed shall be selected by lot, but in all events, any Bonds left remaining Outstanding shall be in authorized denominations.
Purchase in Lieu of Redemption. The City shall have the option to cause the Bonds to be purchased in lieu of redemption on the applicable redemption date at a price equal to the then applicable Redemption Price, plus accrued interest thereon to, but not including, the date of such purchase. Such option may be exercised by delivery to the Paying Agent (if the Registrar is not the Paying Agent for such Bonds) on or prior to the Business Day preceding the redemption date of a written notice of the City specifying that the Bonds shall not be redeemed, but instead shall be subject to purchase pursuant to Section 3.02 of the Bond Ordinance with the moneys provided or to be provided by or on behalf of the City. Upon delivery of such notice, the Bonds shall not be redeemed but shall instead be subject to mandatory tender at the redemption price on the date that would have been the redemption date.
5 Book-Entry Only System
The following information concerning DTC and DTC's book-entry-only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.
SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, AS NOMINEE OF DTC, CERTAIN REFERENCES IN THIS OFFICIAL STATEMENT TO THE BONDHOLDERS OR REGISTERED OWNERS OF THE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS. THE DESCRIPTION WHICH FOLLOWS OF THE PROCEDURES AND RECORD KEEPING WITH RESPECT TO BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS, PAYMENT OF INTEREST AND PRINCIPAL ON THE BONDS TO DIRECT PARTICIPANTS (AS HEREINAFTER DEFINED) OR BENEFICIAL OWNERS OF THE BONDS, CONFIRMATION AND TRANSFER OF BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS, AND OTHER RELATED TRANSACTIONS BY AND BETWEEN DTC, THE DIRECT PARTICIPANTS AND BENEFICIAL OWNERS OF THE BONDS IS BASED SOLELY ON INFORMATION FURNISHED BY DTC. ACCORDINGLY, THE CITY NEITHER MAKES NOR CAN MAKE ANY REPRESENTATIONS CONCERNING THESE MATTERS.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds as set forth on the inside cover of this Official Statement, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation
6 ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Direct Participants and the Indirect Participants are collectively referred to herein as the "DTC Participants." DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its DTC Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee does not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their
7 benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within maturity are being redeemed, DTC's current practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent, on the payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest on the Bonds, as applicable, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and/or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, the Bond certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, the Bond certificates will be printed and delivered to DTC.
Transfer and Exchange of Bonds
So long as the Bonds are registered in the name of Cede & Co., as the nominee of DTC, the transfer and exchange of any Bonds shall be governed by rules established
8 between DTC and its Participants. See "THE BONDS - Book-Entry Only System" herein. Upon the discontinuance of the book-entry only registration system for the Bonds, the following provisions shall apply for Beneficial Owners of the Bonds.
The registration of the Bonds may be transferred upon the registration books therefor upon delivery to the Registrar, accompanied by a written instrument or instruments of transfer in form and with guaranty of signature satisfactory to the Registrar, duly executed by the Registered Owner of such Bonds or by his attorney-in- fact or legal representative, containing written instructions as to the details of transfer of such Bonds, along with the social security number or federal employer identification number of such transferee. In all cases of a transfer of registered Bonds, the Registrar shall at the earliest practical time in accordance with the provisions of the Bond Ordinance enter the transfer of ownership in the registration books for the Bonds and shall deliver in the name of the new transferee or transferees a new fully-registered Bond or Bonds of the same Series, maturity and of authorized denomination or denominations for the same aggregate principal amount and payable from the same sources of funds. Neither the City nor the Registrar shall be required to register the transfer of any Bonds during the period commencing on the 15th day of the month next preceding an interest payment date on the Bonds and ending on such interest payment date, or, in the case of any proposed redemption of Bonds, after such Bonds or any portion thereof have been selected for redemption. The Registrar or the City may charge the registered Owners of such Bonds for the registration of every such transfer of such Bonds an amount sufficient to reimburse it for any tax, fee or any other governmental charge required to be paid, except for any such governmental charge imposed by the City, with respect to the registration of such transfer, and may require that such amounts be paid before any such new Bonds shall be delivered.
SECURITY FOR THE BONDS
General
The Bonds, the Parity Obligations and any additional Obligations and Parity Debt subsequently issued or incurred and outstanding under the Bond Ordinance will be payable from and secured by a lien on and pledge of (1) all Revenues, (2) the proceeds of sale of Obligations until expended for the purposes authorized, (3) all amounts held in the funds, accounts and subaccounts established by the Bond Ordinance, including investment earnings thereon, and (4) all funds, moneys and securities and any and all other rights and interests in property which are subsequently pledged as and for additional security under the Bond Ordinance for the Obligations by the City, or by anyone on its behalf, or with its written consent (collectively, the "Trust Estate"). See "Appendix B - Composite of Ordinance No. 4034, as amended" hereto.
9 "Revenues" are defined in the Bond Ordinance as (1) all rates, fees, charges, income, rents and receipts derived by the City from or attributable to the ownership and operation of the System, including all revenues attributable to the System or to the payment of the costs thereof received by the City under any contracts for the sale of power, energy, transmission or other use of the services, facilities or products of the System or any part thereof or any contractual arrangement with respect to the use of the System or any portion thereof or the services, output, facilities, capacity or products of the System, (2) the proceeds of any insurance covering business interruption loss relating to the System, (3) interest received on the investment or reinvestment of any moneys held under the Bond Ordinance required to be deposited or kept in the Revenue and Operating Fund, and (4) payments received by the City under a Qualified Swap; provided, however, that "Revenues" shall not include revenues from a Separately Financed Project or Impact Fees. Notwithstanding anything in the foregoing to the contrary, "Revenues" shall not include Subsidy Payments for any purpose of the Bond Ordinance.
"System" is defined in the Bond Ordinance as the complete electric power system for the production, supply, distribution and sale of electricity now owned, in whole or in part, by or under the control of the City and any leasehold or other interest in any other electric plants or facilities which the City acquires, together with any and all additions, extensions and improvements thereto hereafter acquired or constructed and any joint venture or ownership or other interest in any electric plant or facility or any right to use the capacity or to receive the output from any electric plant or facility and, upon compliance with the requirements of Section 9.08 of the Bond Ordinance, the term "System" may include any other utility-related services or functions, including, without limitation, the acquisition, distribution and sale of natural gas, the provision of cable television services or the provision of telecommunication services or fiber optic transmission service, as the City shall determine by subsequent ordinance or resolution. The System shall not include any Separately Financed Project.
Pursuant to Section 9.08 of Ordinance No. 4034, as amended, the City will be permitted to include any other utility-related services or functions, whether or not such services or functions are related to the generation, transmission and/or distribution of electricity, within the definition of "System" by subsequent ordinance or resolution, so long as certain conditions to such inclusion are satisfied. In addition, assets may be added to or removed from the System in accordance with the provisions of the Bond Ordinance. Accordingly, under such circumstances the System's Revenues and Costs of Operation and Maintenance may be affected. See "Appendix B - Composite of Ordinance No. 4034, as amended" attached hereto.
The Bonds shall not be or constitute general obligations or indebtedness of the City within the meaning of the Constitution of Florida, but shall be payable solely from and secured by a lien upon and a pledge of the Trust Estate, in the manner and to the extent provided in the Bond Ordinance. No Bondholder shall
10 ever have the right to compel the exercise of the ad valorem taxing power of the City or taxation in any form on any real or personal property to pay such Bonds or the interest thereon, nor shall any Bondholder be entitled to payment of such principal and interest from any other funds of the City other than the Trust Estate, as the case may be, all in the manner and to the extent provided in the Bond Ordinance.
Rate Covenant
The City has covenanted in the Bond Ordinance that so long as any Obligations remain outstanding, it will fix, charge and collect, or cause to be fixed, charged and collected, subject to applicable requirements or restrictions imposed by law, such rates, rentals, fees and charges for the use of and for the services and products provided by the System as are expected to be sufficient in each Fiscal Year to produce Revenues in an amount at least equal to the sum of (1) one hundred percent (100%) of the Costs of Operation and Maintenance for such Fiscal Year, (2) one hundred twenty-five percent (125%) of the Bond Service Requirement for such Fiscal Year, (3) one hundred percent (100%) of the amounts payable with respect to Subordinated Indebtedness and Subordinated Contract Obligations in such Fiscal Year, and (4) one hundred percent (100%) of the amount required to maintain the Reserve Fund, if any, in accordance with the requirements of the Bond Ordinance.
Failure by the City to comply with the immediately preceding paragraph in any Fiscal Year shall not constitute an event of default as described in the Bond Ordinance so long as the City shall, no later than sixty (60) days after discovering such non-compliance and in all events no later than sixty (60) days of receipt by the City of audited financial statements delivered pursuant to the Bond Ordinance which statements show such non- compliance, retain a Qualified Independent Consultant for the purpose of reviewing the System fees, rates, rents, charges and surcharges and shall implement the recommendations of such Qualified Independent Consultant with respect to such fees, rates, rents, charges and surcharges filed by the Qualified Independent Consultant with the City in a written report or certificate, and such failure shall not be an event of default even though the Qualified Independent Consultant shall be of the opinion, as set forth in such report or certificate, that it would be impracticable at the time to charge such fees, rates, rents, charges and surcharges for the System as would provide funds sufficient to comply with the requirements of the immediately preceding paragraph so long as the City imposes such schedule of fees, rates, rents, charges and surcharges as in the opinion of such Qualified Independent Consultant will allow the City to as nearly as then practicable comply with such requirements and the City shall again be in compliance with the immediately preceding paragraph no later than twelve calendar months after its discovery of such non-compliance. The City also has agreed in the Bond Ordinance to provide notice of its failure to comply with the above-described rate covenant to the Owners of the Obligations by first class mail, postage prepaid, no later than 30 days after engaging the services of a Qualified Independent Consultant pursuant to the requirements of the
11 preceding sentence and to provide a copy of the report or certificate of the Qualified Independent Consultant to any Owner who shall request the same in writing. Furthermore, the City shall provide a copy of the report or certificate of the Qualified Independent Consultant to the Rating Agencies within thirty (30) days after receipt of same.
Debt Service Reserve Fund
Pursuant to the Bond Ordinance, the City has established a Debt Service Reserve Fund (the "Reserve Fund") for the benefit of the Obligations. Amounts on deposit in the Reserve Fund may be used solely for the purpose of curing deficiencies in the Revenue and Operating Fund for the payment when due of the principal of and interest on the Obligations. If funds on deposit in the Reserve Fund or the available amount under a Reserve Product on deposit in the Reserve Fund exceed in the aggregate the Reserve Requirement (as described below), the excess cash shall be deposited into the Revenue and Operating Fund. The City shall only be required to fund the Reserve Fund upon the occurrence of the conditions described below. Presently, the City is not obligated to fund the Reserve Fund in any amount and the Reserve Fund is unfunded.
Except as otherwise provided in the Bond Ordinance, so long as the Net Revenues for each Fiscal Year equal or exceed 150% of the Bond Service Requirement for each such Fiscal Year, the City shall not be obligated to fund or maintain the Reserve Fund. If for any Fiscal Year the Net Revenues are less than 150% of the Bond Service Requirement for such Fiscal Year, the City shall be obligated to fund and maintain in the Reserve Fund an amount equal to:
(1) ten percent (10%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 150% of the Bond Service Requirement for such Fiscal Year, but were greater than or equal to 140% of the Bond Service Requirement for such Fiscal Year;
(2) twenty percent (20%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 140% of the Bond Service Requirement for the previous Fiscal Year, but greater than or equal to 130% of the Bond Service Requirement for the previous Fiscal Year;
(3) thirty percent (30%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 130% of the Bond Service Requirement for the previous Fiscal Year, but greater than or equal to 120% of the Bond Service Requirement for the previous Fiscal Year;
(4) forty percent (40%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 120% of the Bond Service
12 Requirement for the previous Fiscal Year, but greater than or equal to 110% of the Bond Service Requirement for the previous Fiscal Year; and
(5) fifty percent (50%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 110% of the Bond Service Requirement for the previous Fiscal Year.
If at any time the City is required to fund the Reserve Fund, or to increase the amount required to be maintained in the Reserve Fund pursuant to the preceding paragraphs, the amount, or increase in the amount, as applicable, may be funded in up to 12 substantially equal consecutive monthly deposits commencing not later than the month following the receipt of audited financial statements for the System for the preceding Fiscal Year in accordance with the terms of the Bond Ordinance.
If the City is required to fund the Reserve Fund pursuant to the provisions described above, such obligation shall continue at the amounts required by (1) through (5) above, unless and until for two consecutive Fiscal Years, the Net Revenues for the respective Fiscal Years equals or exceeds 160% of the Bond Service Requirement for the respective Fiscal Years and Net Revenues for the current Fiscal Year are budgeted in the Annual Budget in an amount at least equal to 160% of the Bond Service Requirement for such Fiscal Year. If the Net Revenues meet or exceed the amounts described in the preceding sentence, the obligation to fund the Reserve Fund shall terminate (unless and until the Net Revenues again fall below 150% of the Bond Service Requirement) and amounts then on deposit in the Reserve Fund may be treated as excess amounts in the Reserve Fund and shall be deposited to the Revenue and Operating Fund.
The Reserve Requirement may be funded with cash or Investment Obligations, or one or more Reserve Products, or a combination thereof, all as described in the Bond Ordinance. See "Appendix B - Composite of Ordinance No. 4034, as amended" attached hereto for further information concerning the Reserve Fund, including, but not limited to, the City's ability to create separate accounts in the Reserve Fund to secure Taxable Obligations and Subsidy Bonds under certain circumstances and the calculation of the Bond Service Requirement.
Additional Obligations
Additional Obligations may be issued or Parity Debt may be incurred from time to time under the Bond Ordinance on parity in all respects with the Bonds and the Parity Obligations for any lawful purpose of the City in connection with the System upon compliance with the following conditions:
(1) the City shall have enacted a Supplemental Ordinance authorizing such Obligations or Parity Debt and providing the terms thereof as contemplated in the Bond
13 Ordinance and reciting that all of the covenants contained in the Bond Ordinance will be fully applicable to such Obligations;
(2) the Chief Financial Officer of the City shall certify in writing that, upon the delivery of such Obligations or incurrence of such Parity Debt, the City will not be in default in the performance of the terms and provisions of the Bond Ordinance or of any of the Obligations or Parity Debt; and
(3) the Chief Financial Officer of the City shall certify in writing that the Net Revenues of the System as shown on the then-most recent available audited financial statements of the System, adjusted as described below, equal or exceed one hundred twenty-five percent (125%) of the Bond Service Requirement for all Outstanding Obligations and Parity Debt and the additional Obligations proposed to be issued or Parity Debt proposed to be incurred for the first complete Bond Year during which such additional Obligations or Parity Debt shall be Outstanding; and
(4) the City Commission of the City shall have received an opinion or opinions from the City Attorney of the City and/or Bond Counsel to the effect that (a) the City has the right and power under the Act to enact the Bond Ordinance and the Bond Ordinance has been duly and lawfully enacted by the City, is in full force and effect and is valid and binding upon the City and is enforceable in accordance with its terms and no other authorization of the Bond Ordinance is required, (b) the Bond Ordinance creates a valid lien upon and pledge of the Trust Estate, (c) the Obligations are, or Parity Debt is, valid and binding limited obligations of the City, enforceable in accordance with their terms and the Bond Ordinance and have been duly and validly authorized and issued in accordance with the Act and the Bond Ordinance, and (d) the City has the full lawful power and authority to issue the Obligations for the purposes for which they are authorized.
In calculating Net Revenues of the System for purposes of paragraph (3) above, the Chief Financial Officer may, at his or her option, adjust the amount of Net Revenues shown on the most recent available audited financial statements of the System in the following respects:
(a) If, prior to the issuance of the additional Obligations or incurrence of Parity Debt, the City shall have increased the rates, fees, rentals or other charges for services of the System, the Net Revenues may be adjusted to show the Net Revenues that would have been derived from the System if such increased rates, fees, rentals or other charges had been in effect for the full Fiscal Year covered by such audited financial statements;
(b) If the City shall have acquired or shall have contracted to acquire all or part of any privately or publicly owned utility system which is to be added to the System and the cost of which is to be paid, in whole or in part, from proceeds
14 of the proposed additional Obligations, then the Net Revenues shall be increased by adding thereto the Net Revenues that would have been derived if such addition to the System had been included in the System for the full Fiscal Year covered by such audited financial statements; and
(c) If the City, in connection with the issuance of the additional Obligations or incurrence of Parity Debt, shall enter into a contract (with a duration or term not less than the final maturity of such additional Obligations) with any public or private entity whereby the City agrees to furnish services of the System to such entity, then the Net Revenues shown on the audited financial statements shall be increased by the estimated amount which such public or private entity has agreed to pay in one Fiscal Year for the furnishing of such services, after deducting therefrom the cost of operation, maintenance, repair, renewal and replacement allocable to providing such services.
Obligations issued or Parity Debt incurred pursuant to the terms and conditions described in the foregoing paragraphs shall be deemed on a parity with all Obligations and Parity Debt then outstanding, including the outstanding Bonds, and all of the covenants and other provisions of the Bond Ordinance shall be for the equal benefit, protection and security of the holders of any Obligations originally authorized and issued and Parity Debt incurred pursuant to the Bond Ordinance and the holders of any Obligations and Parity Debt evidencing additional obligations subsequently created within the limitations of and in compliance with the Bond Ordinance.
See "Appendix B - Composite of Ordinance No. 4034, as amended" attached hereto for further information concerning the issuance of Additional Obligations and the incurrence of Parity Debt, including but not limited to, the calculation of the Bond Service Requirement.
Notwithstanding any other provision of the Bond Ordinance, to the extent permitted by law, at the time of issuance of additional Obligations under the Bond Ordinance, a broker, dealer or municipal securities dealer, serving as underwriter or remarketing agent for such additional Obligations, or as agent for or in lieu of Holders of such Obligations, may provide consent to amendments to the Bond Ordinance pursuant to Section 12.01 of the Bond Ordinance. See "Appendix B - Composite of Ordinance No. 4034, as amended" attached hereto.
Flow of Funds
The Bond Ordinance establishes three funds, the "City of Lakeland Energy System Revenue and Operating Fund" (the "Revenue and Operating Fund"), the "City of Lakeland Energy System Capital Fund" (the "Capital Fund") and the previously- described Reserve Fund. See "SECURITY FOR THE BONDS - Debt Service Reserve
15 Fund" herein. The City may subsequently establish one or more separate accounts or subaccounts in the Revenue and Operating Fund and the Capital Fund.
All Revenues and Subsidy Payments shall be deposited to the credit of the Revenue and Operating Fund as and when received. The City shall also pay into the Revenue and Operating Fund such portion of the proceeds of any Series of Obligations which may have been issued to pay Costs of Operation and Maintenance as shall be specified pursuant to the Supplemental Ordinance authorizing such Series of Obligations. Amounts in the Revenue and Operating Fund shall be paid out, accumulated or withdrawn from time to time for the following purposes and, as of any time, in the following order of priority:
(1) payment of reasonable and necessary Costs of Operation and Maintenance or accumulation in the Revenue and Operating Fund as a reserve (a) for working capital, (b) for such Costs of Operation and Maintenance the payment of which is not immediately required, including, but not limited to amounts determined by the City to be required as an operating reserve, or (c) deemed necessary or desirable by the City to comply with orders or other rulings of an agency or regulatory body having lawful jurisdiction;
(2) payment of, or accumulation in the Revenue and Operating Fund as a debt service account or sinking fund for the payment of interest on and the principal of, or Redemption Price of, the Obligations and the payment of Parity Debt, on a parity basis, on their respective due dates or redemption dates, as the case may be;
(3) withdrawal and deposit to the credit of the Reserve Fund of amounts necessary to fund or replenish the Reserve Fund in accordance with the provisions of Section 7.05 of the Bond Ordinance and generally described under the subheading "SECURITY FOR THE BONDS - Debt Service Reserve Fund;" provided however, that any deficiency in the Reserve Fund resulting from a withdrawal therefrom to cure a debt service deficiency may be made up through not to exceed thirty-six (36) substantially equal consecutive monthly deposits commencing in the month following withdrawal;
(4) payment of principal of and interest on and other amounts payable with respect to any Subordinated Indebtedness, or payment of amounts due under any Subordinated Contract Obligations;
(5) withdrawal and deposit in the Capital Fund in such amounts as shall be determined from time to time by the City; and
(6) withdrawal for any lawful purpose; provided, however, that, prior to any application pursuant to subparagraphs (3), (4), (5) or (6), respectively, the City shall have determined, taking into account, among other
16 considerations, anticipated future receipts of Revenues and Subsidy Payments contained in the annual operating budget for the System and other moneys constituting part of the Trust Estate, that funds to be so applied are not needed for any of the purposes set forth in any of the preceding paragraphs (1) through (5).
The City shall from time to time, and in all events prior to any withdrawal of moneys from the Revenue and Operating Fund pursuant to paragraph (6) above, determine (a) the amount to be held as a reserve in the Revenue and Operating Fund, which in the judgment of the City is adequate for the purpose of providing for the costs of emergency repairs or replacements essential to restore or prevent physical damage to, and prevent loss of Revenues from, the System, and (b) the amount, to be held as a reserve in the Revenue and Operating Fund, which in the judgment of the City is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments and improvements with respect to the System necessary to keep the System in good operating condition or required by any governmental agency having lawful jurisdiction over the System.
Amounts set aside in the Revenue and Operating Fund may be used by the City at such time or times and in such amounts as determined by the City for the purpose of paying all or any portion of the interest on and principal of or Redemption Price of the Obligations and payment of Parity Debt, on their respective due dates, or redemption dates, as the case may be.
The City shall pay into the Capital Fund the amounts required to be so paid by the provisions of the Bond Ordinance and any Supplemental Ordinance authorizing the issuance of any Series of Obligations for the purpose of financing Capital Costs. Amounts in the Capital Fund shall be applied solely to the Capital Costs of the System. Any amounts in the Capital Fund which are in excess of the amounts required to pay for such Capital Costs may at the direction of the City be transferred to the Revenue and Operating Fund. When amounts are deposited in the Capital Fund to pay the capitalized cost of interest on Obligations, the City shall pay from the Capital Fund to the Paying Agent, on or before the date or dates on which interest on such Obligations becomes due and payable, an amount equal to such interest. Notwithstanding the foregoing provisions of this paragraph, amounts in the Capital Fund must be applied to the payment of principal and Redemption Price of and interest on the Obligations and the payment of Parity Debt, on a parity basis, when due at any time that other moneys are not available therefor.
Parity Debt
Under the Bond Ordinance, the City may issue or incur other Parity Debt that is payable and secured on parity with the Obligations. See "Appendix B – Composite of Ordinance No. 4034, as amended" attached hereto. Currently, there is no Parity Debt outstanding.
17 Swap Transactions
The City has previously entered into various interest rate swap transactions which relate to certain of the Parity Obligations. The City Commission has authorized the termination of the basis swaps described under "Swap Concerning the Series 2010 Bonds" and "Swap Concerning the Series 2016 Bonds" below but only to the extent the aggregate settlement payment to the City in connection with such termination, exclusive of the City's related costs and expenses, is at least $1,500,000. It is not known at this time if or when the City may terminate such swaps.
Swap Concerning the Series 2010 Bonds. The City entered into an interest rate basis swap agreement with respect to the City's Electric and Water Refunding Revenue Bonds, Series 1999A (the "Series 1999A Bonds") with Citigroup Financial Products Inc. ("Citigroup Financial"), whose obligations are guaranteed by Citigroup, Inc. (the "Citi Guarantor"). Under this swap, the City pays Citigroup Financial an amount determined by applying the SIFMA Municipal Swap Index rate to a notional amount of $122,795,000 (declining over time at approximately the rate of amortization of the Series 2010 Bonds which refunded a portion of such Series 1999A Bonds), and Citigroup Financial pays the City an amount determined by applying (i) 68% of the three month USD-LIBOR-BBA rate plus (ii) 46 basis points (.0046) to the same notional amount. Subsequent to the refunding of a portion of the Series 1999A Bonds in October 2010, such interest rate basis swap became applicable to the Series 2010 Bonds as a result of the refunding. All of the economic terms of the interest rate basis swap remain the same.
Swap Concerning the Series 2016 Bonds. The City entered into an interest rate basis swap agreement in 2001 with respect to certain prior variable rate obligations of the Electric System with Salomon Brothers Holding Company Inc. (subsequently, Citigroup Financial). Under this swap, the City pays Citigroup Financial an amount determined by applying the SIFMA Municipal Swap Index rate to a notional amount of $90,000,000, and Citigroup Financial pays the City an amount determined by applying 74.125% of the one month USD-LIBOR-BBA rate to the same notional amount. A net payment is made to either the City or Citigroup Financial on a quarterly basis. The agreement does not amortize and terminates on May 1, 2021. Subsequent to the refunding of certain variable rate Obligations in 2016, the City has elected to apply this swap agreement to the Series 2016 Bonds. All of the economic terms of the interest rate basis swap remain the same.
Swaps Concerning the Series 2017 Bond. As a means to hedge the variable rate risk exposure associated with other outstanding Parity Obligations, the City entered into several swap agreements that now apply to the Series 2017 Bond. Collectively, these swaps approximately amortize consistent with the aggregate anticipated amortization of the Series 2017 Bond.
18 Notional City Maturity Amount City Receives Pays Start Date Date Counterparty 67% of 1 mo. Goldman Sachs Mitsui Marine $24,772,000 LIBOR 3.92% 10/02/2017 10/01/2035 Derivative Products, L.P.
67% of 1 mo. Citigroup Global Markets $14,053,000 LIBOR 3.92% 08/29/2017 10/01/2035 Holdings, Inc. 67% of 1 mo. Citigroup Global Markets $47,860,000 LIBOR 3.740% 01/22/2003 10/01/2037 Holdings Inc. 67% of 1 mo. Goldman Sachs Mitsui Marine $1,520,000 LIBOR 3.163% 10/02/2017 10/01/2035 Derivative Products, L.P.
The obligations of Citigroup Financial Products, Inc. ("CFP") are guaranteed by Citigroup, Inc. and the obligations of Goldman Sachs Mitsui Marine Derivative Products, L.P. ("GSMMDP") are guaranteed by The Goldman Sachs Group, L.P. and Mitsui Sumitomo Insurance Group Holdings, Inc.
As a result of the swap transactions associated with the Series 2017 Bond, the City will receive (on an aggregate basis) variable rate payments equal to 67% of 1-month LIBOR times the notional amounts set forth above which approximately correspond to the aggregate principal amount of the final maturity of the Series 2017 Bond. In return, the City will make fixed rate payments of between 3.163% and 3.92% times such notional amounts. These transactions fix most of the variable rate exposure related to the Series 2017 Bond at the fixed rates noted above to the extent that the variable rate payments received by the City under the swap agreements are equal to the variable rates paid by the City on the Series 2017 Bond.
Under certain circumstances, some within the control and some outside the control of the City, each interest rate swap agreement could be subject to early termination and, depending upon then existing market conditions, the City may be obligated to make a termination payment to the relevant counterparty. Under certain market conditions, such termination payment could be substantial. The optional termination events include, but are not limited to, the credit rating of the Obligations or the respective counterparty falling below "Baa3" (Moody's Investors Service) or "BBB-" (Standard & Poor's Ratings Group).
In addition, in certain circumstances relating primarily to the aggregate market value of its swap agreements with a counterparty and the unsecured debt rating of Obligations issued by the City under the Bond Ordinance, the City has agreed to pledge cash or permitted securities to the relevant counterparty as collateral in connection with all of the City's outstanding interest rate swap agreements with that counterparty. Providing such collateral could have a significant effect on the liquidity and reserves of the City. Likewise, in certain circumstances relating primarily to the aggregate market value of its swap agreements with a counterparty and the unsecured debt rating of the counterparty or its guarantor, each counterparty has agreed to pledge cash or permitted
19 securities to the City as collateral in connection with all of that counterparty's outstanding interest rate swap agreements with the City. At the current rating levels for the Obligations, the City would be required to post collateral with respect to a swap agreement if the market value thereof was $20 million or more in favor of GSMMDP or $20 million or more in favor of CFP. The City has been required to post collateral from time to time.
All payments by, and collateral transfer obligations of, the City to the relevant counterparty pursuant to each interest rate swap agreement constitute "Subordinated Contract Obligations" under the Bond Ordinance.
Designated Maturity Obligations
The City designated the Series 2017 Bond as a Designated Maturity Obligation. Under the terms of the Bond Ordinance, for purposes of calculating the "Bond Service Requirement" with respect to Designated Maturity Obligations, the unamortized principal coming due on the final maturity date thereof that the City reasonably anticipates refinancing, as reflected in the Annual Budget, shall not be included and in lieu thereof, there shall be included in the Bond Service Requirement for the Bond Year in which such final maturity occurs only the principal amount thereof the City reasonably anticipates to become due in such Bond Year, taking into account any such anticipated refinancing of such Designated Maturity Obligations.
The Series 2017 Bond is currently outstanding in the principal amount of $97,000,000, matures on October 1, 2022 and bears interest at a variable rate. The City is obligated to make mandatory sinking fund redemption payments for the Series 2017 Bond of $1,795,000 and $7,000,000 on October 1, 2019 and October 1, 2020, respectively. The City currently intends to refund the entire remaining principal amount of the Series 2017 Bond ($88,205,000) with proceeds of Additional Obligations on or before the maturity thereof. Accordingly, none of the maturity amount of such Bond will be included in the calculation of Bond Service Requirement for purposes of the Bond Ordinance. Interest on this Designated Maturity Obligation will be included in the calculation of Bond Service Requirement. See "Appendix B – Composite of Ordinance No. 4034, as amended" attached hereto and "DEBT SERVICE REQUIREMENTS" herein.
Upon the occurrence of an event of default with respect to the Series 2017 Bond, the interest rate for the Series 2017 Bond will be increased to a rate of 12% per annum. In addition, upon the occurrence of an event of default with respect to the Series 2017 Bond described in Sections 11.01(a), (b), (d) or (e) of the Bond Ordinance, the holder of the Series 2017 Bond has the right to tender the Series 2017 Bond for purchase by the City. Any obligation of the City to pay such purchase price would be considered Subordinated Indebtedness under the Bond Ordinance and would be payable from the Trust Estate subject and subordinate to the payments to be made with respect to all
20 Obligations and Parity Debt and would be secured by a lien on and pledge of the Trust Estate junior and inferior to the lien on and pledge of the Trust Estate created by the Bond Ordinance for the benefit of the Obligations and Parity Debt.
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21 SOURCES AND USES OF FUNDS
The proceeds to be received from the sale of the Bonds are expected to be applied as follows:
Sources Principal Amount of Bonds ...... $______.__ Plus/Less: Net Bond Premium/Discount ...... ______.__
Total Sources ...... $______.__
Uses Deposit to the 2018 Project Construction Account(1) ...... $______.__ Costs of Issuance(2) ...... ______.__
Total Uses ...... $______.______(1) To be applied to pay all or a portion of the costs of the Project. See "THE PROJECT" herein. (2) Includes Underwriter's discount, financial and legal expenses and other costs of issuance of the Bonds.
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22 DEBT SERVICE REQUIREMENTS
The following table sets forth the debt service requirements in each year for the Bonds and the Parity Obligations(1).
Bonds Bond Year Ending Debt Parity Total (October 1) Principal Interest Service Obligations(2) Debt Service 2018 $ $ $ $ 38,775,190 $ 2019 35,484,980 2020 30,801,029 2021 28,274,404 2022 28,166,710 2023 28,122,348 2024 28,072,465 2025 28,060,061 2026 28,011,912 2027 26,632,318 2028 26,586,730 2029 22,438,171 2030 22,405,925 2031 21,611,526 2032 21,617,202 2033 21,639,843 2034 30,320,692 2035 30,211,850 2036 22,101,917 2037 20,608,766 TOTAL $ $ $ $539,944,039 $ ______(1) Figures may not add due to rounding. (2) Interest on the Parity Obligations is calculated in accordance with the provisions of the Bond Ordinance and interest on variable rate Obligations is calculated based on the fixed rate payments due from the City on the swap transactions generally described in "SECURITY FOR THE BONDS - Swap Transactions" herein. The Series 2017 Bond ($97,000,000 principal amount) has been designated a Designated Maturity Obligation under the Bond Ordinance. See "SECURITY FOR THE BONDS - Designated Maturity Obligations" herein for certain treatment of the Bond Service Requirements of the Designated Maturity Obligations under the Bond Ordinance. The City currently intends to refund the entire principal amount of such Designated Maturity Obligation that matures on October 1, 2022 ($88,205,000) with proceeds of Additional Obligations on or before the maturity thereof.
23 THE SYSTEM
The Department of Electric Utilities ("Lakeland Electric") is one of twelve operating departments of the City which have been organized to perform the services provided by the City government. The cost of services used by Lakeland Electric is recovered through user charges for electric power. Lakeland Electric is responsible for all operations of the System, including the following:
Plant engineering Load forecasting and evaluation Transmission & distribution engineering Financial forecasting and management Operations and maintenance Financial reporting and accounting Customer service Customer rate design
As of June 30, 2018, Lakeland Electric had a staff of 514 (506 full-time, 8 part- time), including professional employees with degrees in engineering, business and other related fields.
Approximately 280 Lakeland Electric employees are covered by a collective bargaining agreement ("CBA") with the Utility Workers Union of America, Local 604 that was entered on September 8, 2015 and expired September 30, 2017. Currently, the CBA has expired and both parties are under a "status quo" period where the governing articles and sections remain in effect until a new mutual agreement is negotiated and ratified.
Annual financial statements covering the operations of Lakeland Electric are prepared by Lakeland Electric's Fiscal Operations Division in accordance with Generally Accepted Accounting Principles in the United States of America, as required by the Governmental Accounting Standards Board ("GASB"). Lakeland Electric has adopted the uniform system of accounts ("USOA") prescribed by the Federal Energy Regulatory Commission ("FERC") for electric operations. Monthly financial and operational reports are submitted to the City Finance Director and the City Commission.
Administration
The City is operated under a Commission-Manager form of government that provides for centralized professional administration and a seven-member City Commission, elected for four-year overlapping terms. The Mayor is a member of the City Commission and is elected by the public for a four-year term. The City Manager is appointed by the City Commission. The General Manager of Lakeland Electric reports directly to the City Manager.
The City Commission established a Utility Committee as an advisory board for the Electric Utility. Currently, this Committee meets once per month. The Utility Committee is composed of all seven members of the City Commission plus six citizens
24 representing a cross-section of the customer base. Management regularly provides the Utility Committee with status updates and industry concerns relating to various issues. The Committee also closely reviews items, such as pending contracts and project proposals that are to be presented to the City Commission at upcoming meetings. The Utility Committee provides both specific and global recommendations to the City Commission. The Committee gives the City Commission direction on policy issues and other matters which are then reviewed, analyzed and discussed directly with management.
Tony Delgado became City Manager effective January 1, 2016. Mr. Delgado began working for the City in January 1997 as Assistant Director for The Lakeland Center. He became Assistant City Manager in November 2000. In October of 2004, Mr. Delgado was promoted to Deputy City Manager, responsible for assisting the City Manager in administering the oversight of City operations, including Lakeland Electric. Mr. Delgado was appointed Interim City Manager on September 14, 2015, following the resignation of the then City Manager. He has served as the lead administrative negotiation representative with the collective bargaining groups within the City. Mr. Delgado holds a Bachelor’s of Science degree in Parks & Community/Commercial Recreation from Southern Illinois University.
Michael C. Brossart, the City's Finance Director, started with the City in 1996. He was appointed Assistant Finance Director in 2003 and Finance Director in 2012. Mr. Brossart is a Certified Public Accountant and holds Bachelor of Science Degrees in both Accounting and Marketing from Florida Southern College.
Jeffrey S. Stearns, the City Treasurer, has been with the City since 2006. Prior to joining the City, Mr. Stearns served for twenty years in a variety of financial management positions for the State of Massachusetts, including eight years as the State's Deputy Treasurer for Debt Management. Mr. Stearns holds a Master's in Public Policy from the Kennedy School of Government at Harvard, and a Bachelor's of Arts in Political Science and Psychology from Washington University in St. Louis.
Joel Ivy assumed the General Manager's position with Lakeland Electric on July 30, 2012. Prior to joining Lakeland Electric, Mr. Ivy oversaw the Energy Department for Imperial Irrigation District, a vertically integrated public utility located in El Centro, California. Mr. Ivy has over 30 years of experience in the power industry that includes climbing utility poles to managing multi-hundred million dollar operations with start-ups, investor-owned and public power utilities. Mr. Ivy holds a Bachelor's degree in electrical engineering from the University of Texas.
Gina Jacobi, Lakeland Electric's Assistant General Manager - Fiscal Operations, has been with Lakeland Electric since December 2014. Ms. Jacobi has more than 30 years of professional experience in finance, 20 of which were in the utility and energy sectors. Prior to joining Lakeland Electric she served in a variety of financial
25 management positions for PNM Resources, an investor-owned utility, located in Albuquerque, New Mexico. Ms. Jacobi is a Certified Government Financial Manager, holds a Master’s in Business Administration from Northwestern University and a Bachelor’s degree in Management from Rice University.
David Harrell, Lakeland Electric’s Controller, began his career with the City in 2017. Mr. Harrell comes from a public accounting background where he served for over 14 years in the capacities of external auditor and consultant for local governments. Mr. Harrell is a Certified Public Accountant and holds a Bachelor’s of Science in Accounting from Florida State University.
Lakeland Electric's organizational structure is intended to create accountability and responsibility. The organization is structured along functional business lines. The functional business lines are referred to as Divisions and include Production, Delivery, Customer Service, and Fiscal Operations.
The following page contains a chart of Lakeland Electric's current organizational structure.
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LAKELAND ELECTRIC ORGANIZATIONAL STRUCTURE
27 Service Area
The System service territory consists of approximately 246.25 square miles including the incorporated area of the City and several unincorporated communities lying within a 15-mile radius of the City. The City is bisected by Interstate 4 connecting Tampa and Orlando and is located approximately halfway between the two cities. The System's service area is bordered on the north by Withlacoochee Rural Electric Cooperative, Inc., on the south by the City of Bartow, and on the east and west by Tampa Electric Company. The City has existing territorial agreements with each of these utilities. During Fiscal Year 2017, an average of 128,535 electric accounts was served and the System experienced retail customer growth of 1.4%.
Generation
The System's existing electric generating facilities are located on three sites, two bordering Lake Parker in the City and one site near the Lakeland airport. The Larsen Memorial Plant is located on the southeast shore of the lake and the McIntosh Plant is located on the north shore. The Winston Plant is in the southwestern part of the service territory near the Lakeland airport. As of September 30, 2017, the System had a net dependable capacity of 890 Megawatts ("MW") and a nameplate generator winter capacity of 920 MW (nameplate capacities are used throughout this section). For generator capacity of each facility see the table entitled "Existing Generation Facilities" below. See "THE PROJECT" herein for information regarding the 125MW peaking unit being purchased and installed with proceeds of the Bonds. Such new peaking unit is intended to ultimately replace the steam condensing Unit No. 2 (McIntosh).
Larsen Plant. The Larsen Plant provides 124 MW (winter) of combined cycle intermediate load capacity and 27 MW of peaking capacity (Unit Nos. 2 and 3). The peaking capacity is provided by gas turbines that are designed to be placed into service rapidly, since the System's peak demands have normally occurred in the winter and have been of relatively short duration. They also have system restoration capability. The Larsen Plant site has limited growth options with the existing infrastructure.
McIntosh Plant. The McIntosh Plant site consists of approximately 450 acres. The size and configuration of this site would allow for the addition of significant generation facilities using existing infrastructure. There is room for up to 1,000 MW of additional generation capacity; however, there is only enough reuse water to handle cooling for approximately 500 MW of steam generation. The 125 MW peaking unit being purchased with proceeds of the Series 2018 Bonds will be located at the McIntosh Plant site. This unit will replace McIntosh Unit 2, a 106 MW gas-fired steam generating unit that currently is not operational.
At the McIntosh Plant site, Unit No. 3 began commercial operations in September 1982 as a coal-fired steam turbine generator. Unit No. 3 was designed to burn pulverized coal as its primary fuel. Low nitrogen oxide burners and over-fire air were installed on
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the boiler to reduce its nitrogen oxide emissions. A selective catalytic reduction ("SCR") system was put in operation in the fall of 2009 to further reduce nitrogen oxide emissions to comply with then applicable Clean Air Interstate Rule ("CAIR") requirements. The final phase of construction required an extended outage to make the final connections of the new ductwork. Sulfur dioxide and particulate matter are removed from the boiler and flue gases by means of a wet limestone scrubber and electrostatic precipitator. The naturally oxidizing wet limestone scrubber was converted to forced oxidation and now produces gypsum. This has allowed the ability to sell combustion by-products (i.e. fly ash, bottom ash, and gypsum) and substantially minimize the amount of material that is sent to landfill, thus significantly reducing future capital and operating and maintenance costs. During Fiscal Year 2015, Unit No. 3 became fully compliant with the Mercury and Air Toxics Standards rule.
Pursuant to a 50-year Participation Agreement between the City and the Orlando Utilities Commission ("OUC") dated April 4, 1978 (the "Participation Agreement"), the City owns a 60% undivided interest in Unit No. 3, while OUC owns the remaining 40% share. The City's share (219-megawatt output), provides very economical base load power. Pursuant to the Participation Agreement, the City is responsible for the operation, fueling and maintenance of the unit and bills OUC for 40% of these costs.
McIntosh Plant Unit No. 5, is a 365 MW combined cycle generating plant with a Siemens Westinghouse 501G high efficiency combustion turbine. Unit No. 5 became available for full load commercial operation in May 2002.
Winston Plant. The Winston Plant is located near the Lakeland airport and houses 20 diesel generators that provide 50 MW of peaking capacity designed for quick start capability. The site is designed to allow for a second facility of approximately the same size.
Units No. 3 and 5 located at the McIntosh Plant site, together with power purchased by the City from the Florida Municipal Power Pool (the "FMPP"), generally provide the required load for the System. The FMPP sells power to its members at a price that represents the direct fuel and variable operating and maintenance cost of the next most efficient unit that is available for dispatch. Accordingly, each member of the FMPP is frequently able to purchase power at a price that is substantially less than the incremental cost of all but the most efficient generation units in each member's own system.
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The following table outlines the percentage of the gross generation requirements of Lakeland Electric provided by each resource (to serve both native load and wholesale sales obligations). Year-to-year changes are principally due to outages, both scheduled and forced, for various plants and the utilization of the most cost-effective fuel sources.
Unit Specific Gross Generation % by Fiscal Year
2012 2013 2014 2015 2016 2017 Unit No. 3 (McIntosh)(1) 20% 32% 13% 21% 24% 29% Unit No. 5 (McIntosh)(2) 72 58 56 60 58 46 Other Lakeland Electric Units 1 0 1 2 4 5 Purchases(3) 7 10 30 17 14 20 100% 100% 100% 100% 100% 100% ______(1) Unit 3 generation was significantly lower during 2014 because of an extended outage which began in February 2014 and lasted through the remainder of the Fiscal Year. (2) Unit 5 generation was lower during 2017 due to an extended outage when a transformer failed (October through the middle of December) and two shorter outages- a 33-day bearing repair outage caused by the failure of the Unit's station service system (beginning the first week of January) and a 23-day outage caused by a CT row-4 blade failure (began the end of February into March). (3) Nearly all of such purchases are through the Florida Municipal Power Pool. Source: Lakeland Electric
The following table sets forth historical capacity factors of each of Lakeland Electric's own generating resources. "Capacity factor" represents the percentage of a generating resource's actual utilization versus its service capacity.
Capacity Factors of Lakeland Electric Generating Resources by Fiscal Year
2012 2013 2014 2015 2016 2017 Unit No. 3 (McIntosh) 44 43 24 38 56 50 Unit No. 5 (McIntosh) 75 69 55 63 61 47 Other Lakeland Electric Units 2 1 1 2 3 5 ______Source: Lakeland Electric
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The following table provides certain information regarding the City's existing generation facilities, as of September 30, 2017.
Existing Generation Facilities
Fuel Type Net Dependable Equivalent Primary Alternate Installed (MW) Availability(1) Larsen Plant: Combustion Turbines Unit 2 FO2 NG 1962 14 0.00% Unit 3 FO2 NG 1962 13 97.39% Unit 8 NG FO2 1992 93 97.44% Steam Condensing Turbines Unit 9 WW FO2 1992 31 97.66% Larsen Plant Total 151
McIntosh Plant: Diesels Unit 1 FO2 - 1970 2 99.71% Unit 2 FO2 - 1970 3 100.00% Combustion Turbines Unit 1 FO2 NG 1973 19 97.52% Unit 5(2) NG/WW - 2001 354 61.22% Steam Condensing Turbines Unit 2 NG/WW FO6 1976 106 47.66% Unit 3(3) CO NG 1982 205 82.34% McIntosh Plant Total 689
Winston Plant Diesel Units 1-20(4): FO2 - 2001 50 93.91%
Total: All Plants 890 73.08%
Legend: CO - Coal, NG - Natural Gas, FO2 - Light Oil, FO6 - Fuel Oil, WW - Wasted Heat Recovery
(1) Represents the percentage of capacity that was available for generation (2) Commercial operation commenced May 2001; it was converted to combined cycle in May 2002 (3) Reflects City's 60% share. (4) Each peaking unit is 2.5 MW, but are combined and treated as one dispatchable unit of 50 MW capacity Source: Lakeland Electric
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System Capacity and Load. During Fiscal Year 2017, the System had a net dependable capacity of 890 MW. During Fiscal Year 2017, the System's net integrated winter peak load reached 539 MW on January 9, 2017, and its net integrated summer peak load was 643 MW on July 26, 2017. Except for incidental power purchases, Lakeland Electric has historically generated the System's total energy requirements.
The following table shows historical electrical system demand for the last ten Fiscal Years.
Historical System Demand and Energy Load
Fiscal Year Percent Percent Percent Ended Winter Peak Increase Summer Peak Increase NEL Increase September 30 (MW) (Decrease) (MW) (Decrease) (GWh)(1) (Decrease 2017 539 (8.5%) 643 (0.5%) 3,072 (3.1%) 2016 589 (10.2%) 646 2.5% 3,170 1.8% 2015 656 13.3% 630 0.5% 3,113 3.3% 2014 579 4.7% 627 4.2% 3,014 3.5% 2013 553 (9.6%) 602 2.4% 2,911 1.6% 2012 612 (8.0%) 588 (3.8%) 2,865 (3.3%) 2011 665 (17.3%) 611 (4.2%) 3,012 (3.3%) 2010 804 13.2% 638 2.1 3,116 4.8% 2009 710 3.8% 625 1.6 2,973 (1.1%) 2008 684 5.6% 615 3.2 2,881 (0.9%) ______(1) NEL is "net energy load" and excludes sales for resale. Source: Lakeland Electric
Transmission and Distribution System
230 and 69 kilovolt ("kV") systems make up the primary transmission network for the System. There are currently 128 miles of 69 kV single and double circuit construction and all 69/12-kV substations have a minimum of two transmission sources. At present, there are a total of 24 distribution substations (three 230/69/12 kV, one 230/12 kV, one 230/13.8 kV, and nineteen 69/12 kV) feeding 118 12.47 kV circuits and one 13.8 kV circuit. Publix Super Market's privately owned 69/12 kV substation and its three 12.47 kV circuits are not included in the foregoing figures. There are 1,275 miles of overhead and 670 miles of underground distribution lines in service. The System currently has 28 miles of 230 kV transmission lines connecting the West Substation to the McIntosh Plant, the McIntosh Plant to the Eaton Park Substation and the Eaton Park Substation to the Crews Lake Substation.
Interconnections and Interchange Agreements
The City has entered various interconnection and interchange power agreements with neighboring electric utilities to coordinate and pool major power supplies generated throughout its region. These agreements ensure that the City has a sufficient bulk power supply to conform to appropriate reliability standards in the most economical manner. They also provide the City with opportunities for sale of excess power to Florida utilities 32
as well as most of those in the southeastern United States. Additionally, these power agreements provide for sharing, assistance, and other benefits normally associated with the direct interconnection of electric utilities.
The City currently has interchange agreements with the following utilities:
Duke Energy The Energy Authority Florida Power & Light Company City of Homestead Tampa Electric Company Florida Municipal Power Agency Orlando Utilities Commission Reedy Creek Improvement District Jacksonville Electric Utilities TVA Seminole Electric Cooperative Oglethorpe City of Tallahassee Gainesville Regional Utilities Utilities Commission – New Smyrna Southern Company Energy Marketing Beach
Lakeland Electric has five 230 kV tie lines, three 69 kV tie lines and one Independent Power Producer ("IPP") (Ridge Generating Station L.P.) interconnection. Lakeland Electric has two 230 kV ties with Duke Energy (formerly Progress Energy) at Lakeland Electric's West Substation, one line ties with Duke Energy's Griffin Substation and the other with their Barcola Substation. Lakeland Electric's third 230 kV tie is with OUC and connects Lakeland Electric's McIntosh Substation with Orlando's Taft Substation via Tampa Electric Company's Lake Agnes Substation. The fourth and fifth 230kV ties are with Tampa Electric Company connecting Lakeland Electric's Crews Lake Substation with Tampa Electric Company's Pebbledale and Recker Substations. All three of the 69 kV tie lines belong to Tampa Electric Company. They connect Lakeland Electric's Orangedale Substation to Tampa Electric Company's Polk City Substation, the East Substation to Tampa Electric's Gapway Substation, and the Crews Lake Substation to Tampa Electric's Sand Hill Substation. The 69 kV IPP interconnection ties Lakeland Electric's East Substation to the Ridge Generating Station. Lakeland Electric wheels the 40 MW of the IPP's power to Duke Energy.
Fuels
Oil and Natural Gas. The City has a storage capacity of 97,885 barrels for No. 6 residual oil and 51,995 barrels for No. 2 distillate. This storage capacity affords the System a 50-day reserve for No. 6 residual oil and a 10-day reserve for No. 2 distillate at normal burn rates.
The City is currently obtaining all its fuel oil through purchases via the spot market, and has no long-term purchase contracts. In the opinion of Lakeland Electric, this currently provides the lowest cost for fuel oil consistent with usage, current price stabilization and on-site storage. Lakeland Electric continuously monitors the cost effectiveness of spot market purchasing.
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The Florida Gas Transmission Company ("FGT") achieved "open access" status for their natural gas pipeline on August 1, 1990. This pipeline is an underground pipeline running from east Texas across the Florida Panhandle and down through the center of the state. Much of the FGT supply comes from land-based wells. The City holds firm transportation rights on the FGT pipeline that varies by month, and falls under two rate classifications; FTS-1 and FTS-2, both under the jurisdiction of the Federal Energy Regulatory Commission. Thirty-six percent (36%) of the City's FGT firm transportation rights are under the less expensive FTS-1 rate, and sixty-four percent (64%) is under FTS-2. The two contracts under FTS-1 expire in 2020 and the two contracts under FTS-2 expire in 2025 and 2027.
In June 2002, the Gulfstream Pipeline became operational. This pipeline crosses the Gulf of Mexico starting from the Mobile Bay region and making landfall just south of Tampa, Florida near Port Manatee. Until 2008, most of the supply sources for the Gulfstream pipeline were offshore, but new pipeline interconnects by Gulfstream have increased the supply of on-shore originating gas supply. Lakeland Electric is also connected to and has purchased firm transportation rights in this pipeline which provides a second source of natural gas and gives it access to additional gas suppliers. Also, this second pipeline reduces the risk of interruption of the gas supply. Gulfstream transportation rates are under the jurisdiction of the Federal Energy Regulatory Commission and the City has three contracts for fixed volumes each month. These contracts are in effect through May 2022, December 2027, and May 2037.
The City has formalized the policies and procedures utilized for a fuel hedging program. The Energy Authority is under contract to provide consulting assistance, trade execution, and back office support for a program that is focused on the purchase of natural gas. Under the terms of this program, time parameters have been adopted which result in the hedging of approximately 63% of forecasted natural gas requirements for the 12 months following the adoption of a fuel rate change which occurs quarterly. The schedule of hedge protection is set forth below:
100% of forecasted requirements is hedged for the first three months 75% for months four through six 50% for months seven through nine 25% for months 10 through 12 The hedge policy does allow forecasted gas volumes an additional 24 months with the following targets set forth below:
13-24 months =0% - 50% 25-36 months =0% - 25% The program uses a combination of commodity swaps and put options to achieve some level of stability in the ultimate cost of natural gas that is factored into Lakeland Electric's rate structure. Lakeland Electric has the option of terminating commodity swap 34
transactions at any time, at their market value. To the extent such termination results in an obligation to make a termination payment to the counterparty, such payments are considered an operation and maintenance expense and, accordingly, would be required to be paid prior to debt service on the Obligations.
The commodity swap transactions require that Lakeland Electric post collateral to the extent the mark-to-market value of outstanding contracts exceeds $25,000,000 to the benefit of its counterparties. As of September 30, 2017, Lakeland Electric's portfolio of hedge transactions consisted of commodity swap and option contracts for approximately 25.1 million dekatherms of natural gas which represents a 30-month period of hedges with a cost value of approximately $17,123,220. To date, Lakeland Electric has not been required to post any collateral.
Coal. The City estimates that McIntosh Unit No. 3 will burn approximately 500,000 to 600,000 tons of coal per year. Normally a 40 to 75-day coal supply reserve (100,000-150,000 tons) is maintained at the McIntosh Plant. On January 3, 2017 the City entered into a three-year contract with Illinois Basin for 455,000 tons annually. Following an RFP process in late 2017, the City also entered into two one-year contracts totaling 150,000 tons of low-sulfur coal for blending purposes with the coals being sourced from Indiana (Illinois Basin) and Eastern Kentucky (Central Appalachian).
Primary coal sources are in southwestern Indiana, western and eastern Kentucky, southern Illinois, Pennsylvania, West Virginia, Tennessee, Alabama and North & South Carolina which affords the City multiple transportation options by water or single rail line via CSX Transportation ("CSX"). The plant typically burns 80% Illinois Basin and 20% Central Appalachian coal to meet the Mercury and Air Toxics Standards emission compliance standards. All contracts contain competitive pricing.
The City entered a two-year coal transportation contract effective October 1, 2014 with CSX but this contract was extended and is scheduled to expire December 31, 2019. Under the terms of the contract with CSX, the City pays a monthly capacity charge to eliminate any minimum tonnage requirements. The City agreed to increase the weight- carrying capacity of its rail cars to the state of the industry standard of 286,000 pounds, and train lengths to 110 cars. This results in the ability to achieve larger volumes of deliveries. Each train movement cycle can deliver approximately 15% more coal. The City renewed its railcar leases agreement effective September 30, 2017 for another year. The City also leased a third train from another utility effective September 5, 2017 to September 30, 2023. This train may be subleased to other shippers when not being utilized by Lakeland Electric.
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Fuel Utilization. The following table shows the historical utilization of fuels by Lakeland Electric as a percentage of total generation based on megawatt hours ("MWh").
Historical Fuel Utilization As a Percent of Total Generation (MWh) Fiscal Year Ended September 30 Coal Oil Natural Gas 2017 56% 0% 44% 2016 37% 0% 63% 2015 28% 0% 72% 2014 19% 0% 81% 2013 25% 0% 75% 2012 21% 0% 79% 2011 35% 0% 65% 2010 35% 0% 65% 2009 59% 1% 40% 2008 59% 0% 41% ______Source: Lakeland Electric
Conservation
In April 1993, the Florida Public Service Commission ("FPSC") adopted rules implementing the Florida Energy Efficiency and Conservation Act ("FEECA") which requires each electric utility to establish numeric demand-side management goals. The goals are to be based on an estimate of the total cost-effective kilowatt ("kW") and kilowatt hours ("kWh") savings reasonably achievable through demand-side management in each utility's service area over a 10-year period. These rules require the FPSC to set goals for each electric utility at least once every five years.
During the 1996 Legislative Session, the Florida Legislature modified Section 366.82 of the Florida statutes pertaining to FEECA to eliminate utilities with sales below 2,000,000 MWh's as of June 30, 1993. As of June 30, 1993, Lakeland Electric's sales were 1,966,250 MWh, thereby releasing Lakeland from complying with FEECA rules. Lakeland Electric will, however continue evaluating conservation efforts. Those which are cost effective will be pursued.
Lakeland Electric has been, and continues to be, dedicated to reducing the System's weather-sensitive peak demand. Lakeland Electric continues to support its conservation and demand-side management programs. The Department has either implemented or is in the process of implementing programs to promote conservation, efficient use of energy, and the reduction of weather-sensitive peak demands as reflected in the Department's load and energy forecast for future years. Examples of recent projects include: the funding of a conservation fund to promote energy efficiency measures and education, the expansion of the solar program to include solar water heaters
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for residential customers and large scale solar photovoltaic facilities for certain non- residential customers, and the Smart Grid project which has given Lakeland Electric the ability to provide time of use rates to reduce peak demand.
Wholesale Power Exchange
The City currently has bilateral contracts with nearly all municipally-owned and investor-owned utilities located within Florida for the exchange of wholesale power. Transactions are conducted directly by the City and through the FMPP described below. As Federal and State regulation of the power industry continues to change, it is likely that the process for purchasing power on the wholesale market will also change.
Florida Municipal Power Pool ("FMPP")
On July 1, 1988, the City, OUC, and the Florida Municipal Power Agency implemented the FMPP. On January 1, 1996, the Kissimmee Utilities Authority joined the FMPP. The FMPP was developed to produce operational savings by better utilization of FMPP members' most economical generating units and cycling off less efficient units. All FMPP members share the cost of operation.
The City can withdraw from the FMPP with a three-year written notice or at any time upon agreement of all members. In May 1998, the FMPP formed a marketing group to respond to the change in the bulk power market. This group has been very successful in selling pool energy resources on a non-firm basis. Participation in the FMPP has resulted in significant savings to the City.
See also "THE SYSTEM - Generation" for information regarding the relative amount of Lakeland Electric's energy needs that are met through the FMPP.
Florida Reliability Coordinating Council
The National Electric Reliability Council has designated the State of Florida as an independent reliability region. The Florida Reliability Coordinating Council ("FRCC") has been established to oversee the region to assure the reliability of electric power within the state. The City is a member of all FRCC Committees and has a representative on FRCC's Board of Directors.
Generation Mutual Aid Agreement
On October 17, 2002, the City, the City of Tallahassee, the Florida Municipal Power Agency, the City of Gainesville (Gainesville Regional Utilities), the Jacksonville Electric Authority, OUC, the Municipal Electric Authority of Georgia, and the Seminole Electric Cooperative, Inc. entered a mutual aid agreement for extended generation outages. The purpose of the agreement is to provide mutual aid in the form of energy and price commitment in the event of an extended outage (over 60 days and up to 365 days) of one of the designated base-load generating units. Accordingly, this agreement 37
provides a physical hedge against the exposure of a volatile energy market. The agreement has been renewed several times and is currently scheduled to expire in 2022. Seminole Electric Cooperative, Inc. does not participate in the current agreement. The agreement is an example of how public power utilities work together for the benefit of their customers and communities. To date, Lakeland Electric has not needed to utilize any generation pursuant to the agreement.
Customers
Customers of the System are predominantly residential in number (83.4% in Fiscal Year 2017). Of the 128,535 average accounts in Fiscal Year 2017, 12,954 were commercial and industrial accounts providing approximately 42.3% of retail sales revenue. All City-owned facilities are metered and pay Lakeland Electric for services rendered on a current basis. The following table lists the ten largest users of electrical energy as of September 30, 2017, which in total represent approximately 18.4% of the total MWh sold in Fiscal Year 2017.
Ten Largest Electric Customers as of September 30, 2017
MWh used in MWh used in Percent Percent of Fiscal Year Fiscal Year Change from Total MWh Max Demand Customer 2017 2016 2016 Sold in 2017 in 2017 (kW) Publix(1) 195,792 196,533 (0.38)% 6.52% 19,123 City of Lakeland 70,841 72,246 (1.95) 2.36 2,331 Lakeland Regional Health 62,170 59,631 4.26 2.07 1,535 Matheson Tri Gas 55,238 54,555 1.25 1.84 8,252 Polk County School Board 45,578 45,857 (0.61) 1.52 1,214 Owens Corning Sales 41,083 43,546 (5.66) 1.37 6,206 Florida Southern College 26,703 26,633 0.26 0.89 3,962 Pepperidge Farms 19,267 19,118 0.78 0.64 3,206 Key Safety Systems, Inc. 17,755 24,026 (26.10) 0.59 3,139 Keymark Corp 17,518 17,907 (2.17) 0.58 2,626 Totals 551,945 560,052 (1.45)% 18.38% 51,594 ______(1) Consists of nine supermarkets, corporate office, warehousing, production, and distribution facilities. Source: Lakeland Electric
Electric Rates
General. The level of rates charged to each class of customer for electricity is subject to periodic cost of service studies performed by Lakeland Electric. These studies are performed a minimum of every three years and evaluate the appropriateness of the current rate structure and the equitable allocation of costs among the various customer classes. These analyses form the basis of recommended rate adjustments. During 2018, a cost of service analysis was performed and rate adjustments were approved for implementation by the Lakeland City Commission effective October 2018. See "Electric Rates - 2018 Rate Study" below. It is the policy of the City to establish electric rates that will be adequate to meet the cash flow requirements of the System, including sufficient funds to cover annual expenditures for operations and maintenance, debt service, renewal 38
and replacement, transfers to the City's general fund and other reserves deemed necessary by Lakeland Electric to meet future capital requirements.
The Lakeland City Commission has sole responsibility for establishing rates for Lakeland Electric. The Florida Public Service Commission reviews Lakeland Electric's rate structures but has no rate making jurisdiction.
Rate Formula. The basic rate formula applied by Lakeland Electric to all electric customers combines usage and environmental charges based on kWh used, a fuel charge based on kWh used and a minimum service charge. Additional charges are applied to specific user classes. Most significant among such additional charges is the demand charge billed to large commercial and industrial customers. Demand charges are derived by multiplying a specified charge per kW times the maximum kW consumed during any 30-minute interval during the billing period.
Electric rates are subject to a 10% utility tax on all purchases of electricity within the City and a 10% surcharge on purchases outside the City. The surcharges are calculated on only that portion of the fuel charge contained in the base rate on October 1, 1973. All other fuel is exempt. Utility tax collections are not considered revenues of the System, but surcharges on purchases outside the City are included as revenues. Utility taxes and surcharges are billed to and paid by System customers.
Fuel Charges. During 2015, the Lakeland City Commission enacted an ordinance which provides for a fuel reserve balance of up to 15% of annual budgeted fuel costs ($18.0 million in FY2017) to offset costs associated with fuel inventories and prepaid fuel hedging. A regulatory liability exists to the extent that the cumulative over- recovered fuel charges exceed the 15% fuel reserve. No less than quarterly, Lakeland Electric prepares a fuel cost forecast for the next twelve months. This forecast considers projected system average fuel costs, energy generation, power purchases and an amount sufficient to establish the fuel reserve.
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Historical Fuel Charge and Fuel Reserve Balances
Percent Fuel Reserve Fuel Charge Increase Balance Fiscal Quarter $/MWh (Decrease) ($Thousands) 3Q 2018 $40.75 5.2% $19,959 2Q 2018 38.75 0.0 $17,001 1Q 2018 38.75 0.0 $17,747 4Q 2017 38.75 2.6 $22,252 3Q 2017 37.75 10.2 $20,347 2Q 2017 34.25 0.0 $20,387 1Q 2017 34.25 0.0 $23,566 4Q 2016 34.25 (7.4) $26,085 3Q 2016 37.00 (8.3) $27,704 2Q 2016 40.35 (8.0) $24,755 1Q 2016 43.85 (2.2) $17,644
Comparison of Rates. A comparison of electric rates in effect as of June 30, 2018 based on the average monthly consumption levels for customers within Lakeland Electric's service territory are as follows. The charges listed in the following table include basic rates plus a fuel adjustment charge.
Rate Comparison as of June 30, 2018
Residential GS(1) GSD(2) GSLD(3) Florida Utilities 1,000 KWh 1,500 kWh 60,000 kWh 150 kW 200,000 kWh 500 kW City of Bartow $99.40 $163.50 $5,130.10 $17,051.10 (4) Florida Power and Light 102.81 154.61 4,911.15 16,640.30
City of Lakeland 103.35 151.11 4,961.59 16,633.98
Orlando Utilities Commission 106.00 165.22 5,119.20 16,994.00 Jacksonville Electric Authority 108.50 155.64 5,345.20 17,619.00 (4) Tampa Electric Company 109.55 169.37 5,160.12 17,118.19
City of Tallahassee 112.81 146.16 5,487.87 18,011.07 Gainesville Regional Utility 121.00 215.50 7,231.00 23,461.10 (4) Duke Energy 128.32 195.75 6,004.04 19,304.11 Average $110.19 $168.54 $5,483.36 $18,092.54 ______(1) Small commercial (2) Large commercial (3) Industrial (4) Investor-owned utility; includes an additional customer fee related to the electric franchises granted to such investor-owned utilities Source: Lakeland Electric
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Further breakdown of rates into the fuel and energy components is as follows:
Rate Comparison Breakdown by Energy and Fuel Components
Residential GSD 60,000 GSLD 200,000 Florida Utilities 1,000 kWh GS 1,500 kWh kWh 150 kW kWh 500kW City of Lakeland - Energy 62.60 89.98 2,516.59 8,483.98 City of Lakeland - Fuel 40.75 61.13 2,445.00 8,150.00 City of Lakeland - Total 103.35 151.11 4,961.59 16,633.98
Average - Energy 75.55 114.49 3,321.53 10,896.32 Average - Fuel 34.64 54.05 2,161.83 7,196.22 Average - Total 110.19 168.54 5,483.36 18,092.54
Lakeland % of Average - 82.8% 78.6% 75.8% 77.9% Energy Lakeland % of Average - 117.7% 113.1% 113.1% 113.3% Fuel Lakeland % of Average - 93.8% 89.7% 90.5% 91.9% Total ______Source: Lakeland Electric
Lakeland Electric's aggregate rates are lower than many other Florida utilities included in the rate comparison, even though Lakeland is one of the smaller utilities listed. This competitive advantage with respect to rates is a direct result of efficiency and effectiveness efforts conducted by Lakeland Electric over the course of the past five years.
2018 Rate Study. On August 6, 2018, the Lakeland City Commission approved a three percent base rate increase to be implemented effective October 2018. Lakeland Electric will continue to closely monitor the financial position of the System, including adequacy of cost recovery and cash balances on an on-going basis to confirm that the implementation of the proposed rates is maintaining its financial requirements. Despite the rate increase, Lakeland Electric’s rates will remain in the lowest quartile within the State based on currently available information.
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Historical Rate Changes. The City has put into effect the following rate changes in recent years:
Historical Rate Changes - Last Ten Years
Residential General Service % Increase % Increase % Increase % Increase % Increase % Increase (Decrease) in (Decrease) in (Decrease) in (Decrease) in (Decrease) in (Decrease) in Fiscal Year Base Rate Fuel Charge Total Rate Base Rate Fuel Charge Total Rate 2018(1) (0.7)% 5.2% 1.5% (0.7)% 5.2% 1.5% 2017 0.0 13.1 4.6 0.0 13.1 4.8 2016 (1.3) (23.6) (10.5) (1.3) (23.6) (10.7) 2015 5.9 (2.2) 2.4 (3.1) (2.2) (2.7) 2014 0.6 10.9 4.8 0.5 10.9 4.7 2013 (0.2) (2.2) (1.0) (0.2) (2.3) (1.0) 2012 (0.2) (16.5) (7.7) (0.2) (16.5) (7.5) 2011 0.0 (1.2) (0.6) 0.0 (1.2) (0.6) 2010 1.8 (6.4) (2.2) 4.4 (6.4) (0.8) 2009 0.5 (24.7) (13.6) 0.4 (24.7) (13.5) ______(1) Estimated Source: Lakeland Electric
Dividend Policy. The City has a dividend policy pursuant to which Lakeland Electric transfers monthly amounts to the City's general fund from Lakeland Electric's operating revenues. Currently, the policy provides for a dividend of $9.68 per 1,000 KWh of retail electric sales. Following the October 2018 rate increase, the dividend will rise to approximately $9.96 per 1,000 KWh of retail sales. Under the Bond Ordinance, the debt service requirements for the Obligations have priority over the dividend payments. The City Commission may modify the dividend policy at any time and from time to time. The following table shows the general fund dividend transfers for the Fiscal years 2008-2017.
Historical Dividend Payments
Dividend Percent Fiscal Year (in thousands) Increase/(Decrease) % of Operating Revenues 2018(1) $29,500 0.94% 9.3% 2017 29,223 (1.22) 9.6 2016 29,584 2.18 9.9 2015 28,954 16.39 9.4 2014 24,877 5.95 8.1 2013 23,481 1.20 7.8 2012 23,192 (4.20) 8.0 2011 24,200 (3.80) 7.1 2010 25,155 6.50 7.1 2009 23,619 1.00 6.9 ______(1) Estimated Source: Lakeland Electric
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The following table presents a history of the operation of the System for the past five Fiscal Years:
Historical Operating Statistics - Past Five Fiscal Years
Fiscal Year Ended September 30 Description 2013 2014 2015 2016 2017 60 Minute net peak demand (MW) 602 627 627 646 643 Increase/(decrease) from prior year (1.7%) 4.2% 4.2% 1.5% (0.5%) Energy Sales (GWh): Residential 1,353 1,398 1,452 1,483 1,447 Commercial and industrial 1,405 1,465 1,504 1,532 1,522 Other 34 33 35 35 35 Total 2,792 2,896 2,991 3,050 3,004
Increase/(decrease) from prior year 1.1% 3.7% 3.3% 2.0% (1.5%)
Average customers for period: Residential 101,692 102,747 103,964 105,613 107,213 Commercial and industrial 12,438 12,622 12,764 12,861 12,954 Other 8,330 8,248 8,237 8,301 8,368 Total 122,460 123,617 124,965 126,775 128,535
Residential service: Average kWh sales per customer 13,308 13,609 13,966 14,042 13,496 Average revenue per customer $ 1,506 $ 1,558 $ 1,677 $ 1,597 $ 1,483 Average revenue per kWh(1) $ 0.1132 $ 0.1145 $ 0.1201 $ 0.1137 $ 0.1099 Operating revenue ($ 000): Residential $94,055 $96,895 $107,753 $110,895 $105,597 Commercial and industrial 58,123 59,977 60,360 60,749 62,532 Other electric sales(2) 7,796 7,856 8,809 8,870 8,843 Sales for resale 13,372 3,840 5,521 5,789 4,643
Subtotal $ 173,346 $ 168,568 $ 182,443 $ 186,303 $ 181,615 Fuel charge 121,823 130,899 120,033 102,788 114,583 Other revenues 6,886 6,871 7,026 7,462 7,286
Total electric operating revenue $302,055 $306,338 $309,502 $296,553 $303,484 ______(1) Average residential revenue per kWh including fuel. (2) Includes private area lights, street lights, and municipal uses - excludes sales for resale. Source: Lakeland Electric
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The tables below were prepared by Lakeland Electric and show historical and projected cash balances (in thousands) for Lakeland Electric.
Historical and Projected Cash Balances
Fiscal Year Ended September 30 Historical 2013 2014 2015 2016 2017 Undesignated, unrestricted cash $68,147 $59,836 $70,792 $72,532 $55,491 Designated for capital improvements 37,586 38,620 36,560 57,953 70,475 Total $105,733 $98,456 $107,352 $130,485 $125,966
Fiscal Year Ended September 30 Projected 2018 2019 2020 2021 2022 Undesignated, unrestricted cash $47,221 $53,991 $57,401 $57,302 $56,426 Designated for capital improvements 77,275 76,115 71,115 70,115 69,115 Total $124,496 $130,106 $128,516 $127,417 $125,541 ______Source: Lakeland Electric
Liquidity requirements are mitigated by the City's ordinance requiring that fuel costs be recovered on a dollar-for-dollar basis based on quarterly projections of cost and mandated fuel rate changes.
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44 The following table provides a summary of financial results of Lakeland Electric for the Fiscal Years 2013 through and including 2017. Such financial results were derived from audited financial statements. The table also provides a summary of results for the nine-month periods ended June 30, 2017 and June 30, 2018. Such nine-month figures were prepared by Lakeland Electric and are derived from unaudited financials.
Lakeland Electric Summary of Results of Operations (in thousands)
Fiscal Year Ended September 30 9 Months Ended June 30 Gross Revenues 2013 2014 2015 2016 2017 2017 2018 Electric retail-base rate(1) $160,703 $164,729 $176,897 $180,514 $176,971 $125,120 $128,360 Electric retail-fuel charge 121,095 130,899 120,058 102,788 114,583 82,237 87,205 Electric wholesale 13,372 3,840 5,521 5,789 4,644 3,225 5,628 Other electric(2) 6,886 6,870 7,027 7,462 7,286 5,108 5,385 Other 663 6,813 772 514 544 368 343 Investment income 84 8,736 3,455 6,281 5,288 5,953 5,232 Total gross revenues $302,803 $321,887 $313,730 $303,348 $309,316 $222,011 $232,153
Operating expenses(3) Electric production Fuel(4) $135,104 $134,396 $124,528 $109,466 $120,510 $ 85,860 $ 92,856 Energy supply(5) 22,045 23,568 27,859 26,370 29,371 22,079 22,645 Subtotal 157,149 157,964 152,387 135,836 149,881 107,939 115,501 Energy delivery 20,959 22,349 23,405 23,860 31,752 19,324 20,846 Customer service 6,713 6,726 6,583 7,041 8,025 5,731 6,124 Administrative and general(6) 27,710 22,856 31,604 26,093 30,076 20,019 18,793 Total operating expense $212,531 $209,895 $213,979 $192,830 $219,734 $153,013 $161,264
Net revenues available for debt service and other purposes 90,272 111,992 99,751 110,518 89,582 68,998 70,889 Bond service requirement 46,626 46,245 35,123 38,442 38,549 Balance available for other obligations, capital improvements and expansion 43,646 65,747 64,628 72,076 51,033
Debt service coverage ratio from operations(7) 1.94 2.42 2.84 2.87 2.32 ______NOTE: Gross revenues, operating expenses, and net revenues available for debt service and other purposes for the 2013 through 2017 Fiscal Years are derived from Lakeland Electric's audited financial statements. Gross revenues, operating expenses, and net revenues available for debt service and other purposes for the 9-month periods ended June 30, 2017 and June 30, 2018 are derived from unaudited financial statements of Lakeland Electric. (1) Effective March 1, 2015, the City instituted its first base rate increase since 2007. In Fiscal Year 2017, retail MWh sales were down 1.7% from Fiscal Year 2016, which was the City's warmest year in more than a decade. In addition, Hurricane Irma caused a majority of Lakeland Electric's customers to lose power for up to 12 days during the summer of 2017. See "THE SYSTEM - Hurricane Irma" herein. (2) Other electric includes customer connection charges but excludes impact fees (3) Does not include depreciation expense. In Fiscal Year 2017, operating expenses included $10.4 million related to damage caused by Hurricane Irma. See "THE SYSTEM - Hurricane Irma" herein. Fuel and purchased power expense increased by $11.0 million in Fiscal Year 2017, primarily as a result of a 28% annual increase in Lakeland Electric's average cost of natural gas. (4) Includes purchased power and fuel handling. (5) McIntosh Unit 1, which was unavailable for service as of September 30, 2015 was officially retired during Fiscal Year 2016 due to obsolescence and reliability issues resulting in an impairment loss of $3.6 million consisting of $2.7 million for remaining undepreciated cost of improvements and $0.9 million write-down in the value of replacement parts. The impact of the impairment loss is reflected in the 2015 results of operations as part of energy supply expense. (6) Administrative and general expenses in Fiscal Year 2016 were $5.1 million lower than the prior year primarily as a result of a reduction in the pension liability recognized in accordance with GASB 68. (7) Equals net revenues available for debt service and other purposes divided by bond service requirement. Source: Lakeland Electric
45 Sales projections for Fiscal Year 2018, and beyond, assume normal weather and minimal customer growth (approximately 1% each year). The projections also reflect the approved 3% increase in base rates effective at the beginning of Fiscal Year 2019. Timing and amount of a subsequent rate increase is still being evaluated by management and will depend upon the utility’s financial requirements. Fiscal year 2019 also assumes reimbursement of 65% of Hurricane Irma restoration costs from the Federal Emergency Management Agency ("FEMA"). See "- Hurricane Irma" below. The projected results of operations set forth in the following table were prepared by staff of Lakeland Electric based on revenue forecasts.
Lakeland Electric Projected Results of Operations (in thousands)
Projected Fiscal Year Ended September 30 Gross Revenues 2018 2019 2020 2021 2022 Electric Retail - Base Rate(1) $180,197 $185,485 $190,366 $192,638 $194,068 Electric Retail - Fuel Rate 122,745 123,623 114,387 116,345 118,127 Electric Wholesale 7,303 5,570 7,041 6,024 5,225 Other Electric(2) 7,113 14,004 7,389 7,537 7,687 Other 305 352 317 324 330 Investment Income 6,872 6,635 6,321 6,016 5,967 Total Gross Revenues $324,535 $335,669 $325,821 $328,884 $331,404
Operating Expenses(3) Fuel(4) $130,048 $127,251 $122,778 $122,423 $123,230 Energy supply 29,806 29,687 30,614 31,406 32,220 Subtotal $159,854 $156,938 $153,392 $153,829 $155,450
Energy Delivery $27,496 $31,125 $31,926 $32,778 $33,653 Customer Service 8,571 9,215 9,221 9,457 9,698 General and Administrative 28,628 28,429 29,052 29,655 30,286 Total Operating Expenses $224,549 $225,707 $223,591 $225,719 $229,087
Net Revenues Available for Debt Service and Other Purposes $99,986 $109,962 $102,230 $103,165 $102,317 Bond Service Requirement(5) 38,775 37,687 35,789 34,385 33,023 Balance Available for Other Obligations, Capital Improvements and Expansion $61,211 $72,275 $66,491 $68,780 $69,294
Debt Service Coverage Ratio(6) 2.58 2.92 2.86 3.00 3.10 ______NOTE: Gross revenues, operating expenses, and net revenues available for debt service and other purposes for the 2012 through 2016 Fiscal Years are derived from Lakeland Electric's audited financial statements. (1) Includes base rate increase of 3% in 2019 (2) Other Electric Revenues includes customer connection charges but excludes impact fees and gross receipts revenues. Fiscal Year 2019 assumes reimbursement of 65% of Hurricane Irma-related restoration costs (3) Operating expenses exclude depreciation expense. (4) Includes purchased power and fuel handling. (5) Includes actual debt service on the Parity Obligations and estimated debt service on the Series 2018 Bonds. (6) Equals "Net Revenues Available for Debt Service and Other Purposes" divided by "Bond Service Requirement." Source: Lakeland Electric
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Capital Improvement Plan
The following table presents a summary of Lakeland Electric's projected capital improvement requirements through Fiscal Year 2022 (in thousands):
Fiscal Year Ending September 30 2018 2019 2020 2021 2022 Energy Supply $29,960 $41,418 $25,800 $19,700 $19,800 Energy Delivery 18,733 16,889 16,500 17,700 18,700 All Other 2,584 1,445 1,800 1,800 1,800 Total Funding $51,277 $59,752 $44,100 $39,200 $40,300 ______Source: Lakeland Electric
Funding for capital projects included in the above table (which includes the Project) is expected to be generated from base electric rates and proceeds of the Bonds. The budgeted capital for Fiscal Year 2018 includes $5.4 million of carry-overs from the previous Fiscal Year.
Pension and Other Post-Employment Benefits
See Notes N and P in "Appendix C -- Audited Financial Statements of the Department of Electric Utilities for the Year Ended September 30, 2017" for information concerning the City's pension fund and other post-employment benefits as they relate to Lakeland Electric. See also "RETIREMENT PLAN AND OTHER POST- EMPLOYMENT BENEFITS" in "Appendix A -- General Information Regarding the City of Lakeland, Florida" for information concerning the City's various pension funds and other post-employment benefits as they relate to the entire City.
Hurricane Irma
Hurricane Irma made landfall in Florida on September 10, 2017. Hurricane Irma resulted in the largest storm evacuation and recovery effort in Florida's history. Approximately two-thirds of the State's population lost power at some point and more than 200 transmission lines and 14,000 MW of electric power supply were taken out of service or compromised. With respect to Lakeland Electric, a majority of Lakeland Electric's customers lost power for three to 12 days as a result of the hurricane. Lakeland Electric incurred approximately $10.4 million in repair, restoration and other operating expenses as a result of damage caused by Hurricane Irma. The City hopes to receive partial reimbursement from FEMA for such costs although the amount and timing of any such reimbursement is unknown at this time.
Factors Affecting the Industry
General. The electric utility industry is affected by a variety of factors which could impact the business affairs, financial condition, and competitiveness of an electric
47 utility and the level of utilization of its generating facilities, including those of the City. These factors likely would affect individual utilities in different ways. Some of the more significant factors involve increased environmental requirements and varying efforts on national and local levels to restructure the electric utility industry from a significantly regulated monopoly to an industry in which there is open competition for power supply on both the wholesale and retail level. Although recent efforts for open competition at the retail level have been limited, there is still interest by various groups for open competition. Open competition at the retail level is not expected to occur in Florida in the foreseeable future.
Factors impacting electric utilities include, but are not limited to: (1) effects of competition from other suppliers of electricity and new methods of producing low cost electricity, (2) effects of compliance with changing environmental, licensing, regulatory and legislative requirements, (3) regulatory changes and changes that might result from a comprehensive national energy policy, (4) uncertain access to low cost capital for replacement of aging fixed assets, (5) increases in operating costs, (6) availability and cost of fuel supply, (7) changes resulting from conservation and demand-side management programs on the timing and use of electric energy, (8) "self-generation" by certain industrial and commercial customers, (9) issues relating to the ability to issue or maintain tax exempt obligations, (10) shifts in availability and relative costs of various fuels, (11) the threat and impact of natural disasters such as hurricanes, and (12) changes from projected load requirements. Any of these factors (as well as other factors) could influence the financial condition of any given electric utility, including the System, and likely will affect individual utilities in different ways.
The City cannot determine with certainty what effects such factors will have on its business operations and financial condition, including that of the System, but any effect(s) could be significant. The following is only a brief discussion of some of the existing regulatory matters that impact the System; however, this discussion is not intended to be comprehensive or definitive, and these matters are subject to change. Any such changes could be significant. Extensive information on the electric utility industry is, and will be, available from sources in the public domain, and potential purchasers of the Series 2018 Bonds should obtain and review such information.
Energy Policy Act of 1992. The Energy Policy Act of 1992 (the "1992 Energy Policy Act") made fundamental changes in the federal regulation of the electric utility industry, particularly in transmission access. The purpose of these changes, in part, was to bring about increased wholesale electric competition. The 1992 Energy Policy Act provides the Federal Energy Regulatory Commission ("FERC") with the authority, upon application by an electric utility, federal power marketing agency, or other non-utility power generator, to require a transmitting utility to provide transmission services to the applicant essentially on a cost-of-service basis. Municipally-owned electric utilities are transmitting utilities for purposes of these provisions of the 1992 Energy Policy Act. Currently FERC does not have the authority to regulate "retail wheeling," under which a
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retail customer of one utility could obtain power from another utility or non-utility power generator.
The energy efficiency title of the 1992 Energy Policy Act required states and utilities to consider adopting integrated resource planning ("IRP"), which allows utility investments in conservation and other demand-side management techniques to be at least as profitable as supply investments. The 1992 Energy Policy Act also established new efficiency standards and obligated states to establish commercial and residential building codes with energy efficiency standards. Additionally, the 1992 Energy Policy Act required utilities to consider energy efficiency programs in their IRPs. The Florida Public Service Commission ("FPSC") adopted an IRP and the City is complying with its own IRP policy. This initiative is well institutionalized at this point.
Energy Policy Act of 2005. The Energy Policy Act of 2005 (the "2005 Energy Policy Act") provides tax incentives and loan guarantees for energy production of various types and sets reliability standards for grids. The 2005 Energy Policy Act is intended to establish a comprehensive, long-range energy policy. It provides incentives for traditional energy production as well as newer, more efficient energy technologies, and conservation.
Under the 2005 Energy Policy Act FERC has the authority to require an otherwise non-jurisdictional owner, such as the City, owning or operating transmission facilities to provide transmission services at (1) rates that are comparable to those they charge themselves and (2) terms and conditions that are comparable to those they charged themselves and that are not unduly discriminatory or preferential. The 2005 Energy Policy Act also provides that any load-serving entity with a service obligation, including an otherwise non-jurisdictional transmission owner, is entitled to use its transmission capacity to meet its native load service obligation in preference to other uses of the grid.
The Energy Policy Act of 2005 additionally authorizes FERC to designate an Electric Reliability Organization (ERO) that would propose reliability standards which would be reviewed by FERC before becoming final. All users, owners and operators of the bulk power system, including an otherwise non-jurisdictional transmission owner such as the City, must comply with the reliability standards. The ERO may delegate to a regional entity the authority to propose reliability standards to the ERO and to enforce the reliability standards.
FERC has designated the North American Electric Reliability Corporation ("NERC") as the agency that oversees compliance with bulk-power system reliability standards, and in turn, NERC has designated FRCC as the regional entity responsible for monitoring compliance for registered entities in peninsular Florida, including Lakeland Electric. As a registered entity subject to NERC reliability standards, Lakeland Electric has, and in the future, anticipates increased compliance costs and exposure to significant monetary penalties for non-compliance violations, if any are discovered through self- reporting or NERC compliance monitoring activities. The regulatory framework
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established by the Energy Policy Act of 2005 and the related rules and standards subsequently established result in administrative costs and systematic controls for Lakeland Electric. This is particularly true of the NERC compliance requirements.
Overall competition in the electric utility industry continues to increase. Pursuant to FERC mandates and initiatives, full open access to the electric transmission network, including the City's, is available to all electric providers seeking to transmit electricity for resale. The authority to order retail wheeling, which allows a retail customer to be located in one utility's service area and to obtain power from another utility or non-utility source, is presently specifically excluded from the enhanced authority granted to FERC under the 1992 Energy Policy Act. How quickly competition continues to be implemented and how far competition will be extended is uncertain. As a result of these market forces, the City is continuing to pursue initiatives and strategies which will result in the System maintaining a favorable market position.
The City and the System currently are in compliance with the requirements of the 1992 Energy Policy Act, the 2005 Energy Policy Act and all FERC initiatives. It is possible that new rules, regulations and initiatives will be implemented pursuant to such Acts and that one or more electric utility restructuring bills may be introduced in future sessions of Congress. The City cannot predict whether, or in what form, any rule, regulation or bill may be introduced, or whether any such item will become effective. There can, therefore, be no accurate predictions as to the impact of any such rule, regulation or law on the City and the System but the impact could be substantial.
Florida Legislation. The State of Florida's regulatory framework for electric utilities is principally governed by FEECA, the Florida Energy, Climate Change and Economic Security Act of 2008 (the "Florida Energy Act of 2008") and the Florida Energy Act of 2012 (the "Florida Energy Act of 2012"), and the rules and regulations promulgated thereunder. Lakeland Electric currently is not subject to FEECA.
The City and the System currently are in compliance with the Florida Energy Act of 2008, the Florida Energy Act of 2012 and other Florida regulatory requirements. It is possible that one or more electric utility legislative bills may be introduced in future sessions of the Florida Legislature. The City cannot predict whether, or in what form, any bill may be introduced, or whether any such bill will be enacted into law. There can, therefore, be no assurance as to the impact of any legislation on the City and the System. It is also possible that federal action may preempt some of these state initiatives.
Rate Regulation. The City Commission, under existing Florida law, has the exclusive authority to establish the level of electric rates for the System. While the FPSC has no authority to set rates for a municipal electric utility, it does have jurisdiction over municipal electric utilities to prescribe uniform systems and classifications of accounts, to require electric power conservation and reliability, to approve territorial agreements, to settle territorial disputes, to approve the need for new steam-electric power plants and
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transmission lines, and to prescribe rate structures for municipal utilities. The current rate structure for the System has been approved by the FPSC.
The Florida Supreme Court, while continuing to hold that the FPSC has no authority to regulate municipal utility rates (i.e., the specific dollar amounts charged by a municipal electric utility for specific service), has held that the FPSC has jurisdiction and authority to regulate the rate structure of a municipal electric utility (i.e., the classification system used to justify charging different rates to different classes of customers). It is not clear how broadly the Court may ultimately interpret rate structures to permit additional regulation of rates of municipal utilities by FPSC.
Environmental. Electric utilities (including the System) are subject to continuing environmental, conservation and other regulation and permitting requirements by federal, state and local authorities. Changes to these regulations may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that the City's facilities will remain subject to the regulations currently in effect, will always be compliant with current or future regulations or will always be able to obtain or maintain all required permits. An inability to comply with environmental standards or deadlines could result in fines and/or legal action as well as reduced operating levels or complete shutdown of individual electric generating units or water plant facilities that are not in compliance. Furthermore, clean air laws, compliance with environmental standards or deadlines may substantially increase capital and operating costs.
There has been, and continues to be, concern by individuals, the scientific community and Congress regarding environmental damage resulting from the use of fossil fuels. The System's plants use fossil fuels. Over the last few decades, there have been several legislative proposals, many enacted, and executive orders regarding the regulation of air, water and contaminants which affect the electric utility industry. It is likely that additional environmental proposals and orders will be made in the future from time to time with respect to the regulation of electric utilities. It is not possible to accurately predict what types of legislation may be proposed or orders may be issued or their impact on Lakeland Electric. However, impacts to Lakeland Electric's operating results and/or capital costs could be significant. Lakeland Electric will continue to monitor the legislative environment and will continue to comply with all of its regulatory requirements in the most cost-effective manner possible.
In mid-2005, EPA issued the final Clean Air Interstate Rule (CAIR) and the Clean Air Mercury Rule ("CAMR"). CAIR required reductions in the emissions of nitrogen oxides ("NOx") and sulfur dioxide ("SO2") from electric generating units ("EGUs"). However, CAIR was ultimately vacated and remanded to the agency by the D.C. Circuit Court of Appeals in 2008 after certain portions of the regulation were found to be unlawful. Additionally, on February 8, 2008, the D.C. Circuit Court of Appeals vacated CAMR.
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After the vacatur of CAMR, the EPA finalized the Mercury Air Toxics Standards ("MATS") for power plants on December 21, 2011. MATS was designed to reduce emissions of heavy metals, including mercury ("Hg"), arsenic ("As"), chromium ("Cr"), and nickel ("Ni"); and acid gases, including hydrochloric acid ("HCl") and hydrofluoric acid ("HF"). Under MATS, EPA had to set emission standards for existing power plants that are at least as stringent as the emission reductions achieved by the average of the top 12% best controlled power plants. Existing power plants regulated by MATS generally had three years to comply. EPA also set industry-specific "new source performance standards" ("NSPS") for those plants that are modified after the date of the rule or any new power plants that are covered by MATS. The compliance date for this rule was April 16, 2015. MATS primarily affect Lakeland Electric's coal-fired unit, while its other oil/gas-fired unit will remain exempt if it does not fire oil for more than 10% of the average annual heat input during any three consecutive calendar years or for more than 15% of the annual heat input during any calendar year. In addition to the new, more stringent particulate matter ("PM") and SO2 emission limits, the System's coal-fired unit is now also required to comply with a new Hg limit. To comply with these new limitations, upgrades to the existing coal-fired unit scrubber were necessary and were performed in early 2015. To demonstrate compliance with the PM and Hg standards, new continuous emission monitors for these pollutants have been installed. There have been numerous challenges to MATS and litigation continues but the majority of the MATS requirements are currently effective.
On July 6, 2011, EPA signed its final Cross-State Air Pollution Rule ("CSAPR"), a new rule slated to replace CAIR, which established an emissions allowance trading program intended to reduce the interstate transport of NOx and SO2 that is inhibiting downwind states' abilities to attain and maintain compliance with the particulate matter and ozone national ambient air quality standards. The rule eventually went into effect on January 1, 2015 and Florida was subject only to the ozone-season NOx trading program component of the rule. On December 3, 2015, EPA proposed a new transport rule, which included EPA's latest modeling results showing that Florida does not significantly contribute to another state's air quality issues, and thus would not be subject to the rule after 2016. On September 13, 2016, EPA issued the final rule, and Florida is no longer currently affected. However, it is possible but fairly unlikely that Florida could again become subject to the rule in the future.
On September 30, 2009, EPA announced a proposal that is focused on large facilities emitting over 25,000 tons of greenhouse gas ("GHG") a year. These facilities would be required to obtain permits that would demonstrate they are using the best practices and technologies to minimize GHG emissions. The rule proposed new thresholds for GHG emissions that define when Clean Air Act permits under the Prevention of Significant Deterioration ("PSD") and Title V operating permits programs would be required for new or existing industrial facilities. In December 2010, the EPA issued its final rule on GHG mitigation. Under this rule, it began controlling such gases utilizing Title V of the Clean Air Act. On January 2, 2011, the EPA began implementing GHG permitting for the State of Florida. FDEP subsequently started the process of 52
obtaining the GHG PSD permitting authority from EPA. In May 2014, EPA issued final approval of Florida's GHG PSD permitting program, meaning that FDEP now has full authority to issue GHG PSD permits for Florida sources.
In 2010, EPA proposed rules regulating the disposal of coal ash via the Coal Combustion Residual Rule. Previously, coal combustion residuals ("CCR") were exempt wastes under an amendment to Resource Conservation and Recovery Act. The two options that were being considered by EPA were to regulate the ash as a Subtitle C, hazardous waste, or to regulate ash as a Subtitle D, non-hazardous waste. This rule could have impacted the beneficial use of coal ash as a non-hazardous waste by-product, which could have required it to be disposed of by the System in a permitted landfill rather than sold for beneficial use. On April 17, 2015, EPA published the rule in the Federal Register under the solid waste provisions (Subtitle D) of the Resource Conservation and Recovery Act, which became effective on October 4, 2016. In late 2016, Congress passed the Water Infrastructure Improvements for the Nation Act ("WIIN Act") which fundamentally changed the way the CCR Rule is to be implemented. Under the WIIN Act, EPA is authorized to review and approve state CCR permit programs that are at least as protective as the federal CCR Rule. Currently, Florida has not been authorized to implement a CCR permit program. The ultimate impact of the CCR rule will depend on the results of initial and ongoing minimum criteria assessments and the implementation of state or federal permit programs. The intent of Lakeland Electric is to sell all CCR material for beneficial use. However, because of historical accumulation of CCR materials, Lakeland Electric is subject to the rule.
The EPA published a final 316(b) rule in August 2014 that became effective on October 14, 2014. The rule establishes standards for cooling water intake structures at existing power plants to reduce the effects on aquatic life. The also addresses cooling water intakes for new units at existing facilities. Compliance with the rule may require changes to existing cooling water intake structures. However, the final impact of this rule will depend on the results of additional studies and how the rule is implemented by state regulators based on site-specific factors. During the next permit renewal cycle, the impacts will be fully known.
On March 27, 2012, EPA proposed a rule regulating GHG emissions from new power plants that would limit CO2 emissions. The rule was modified and re-proposed on September 20, 2013. The rule for new units was finalized on August 3, 2015 with minor changes. Additionally, then President Obama ordered in June 2013 that CO2 emissions guidelines for existing units be developed. In June 2014, EPA proposed the CO2 emissions guidelines for existing power plants, commonly known as the Clean Power Plan ("CPP"). The guidelines were finalized on August 3, 2015. According to these guidelines, Florida would have been required to meet the final CO2 emissions goal of 919 pounds per net MWh starting in 2030. However, on February 9, 2016, the Supreme Court stayed implementation of the rule, effective until all litigation is resolved. Furthermore, on April 4, 2017, pursuant to President Trump's Executive Order, EPA announced that it was reviewing the CPP. On October 10, 2017, EPA Administrator 53
Pruitt signed a proposed rule that would repeal it, and on December 18, 2017, EPA took a first step toward potentially replacing the CPP by releasing an advance notice of proposed rulemaking. This notice asked the public for comments on what a CPP replacement rule should include. On August 21, 2018, EPA proposed the CPP replacement regulation referred to as the Affordable Clean Energy ("ACE") rule which would establish emission guidelines for states to develop plans to address GHG emissions from existing coal-fired power plants. The ACE rule is based on heat rate efficiency improvements that can be achieved at individual sources. With this proposal, EPA is deferring to states to develop and implement their standards in a manner that best suits their unique circumstances. EPA expects to finalize the rule in 2019, after which the states would have three years to finalize their plans, followed by one year for EPA to determine whether those state plans are adequate. At this point, it is too early to know the potential impact of the ACE rule on Lakeland Electric's coal-fired Unit 3
In 2010, EPA issued a final rule that was aimed at reducing emissions of toxic air pollutants from existing stationary reciprocating internal combustion engines ("RICE"). The RICE Rule, as it is known, became effective on May 3, 2013 for compression ignition engines (diesel-fired) and on October 19, 2013 for spark ignition engines (gasoline-fired and propane-fired). The rule has different requirements based on engines' intended use. Requirements for non-emergency engines are most stringent and include limitations such as CO emission standards (requiring oxidation catalysts to be installed), periodic CO emissions testing, fuel restrictions (only fuel containing no more than 15 ppm sulfur, or 0.0015%, is allowed), and monitoring of catalyst inlet temperature and pressure drop. Requirements for emergency engines are essentially to keep the annual hours of operation below certain thresholds and to conduct the required engine maintenance at specified time intervals. The only requirement for startup (black start) engines is to conduct the required engine maintenance. Lakeland Electric currently has twenty-one non-emergency, three emergency, and three startup engines that are subject to the RICE Rule requirements.
On November 3, 2015, EPA published the Steam Electric Power Generating Effluent Limitation Guidelines final rule ("ELG"). ELG regulates direct discharges to surface water from power plants under the National Pollutant Discharge Elimination System ("NPDES") and establishes pretreatment standards for existing sources for discharge to publicly owned treatment works ("POTW"). The waste streams generated at Lakeland Electric are ultimately commingled on site before being conveyed to the City of Lakeland Marsh Treatment System, which is considered a POTW. Specific waste streams regulated under ELG that apply to Lakeland Electric include bottom ash transport water and flue gas desulfurization wastewaters. Per the rule, the date for compliance with ELG was originally November 1, 2018. EPA subsequently postponed the compliance dates until November 1, 2020 to give them time to put in place a new ELG rule. A draft of the reconsidered rule has yet to be released, so the impact of the rule on Lakeland's operations is currently uncertain.
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In the opinion of the City, Lakeland Electric is currently in material compliance with all current federal, state and local laws, rules, regulations, orders and initiatives affecting the System. The City cannot predict whether any additional legislation, rules, regulations, orders or initiatives will become effective which will affect the Lakeland Electric's operations or what the additional capital and operating costs, if any, to Lakeland Electric might be as a result of any such action. The financial and operating impact on Lakeland Electric could be substantial.
LITIGATION
There is not now pending any litigation restraining or enjoining the issuance or delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization or existence of the City or Lakeland Electric, nor the title of the present Commissioners or other officials of the City to their respective offices is being contested. There is no litigation pending which in any manner questions the right of the City to implement its financing plan in accordance with the provisions of the Bond Ordinance, the City Charter, and the laws of the State of Florida.
The City experiences routine litigation and claims incidental to the conduct of its affairs and the operation of Lakeland Electric and other operations of the City. The City is self-insured for general comprehensive liability, worker's compensation, automobile liability, and certain risks associated with public officials' liability. These exposures and pending claims are defended by experienced defense counsel and, if necessary, are anticipated to be paid by the self-insurance fund, which is adequate for satisfying customary claims. In the opinion of the City Attorney, there are no lawsuits presently pending or threatened, which would impair the City's ability to perform its obligations, financial or otherwise, to the Owners of the Bonds.
TAX EXEMPTION
General
In the opinion of Bond Counsel, under existing law, interest on the Bonds is excludable from gross income for federal income tax purposes.
The Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Bonds in order for the interest thereon to be and remain excludable from gross income for federal income tax purposes. Examples include: the requirement that, unless an exception applies, the City rebate certain excess earnings on proceeds and amounts treated as proceeds of the Bonds to the United States Treasury Department; restrictions on the investment of such proceeds and other amounts; and certain restrictions on the ownership and use of the facilities financed or refinanced with 55
the proceeds of the Bonds. The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied subsequent to the issuance of the Bonds to maintain the exclusion of interest on the Bonds from gross income for federal income tax purposes. Failure to comply with such requirements may cause the inclusion of interest on the Bonds in the gross income of the holders thereof for federal income tax purposes, retroactive to the date of issuance of the Bonds. The City has covenanted to comply with each such requirement of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The opinion of Bond Counsel is subject to the condition that the City comply with all such requirements. Bond Counsel has not been retained to monitor compliance with the described post-issuance tax requirements subsequent to the issuance of the Bonds.
Bond Counsel gives no assurance that any future legislation or clarifications or amendments to the Code, if enacted into law or otherwise become effective, will not cause the interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent the Bondholders from realizing the full current benefit of the tax status of the interest on the Bonds. During recent years, legislative proposals have been introduced in Congress, and in some cases have been enacted, that have altered or could alter certain federal tax consequences of owning obligations similar to the Bonds. In some cases, these proposals have contained provisions that were to be applied on a retroactive basis. It is possible that legislation could be introduced that, if enacted, could change the federal tax consequences of owning the Bonds and, whether or not enacted, could adversely affect their market value. Prospective purchasers of the Bonds are encouraged to consult their own tax advisors regarding any pending or proposed federal legislation, as to which Bond Counsel expresses no view.
As to certain questions of fact material to the opinion of Bond Counsel, Bond Counsel will rely upon representations and covenants made on behalf of the City and certificates of appropriate officers and public officials (including certifications as to the use of proceeds of the Bonds and of the property financed or refinanced thereby).
Reference is made to the proposed form of the opinion of Bond Counsel attached hereto as "Appendix D – Form of Bond Counsel Opinion" for the complete text thereof. See also "CERTAIN LEGAL MATTERS" herein.
Alternative Minimum Tax
An alternative minimum tax is imposed by the Code on taxpayers other than corporations (as defined for federal income tax purposes) and, for taxable years beginning prior to January 1, 2018, on corporations. Interest on the Bonds will not be treated as an item of tax preference for purposes of the alternative minimum tax. Interest on the Bonds will therefore not be included in the alternative minimum taxable income of corporations or of taxpayers other than corporations. Interest on the Bonds received by a
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corporate Bondholder will, however, solely for taxable years beginning prior to January 1, 2018, be includable in such Bondholder's adjusted current earnings.
Original Issue Premium
The Bonds maturing on October 1 in the years 20__ through and including 20__ (collectively, the "Premium Bonds") have been sold to the public at an original issue premium. Section 171(a) of the Code provides rules under which a bond premium may be amortized and a deduction allowed for the amount of the amortizable bond premium for a taxable year. Under Section 171(a)(2) of the Code, however, no deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excludable from gross income. Under Section 1016(a)(5) of the Code, the purchaser's basis in a Premium Bond will be reduced by the amount of the amortizable bond premium disallowable as a deduction under Section 171(a)(2) of the Code. Proceeds received from the sale, exchange, redemption or payment of a Premium Bond in excess of the owner's adjusted basis (as reduced pursuant to Section 1016(a)(5) of the Code), will be treated as a gain from the sale or exchange of such Premium Bond and not as interest.
The federal income tax treatment of original issue premium under the Code, including the determination of the amount of amortizable bond premium that is allocable to each year, is complicated and holders of Premium Bonds should consult their own tax advisors in order to determine the federal income tax consequences to them of purchasing, holding, selling or surrendering Premium Bonds at their maturity.
Original Issue Discount
The Bonds maturing on October 1 in the years 20__ through and including 20__ (collectively, the "Discount Bonds") have been sold to the public at an original issue discount. Generally, the original issue discount is the excess of the stated redemption price at maturity of such a Discount Bond over the initial offering price to the public (excluding underwriters and other intermediaries) at which price a substantial amount of that maturity of the Discount Bonds was sold. Under existing law, an appropriate portion of any original issue discount, depending in part on the period a Discount Bond is held by the purchaser thereof, will be treated for federal income tax purposes as interest that is excludable from gross income rather than as taxable gain. Original issue discount will not be treated as an item of tax preference for purposes of the alternative minimum tax; however, solely for taxable years beginning prior to January 1, 2018, such amounts are includable in the adjusted current earnings of corporate Discount Bondholders for purposes of computing the alternative minimum tax, even though such amounts have not been received by such Discount Bondholders.
Under Section 1288 of the Code, original issue discount on tax-exempt bonds, such as the Discount Bonds, accrues on a compounded basis. The amount of original issue discount that accrues to an owner of a Discount Bond, who acquires the Discount
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Bond in this initial offering, during any accrual period generally equals (i) the issue price of such Discount Bond plus the amount of original issue discount accrued in all prior accrual periods multiplied by (ii) the yield to maturity of such Discount Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Discount Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the owner's tax basis in such Discount Bond. Proceeds received from the sale, exchange, redemption or payment of a Discount Bond in excess of the owner's adjusted basis (as increased by the amount of original issue discount that has accrued and has been treated as tax-exempt interest in such owner's hands), will be treated as a gain from the sale or exchange of such Discount Bond and not as interest.
The federal income tax consequences from the purchase, ownership and redemption, sale or other disposition of Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. Owners of Discount Bonds should consult their own tax advisors with respect to the consequences of owning Discount Bonds, including the effect of such ownership under applicable state and local laws.
Other Tax Consequences
Prospective purchasers of the Bonds should be aware that ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S Corporations and foreign corporations, individuals entitled to receive the earned income tax credit and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. Prospective purchasers of the Bonds should also be aware that ownership of the Bonds may result in adverse tax consequences under the laws of various states. Bond Counsel has not expressed an opinion regarding the collateral federal income tax consequences that may arise with respect to the Bonds. Further, Bond Counsel has expressed no opinion regarding the state tax consequences that may arise with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors as to the collateral federal income tax and state tax consequences to them of owning the Bonds.
The federal income tax consequences from the purchase, ownership and redemption, sale or other disposition of Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. Holders of Bonds, should consult their own tax advisors with respect to the consequences of owning Bonds, including the effect of such ownership under applicable state and local laws.
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Information Reporting and Backup Withholding
Interest paid on tax-exempt bonds, such as the Bonds, is subject to information reporting to the Internal Revenue Service in a manner similar to interest paid on taxable obligations. This reporting requirement does not affect the excludability of interest on the Bonds from gross income for federal income tax purposes. However, in conjunction with that information reporting requirement, the Code subjects certain non-corporate owners of Bonds, under certain circumstances, to "backup withholding" at the fourth lowest rate applicable to unmarried individuals with respect to payments on the Bonds and proceeds from the sale of Bonds. Any amounts so withheld would be refunded or allowed as a credit against the federal income tax of such owner of Bonds. This withholding generally applies if the owner of Bonds (i) fails to furnish the paying agent (or other person who would otherwise be required to withhold tax from such payments) such owner's social security number or other taxpayer identification number ("TIN"), (ii) furnishes the paying agent an incorrect TIN, (iii) fails to properly report interest, dividends, or other "reportable payments" as defined in the Code, or (iv) under certain circumstances, fails to provide the paying agent or such owner's securities broker with a certified statement, signed under penalty of perjury, that the TIN provided is correct and that such owner is not subject to backup withholding. Prospective purchasers of the Bonds may also wish to consult with their tax advisors with respect to the need to furnish certain taxpayer information in order to avoid backup withholding and the procedures for obtaining exemptions.
PURCHASE, OWNERSHIP, SALE OR DISPOSITION OF THE BONDS AND THE RECEIPT OR ACCRUAL OF THE INTEREST THEREON MAY HAVE ADVERSE FEDERAL TAX CONSEQUENCES FOR CERTAIN INDIVIDUAL AND CORPORATE BONDHOLDERS, INCLUDING, BUT NOT LIMITED TO, THE CONSEQUENCES DESCRIBED ABOVE. PROSPECTIVE BONDHOLDERS SHOULD CONSULT WITH THEIR TAX SPECIALISTS FOR INFORMATION IN THAT REGARD.
Reference is made to the proposed form of the opinion of Bond Counsel attached hereto as "Appendix D – Form of Bond Counsel Opinion" for the complete text thereof. See also "CERTAIN LEGAL MATTERS" herein.
RATINGS
S&P Global Ratings ("S&P"), Moody's Investors Service ("Moody's") and Fitch, Inc. ("Fitch") each have assigned their municipal bond ratings of "AA" (stable outlook), "Aa3" (stable outlook) and "AA-" (positive outlook), respectively, with respect to the Bonds. The ratings reflect only the views of said rating agencies and an explanation of the significance of the ratings may be obtained only from said rating agencies at the following addresses: S&P Global Ratings, 55 Water Street, New York, New York 10041; Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street, 23rd
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Floor, New York, New York 10007; and Fitch Ratings, 33 Whitehall Street, New York, New York 10004. There is no assurance that the ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by said rating agencies if, in their judgment, circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds. Neither the City nor the Underwriter has any obligation or duty to oppose any proposed downward revision or withdrawal of such ratings.
INVESTMENT POLICY OF THE CITY
Pursuant to the requirements of Section 218.415, Florida Statutes, the City enacted Ordinance No. 4362 on July 1, 2002, as amended from time to time, establishing the City's present written investment policy which applies to all funds held by or for the benefit of the City (except for City pension funds or any other monies invested under separate ordinance, resolution, policy or agreement).
The objectives of the investment policy, listed in order in order of importance, are:
1. Safety of principal; 2. Provision of sufficient liquidity; and 3. Optimization of yield.
The investment policy limits the types of investments eligible for inclusion in the City's portfolio. The investment policy also establishes criteria for suitable financial institutions and broker-dealers with which the City will conduct business. Internal investment controls are provided in the policy as are bidding requirements.
To enhance safety, the investment policy requires the diversification of the portfolio to reduce the risk of loss resulting from over-concentration of assets in a specific class of security. The investment policy provides guidelines for diversification, setting forth suggested percentages for the various allowable investments. The policy also provides maturity and liquidity requirements for investments. The responsibility for the administration of the investment program is granted to the City's Finance Director.
The investment policy may be modified by the City Commission from time to time. A copy of the investment policy of the City can be obtained directly from the City. See "MISCELLANEOUS" herein.
UNDERWRITING
The Bonds are being purchased by Wells Fargo Bank, National Association (the "Underwriter") at an aggregate purchase price of $______(par amount of $______, less Underwriter's discount of $______, plus/minus net bond premium/discount of $______), subject to certain terms and conditions set forth 60
in a bond purchase contract between the City and the Underwriter including the approval of certain legal matters by Bond Counsel and the existence of no material adverse change in the condition of the City from that set forth in this Official Statement. The Bonds may be offered and sold to certain dealers at prices lower than the public offering prices shown on the inside cover page and such public offering prices may be changed from time to time by the Underwriter.
Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, which conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, NA Municipal Products Group, a separately identifiable department of Wells Fargo Bank, National Association, registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a) of the Securities Exchange Act of 1934.
Wells Fargo Bank, National Association, acting through its Municipal Products Group ("WFBNA"), the sole Underwriter of the Bonds, has entered into an agreement (the "WFA Distribution Agreement") with its affiliate, Wells Fargo Clearing Services, LLC (which uses the trade name "Wells Fargo Advisors") ("WFA"), for the distribution of certain municipal securities offerings, including the Bonds. Pursuant to the WFA Distribution Agreement, WFBNA will share a portion of its underwriting or remarketing agent compensation, as applicable, with respect to the Bonds with WFA. WFBNA has also entered into an agreement (the "WFSLLC Distribution Agreement") with its affiliate Wells Fargo Securities, LLC ("WFSLLC"), for the distribution of municipal securities offerings, including the Bonds. Pursuant to the WFSLLC Distribution Agreement, WFBNA pays a portion of WFSLLC’s expenses based on its municipal securities transactions. WFBNA, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company.
Bond Counsel and Disclosure Counsel may, from time to time, serve as counsel for the Underwriter on matters unrelated to the issuance of the Bonds.
FINANCIAL ADVISOR
RBC Capital Markets, LLC, St. Petersburg, Florida (the "Financial Advisor") is employed as the Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement.
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CERTAIN LEGAL MATTERS
Certain legal matters in connection with the authorization and issuance of the Bonds are subject to the approval of Holland & Knight LLP of Lakeland, Florida, Bond Counsel. Certain legal matters with respect to the City will be passed upon by Timothy J. McCausland, City Attorney and Nabors, Giblin & Nickerson, P.A., Tampa. Certain legal matters will be passed upon for the Underwriter by Marchena and Graham, P.A., Orlando, Florida, Counsel to the Underwriter.
The proposed text of the legal opinion of Bond Counsel is set forth in Appendix D. The actual legal opinion may vary from that text if necessary to reflect facts and law on the date of delivery. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of this Official Statement or otherwise shall create no implication that subsequent to the date of the opinion Bond Counsel has reviewed or expresses any opinion concerning any matters referenced in the opinion. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances, including changes in law, that may thereafter occur or become effective.
Holland & Knight LLP, Bond Counsel, has not undertaken independently to verify and therefore expresses no opinion as to the accuracy, completeness, fairness or sufficiency of any of the information or statements contained in this Official Statement, or any exhibits, schedules, or appendices hereto, except the portions hereof captioned "THE BONDS" (except the portion thereof captioned "Book-Entry Only System") and "SECURITY FOR THE BONDS" to the extent the same purport to summarize certain portions of the Bonds and the Bond Ordinance and the accuracy of the information under the caption "TAX EXEMPTION" to the extent the same purports to describe certain federal income tax consequences of ownership of the Bonds.
The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions regarding the legal issues expressly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.
FINANCIAL STATEMENTS
The audited financial statements of Lakeland Electric for the Fiscal Year ended September 30, 2017 (with comparative figures for the Fiscal Year ended September 30, 2016) included as Appendix C hereto have been included in reliance upon the report set forth and upon the authority of Crowe LLP, certified public accountants. Such financial statements, including the auditor's report, have been included in this Official Statement as 62
public documents and the consent of the City's auditors was not requested. See "Appendix C - Audited Financial Statements of the Department of Electric Utilities for the Year Ended September 30, 2017."
The City's city-wide Comprehensive Annual Financial Report for the year ended September 30, 2017 can be found at www.lakelandgov.net/departments/finance/annual- reports-cafr/.
CONTINUING DISCLOSURE
The City has agreed for the benefit of the Bondholders to provide certain financial information and operating data relating to the City and the Bonds in each year, and to provide notices of the occurrence of certain enumerated material events. Such covenant shall only apply so long as the Bonds remain outstanding under the Ordinance. The covenant shall also cease upon the termination of the continuing disclosure requirements of S.E.C. Rule 15c2-12(b)(5) (the "Rule") by legislative, judicial or administrative action. The City has agreed to file annual financial information and operating data and its audited financial statements (collectively, the "Annual Report") with the Municipal Services Rulemaking Board (the "MSRB") through its Electronic Municipal Market Access system ("EMMA"), as described in "Appendix E - Form of Disclosure Dissemination Agent Agreement." The City has agreed to file notices of certain enumerated material events, when and if they occur, with the MSRB through EMMA.
The specific nature of the financial information, operating data, and of the type of events which trigger a disclosure obligation, and other details of the undertaking are described in "Appendix E - Form of Disclosure Dissemination Agent Agreement" attached hereto. The Continuing Disclosure Agreement shall be executed by the City and Digital Assurance Certification, LLC, as Dissemination Agent thereunder, on or prior to the issuance of the Bonds. These covenants have been made in order to assist the Underwriter in complying with the continuing disclosure requirements of the Rule.
With respect to the Bonds, no party other than the City is obligated to provide, nor is expected to provide, any continuing disclosure information with respect to the aforementioned Rule. The City has not failed in any material respect to comply with any prior undertakings to provide continuing disclosure information pursuant to the Rule during the past five years.
DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS
Section 517.051, Florida Statutes, and the regulations promulgated thereunder require that the City make a full and fair disclosure of any bonds or other debt obligations that it has issued or guaranteed and that are or have been in default as to principal or interest at any time after December 31, 1975, unless the City believes in good faith that such information would not be considered material by a reasonable investor. The City is 63
not and has not since December 31, 1975 been in default as to principal and interest on its bonds or other debt obligations for which the City was obligated to repay from its own revenues or funds. The City believes that payment defaults, if any, with respect to bonds or debt obligations that the City issued solely as a conduit issuer would not be considered material by a reasonable investor.
CONTINGENT FEES
The City has retained Bond Counsel, Disclosure Counsel and the Financial Advisor with respect to the authorization, sale, execution and delivery of the Bonds. Payment of the fees of Bond Counsel, Disclosure Counsel and the Financial Advisor and an underwriting discount to the Underwriter, including the fees of its counsel, are each contingent upon the issuance of the Bonds.
MISCELLANEOUS
The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents and reference is directed to all such documents for full and complete statements of all matters of fact relating to the Bonds, the security for, and the sources for repayment for the Bonds, and the rights and obligations of the Holders thereof. Copies of such documents may be obtained from Michael Brossart, Finance Director, City of Lakeland, City Hall, 228 South Massachusetts Avenue, Lakeland, Florida 33801.
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64
CERTIFICATE CONCERNING THE OFFICIAL STATEMENT
Concurrently with the sale of the Bonds, the Mayor and the City Manager (or such other duly authorized City officials) will furnish a certificate to the effect that (1) they have reviewed the Official Statement and that to the best of their knowledge and belief the statements therein are true and correct; and (2) nothing has come to their attention which would lead them to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact which should be included therein for the purpose for which the Official Statement is intended to be used, or which is necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; provided, however, that such certification shall not include the information contained in the sections entitled "THE BONDS - Book- Entry-Only System" and "UNDERWRITING."
CITY OF LAKELAND, FLORIDA
Attest: By: Mayor
By: City Clerk By: City Manager
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APPENDIX A
GENERAL INFORMATION REGARDING THE CITY OF LAKELAND, FLORIDA
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GENERAL INFORMATION REGARDING THE CITY OF LAKELAND, FLORIDA
The City of Lakeland is located in Polk County at the geographic center of the State along the I-4 corridor between the cities of Tampa and Orlando. Lakeland is the largest municipality in Polk County. It covers an area of approximately 75 square miles.
The City was incorporated in 1885 and utilizes a Commission-Manager form of government. This system provides a centralized professional administration and a seven member City Commission. Four Commission members are elected from single member districts and the other three members are elected at large. All Commissioners serve four- year terms of service. The Mayor is elected by popular vote and is recognized as the head of City government for all ceremonial occasions. The City employs a full-time manager, appointed by the Commission, who is the chief executive and administrative officer of the City.
The City provides a full range of municipal services including public works, public safety, health and social services, recreation and cultural activities. In addition, the City's enterprise activities include electric utilities, water and wastewater utilities, airport operations and sanitation services.
City Commission
The City Commission is the principal governing body of the City. The City Commission consists of seven City Commissioners all of which are elected on an at-large basis for terms of four years each. The current members of the City Commission and their expiration of terms of office are:
Commissioner Office Term Expires William "Bill" Mutz Mayor January 2021 Michael Dunn Commissioner January 2021 Scott Franklin Commissioner January 2021 Stephani Madden Commissioner January 2021 Bill Read Commissioner January 2019 Justin Troller Commissioner January 2019 Phillip Walker Commissioner January 2019
Budget Process
The City begins the budget process each February for the ensuing Fiscal Year (October 1 to September 30) with the distribution of budget request forms and instructions to departments and division heads. City division heads and elected officers submit their proposed expenditures beginning in April for compilation no later than
A-1 July 1 of each year and each submission is matched against available revenues. A balanced, proposed budget is presented to the City Commission for review within 15 days of receipt of an assessed value certification from the County's Property Appraiser which is due by July 1. A tentative budget is thereupon adopted within 15 days.
Subsequent to public hearings, a final budget is adopted. The final budget for the Fiscal Year ending September 30, 2018 is expected to be adopted by the City Commission on September 20, 2018. Final millage rates are adopted, usually by late September, and the County's Tax Collector prepares tax bills for mailing on or after November 1. Upon valid adoption, all expenditures in the budget constitute appropriations, and amendments to the budget can be made only in accordance with the provisions of Chapter 129, Florida Statutes, as amended, and such chapter provides that expenditures in excess of total fund budgets are unlawful.
Annual Audit
Florida law requires that an annual post audit of each City's accounts and records be completed by a firm of independent certified public accountants retained and paid for by such City. Crowe Horwath LLP prepared the audit for the Fiscal Years ended September 30, 2016 and September 20, 2017.
Population
Polk County's population in 2017 was estimated at 686,483, an increase of 19,465, compared to an increase of 17,374 in 2016, and approximately 14,492 in 2015. The City's 2017 population was 108,054, an increase of 1,954, compared to an increase of 2,294 in 2016 and an increase of 1,567 in 2015. The following table reflects the average annual percentage of growth in the population of the City as compared to the population of Polk County and the State of Florida.
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A-2 Population Trends 1990-2017 City of Lakeland, Florida; Polk County, Florida; and State of Florida
Percentage City of Increase Polk Percentage Percentage Year Lakeland (Decrease) County Increase Florida Increase 1990 70,576 -- 405,382 -- 12,938,071 -- 2000 78,452 11.16% 483,924 19.37% 15,982,378 23.53% 2010 97,422 24.18 602,095 24.42 18,801,310 17.64 2011 98,922 1.54 609,924 1.30 19,097,369 1.57 2012 99,118 0.20 615,639 0.94 19,341,327 1.28 2013 100,468 1.36 622,981 1.19 19,584,927 1.26 2014 102,239 1.76 635,152 1.95 19,897,747 1.60 2015 103,806 1.53 649,644 2.28 20,268,567 1.86 2016 106,100 2.21 667,018 2.67 20,656,589 1.91 2017 108,054 1.84 686,483 2.92 20,984,400 1.59
______Source: Source: 1990, 2000 & 2010, U.S. Census Bureau, decennial census, as of April 1 of each year; 2011-2017, U.S. Census Bureau, Population Division, Annual Estimates of Resident Population (as of July 1 of each year), released May, 2018.
Economics
The City is the wholesale and retail trade center for the surrounding area which is supported by agriculture, cattle production, citrus production, phosphate mining, diversified industry and tourism. Additionally, the City is a warehousing and distribution center, with over 10,000,000 square feet of warehousing facilities within the service area being utilized.
Executive and administrative headquarters of the State of Florida Department of Citrus, Florida Citrus Mutual, Florida Phosphate Council, Inc., Publix Super Markets, FedEx, Advanced Discount Auto Parts and other produce and shipping companies are located in the City or adjacent urban areas. There are nine major phosphate extractive and processing facilities within a radius of 12 miles of the City. The Lakeland area benefits from over 300 diversified manufacturing and industrial concerns which produce a great variety of products. Among those firms are Amazon (retail), Carpenter Company (Insulation), GTEC (lotto tickets printer), Midstate Machine & Fabricating (fabrication & general machining), Florida Southern College (education), KeySafety Systems of FL (airbags), McDonald Construction, Lakeland Ledger Publishing (newspaper publishing), Pepperidge Farm, Inc. (bread, cookies, and crackers), and Tampa Maid Foods (seafood processing and packaging).
A-3 CITY OF LAKELAND, FLORIDA TEN LARGEST TAXPAYERS
2017 2008 Percentage of Total Percentage of Assessed Assessed Total Assessed Assessed Value of Value of Real Value of Real Value of Real Real and Personal and Personal and Personal and Personal Taxpayer Name Type of Business Property Rank Property Property Rank Property Publix Supermarkets, Inc. Retail/Distribution-Grocery $281,756,252 1 5.98% $292,637,537 1 4.84% Amazon Retail/Distribution 94,966,985 2 2.02 - - - RTG Furniture Corp. Watson Clinic Retail/Distribution-Furniture 71,692,413 3 1.52 60,818,696 2 1.01 Watson Clinic Medical Facility 51,591,576 4 1.10 50,240,203 4 0.83 Lakeland Property Partners LLC Real Estate 49,028,908 5 1.04 29,580,830 8 0.49 Lakeland Square Mall LLC Retail/General Merchandise 43,593,238 6 0.93 41,107,514 6 0.68 Casto Oakbridge Venture LTD Real Estate 42,532,006 7 0.90 55,417,233 3 0.92 Pepperidge Farm Inc. - Lakeland Plant Retail/Distribution - Bakery 40,824,616 8 0.87 - - - Cherishome Lakeland LLC Real Estate - Apartment Complex 36,996,800 9 0.79 - - - Walmart Retail/Distribution - Grocery 34,517,059 10 0.73 - - - Verizon Telecommunications - - - 48,460,596 5 0.80 Lakeland Ledger Publishing Corp. Print Media - - - 28,619,029 9 0.47 Carlton Arms of North Lakeland Real Estate - Apartment Complex - - - 34,148,630 7 0.56 US Industrial Reit II Warehouse Distribution - - - 26,472,131 10 0.44 ______Source: City of Lakeland, Florida.
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A-4 Employment
Polk County, Florida Labor Force and Unemployment Estimates 2006-2015
Year Polk County Ended Civilian Unemployment Rates 12/31 Labor Force Employment Unemployment Polk Co. Florida U.S. 2008 273,427 254,490 18,937 6.9 6.3 5.8 2009 273,152 242,326 30,826 11.3 10.4 9.3 2010 278,479 244,668 33,811 12.1 11.1 9.6 2011 276,852 245,627 31,225 11.3 10.0 8.9 2012 277,340 250,530 26,810 9.7 8.5 8.1 2013 279,242 256,158 23,084 8.3 7.3 7.4 2014 281,330 261,348 19,982 7.1 6.3 6.2 2015 282,139 266,807 15,332 5.4 4.8 4.8 2016 287,016 271,212 15,804 5.5 4.8 4.4 2017 293,587 279,944 13,643 4.6 4.2 4.9 ______Source: Florida Research and Economic Information Database Application.
CITY OF LAKELAND, FLORIDA RESIDENTIAL BUILDING PERMIT ACTIVITY LAST TEN CALENDAR YEARS
Single Family Multi-Family Total Year Units Units Residential Value 2008 261 314 $93,615,000 2009 158 0 30,989,000 2010 151 8 31,336,000 2011 121 0 26,381,000 2012 73 134 16,339,510 2013 138 6 37,457,648 2014 123 93 31,549,541 2015 243 77 70,177,649 2016 316 134 85,083,073 2017 442 50 95,367,494 ______Source: City of Lakeland, Community Development – Building Division, Fiscal Year 2017 Historical
Education
Public schools are administered by the School Board of Polk County for the county-wide school district. There are 65 elementary, five elementary/middle, eight
A-5 elementary/middle/secondary, 20 middle, two middle/secondary, 18 secondary and 28 Charter Schools in the Lakeland area. In addition, there are several private elementary, middle and senior high schools.
Florida Southern College, a four-year, private, liberal arts institution, is located in Lakeland. The State's 12th University – Florida Polytechnic, is the State's only Science, Technology, Engineering and Math (STEM) programmed university. Polk State College, previously known as Polk Community College, is another college in Lakeland that has expanded its footprint and curriculum base. Southeastern University, a private, religious- based, four-year liberal arts institution, is also located in Lakeland. Lakeland Regional Medical Center, one of the largest private not-for-profit hospitals in the State, is owned by the City, but is operated by a not-for-profit corporation pursuant to a lease and franchise agreement between the corporation and the City.
Transportation
Transportation facilities include CSX Railroad; Greyhound-Trailways bus line; Lakeland Linder Regional Airport (owned by the City); Interstate Highway 4; Polk County Parkway; other Federal and State primary highways and toll roads; and access to major international airport terminal facilities in Tampa and Orlando and seaport facilities in the Tampa Bay area. The City and County have joined together to form the Lakeland Area Mass Transit District to provide public transportation throughout the City and a surrounding area of unincorporated Polk County.
Legal Millage and Ad Valorem Taxes
The City is limited by the State Constitution to imposing an ad valorem tax not exceeding 10 mills ($10 per $1,000) on taxable property within the City. The millage rate was 4.664 mills for each of the Fiscal Years ended September 30, 2013, 2014 and 2015. For Fiscal Years ended September 30, 2016, 2017 and 2018, the millage rate was 5.5644. NO AD VALOREM TAXES ARE PLEDGED FOR THE PAYMENT OF THE BONDS.
During recent years, various legislative proposals and constitutional amendments relating to ad valorem taxation have been introduced in the State. Many of these proposals sought to provide for new or increased exemptions to ad valorem taxation, limit the amount of revenues that local governments could generate from ad valorem taxation or otherwise restrict the ability of local governments in the State to levy ad valorem taxes at recent, historical levels. There can be no assurance that similar or additional legislative or other proposals will not be introduced or enacted in the future that would, or might apply to, or have a material adverse effect upon, the City or its finances.
A-6 CITY OF LAKELAND, FLORIDA SCHEDULE OF PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS
Mills ($1 per $1,000 valuation) City of Lakeland Southwest Lakeland Lakeland Florida Polk Peace Total Direct Fiscal Year Area Mass Downtown Water County River & Ended Transit Development Management School Water Overlapping September 30 Municipal District District Total County District Board Basin Rates 2017 5.564 0.500 2.000 8.064 6.782 0.332 6.780 -- 21.958 2016 5.564 0.500 2.000 8.064 6.782 0.349 7.149 -- 22.344 2015 4.664 0.500 2.000 7.164 6.867 0.366 7.208 -- 21.605 2014 4.664 0.500 2.000 7.164 6.867 0.382 7.547 -- 21.960 2013 4.664 0.500 1.995 7.159 6.867 0.393 7.492 -- 21.911 2012 4.164 0.500 2.000 6.664 6.867 0.393 7.670 -- 21.594 2011 4.164 0.500 1.874 6.538 6.867 0.377 7.792 0.183 21.757 2010 3.654 0.500 1.874 6.028 6.867 0.387 7.586 0.183 21.051 2009 3.403 0.500 1.874 5.777 6.867 0.387 7.634 0.183 20.848 2008 3.230 0.488 1.937 5.655 6.867 0.387 7.512 0.183 20.604 ______Source: City of Lakeland Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2017.
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A-7 City of Lakeland, Florida General Fund Property Tax Levies, Tax Collections, Assessed Valuations and Property Tax Rates (Unaudited) Last Ten Fiscal Years
Total Taxable(1) Fiscal Year Less: Ending Real Tangible Railroad Tax Exempt Real Total Taxable September 30 Property Property Property Adjustments Property Assessed Value 2017 $7,470,286,970 $855,102,507 $9,518,567 $ (8,299,667) $2,869,022,296 $5,457,586,081 2016 6,978,652,027 849,218,740 8,893,616 (8,883,088) 2,742,795,786 5,085,085,509 2015 6,450,121,917 766,023,882 9,491,549 12,180,119 2,529,644,082 4,708,173,385 2014 6,029,544,930 694,944,816 9,322,964 2,218,998 2,318,246,201 4,417,785,507 2013 5,717,402,332 678,256,876 4,170,924 (2,317,304) 2,135,322,232 4,262,190,596 2012 6,011,568,956 704,558,301 4,037,506 (4,714,474) 2,235,629,322 4,479,820,967 2011 6,347,423,303 735,988,173 3,833,023 263,361 2,327,716,616 4,759,791,244 2010 7,496,927,845 797,882,468 4,011,704 33,810,496 2,784,803,140 5,547,829,373 2009 8,232,870,282 842,392,409 4,095,467 26,130,612 3,127,769,383 5,977,719,387 2008 8,041,601,918 858,419,290 2,268,507 97,265,288 2,954,340,506 6,045,214,497 ______(1) The State of Florida, by statute, requires property appraisers to assess all property within the State at 100% market value. Therefore, the assessed valuation and estimated actual value is the same. Source: City of Lakeland Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2017.
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A-8 RETIREMENT PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Pension Plans
General. The City maintains three separate single employer defined benefit pension plans for its employees. These plans were established by, and are subject to modifications in funding levels and benefits, by ordinance approved by the City Commission. All three plans are subject to periodic review by an independent actuary. This review is used to determine the required funding level upon which the City bases its annual contribution to the Employees' Pension and Retirement System, the Police Officers' Defined Benefit Retirement System, and the Firefighters' Retirement System.
The City obtains annual reviews by independent actuaries. Each year, the actuary completes a review utilizing census data covering both retired and active members of each plan and balance sheet data regarding net position of the plan based on an effective date of October 1. Those reports are generally issued within 6 months of the end of the fiscal year. Any changes in the funding requirements as identified in each actuarial review are applicable to the City's budget year commencing immediately after the issuance of that report.
The City of Lakeland implemented GASB Statement 68 in 2015. With the new reporting change, the City recognizes the net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense associated with each plan. Decisions regarding the allocations are made by the administrators of the pension plans, not by the City of Lakeland's management. For more information pertaining to the Plans, refer to the City of Lakeland, Florida stand-alone financial statements for each plan, which can be obtained by contacting the City of Lakeland, Finance Department, City Hall, 228 S. Massachusetts Ave., Lakeland, FL 33801-5086.
On-behalf Payments - within the basic financial statements, the proceeds of the excise tax from the State of Florida in The City of Lakeland Firefighters' Retirement System and the Police Officers' Defined Benefit Retirement System are recorded as operating grants and contributions and public safety expenses in the amounts of $776,564 and $856,398 respectively in the Government-wide Statement of Activities. For the fiscal year ended September 30, 2017, the City recognized an aggregate pension expense of $26,116,108.
Employees' Pension and Retirement System
Summary of Significant Accounting Principles. For purposes of measuring the net pension liability, deferred outflows of resources, and deferred inflows of resources related to pensions, pension expenses, information about the fiduciary net position of the City of Lakeland's Employees' Pension and Retirement System, and additions
A-9 to/deductions from the Employees' Pension and Retirement System's fiduciary net position have been determined on the same basis as that are reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.
The Plan is maintained using the accrual basis of accounting. Employee and employer contributions are recognized as revenue in the period in which the employee services are performed. Expenses are recognized when they are incurred and revenues are recognized when they are earned. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Accounting Principles Generally Accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, the actual results could differ from those estimates. Investments are recorded at fair value. Dividends and interest are recognized when earned. Gains and losses on sales are recognized on the trade date.
Plan Description. The City of Lakeland Employees' Pension and Retirement System administers the City of Lakeland Employees' Pension Plan - a single employer defined benefit pension plan that provides pensions for all full-time, regular employees of the City. The authority for the establishment and amendment of the Plan, benefits, vesting, and contributions are established by City Ordinances. Government plans are not subject to the provisions of the Employee's Retirement Income Security Act of 1974 (ERISA).
Management of the plan is vested in the Employees' Pension Board, which consists of seven (7) active members- three (3) of which are elected by plan members for 3-year terms, three (3) appointed by the City Commission for 3-year terms and one (1) appointed by the board.
This Plan is a pension trust fund (fiduciary fund type) of the City that contains three pension plan options (Plans A. B, and C). Each plan option is part of a single employer, defined benefit pension plan offered by the City with a defined contribution option available to certain eligible employees. Plan A is eligible to employees of the City hired prior to October 1, 2003. Plan B is eligible to employees hired on or after October 1, 2003 through February 15, 2012. Plan C is eligible to employees hired after December 29, 2011 or who have made an irrevocable election to convert their prospective benefit calculation to Plan C as of February 15, 2012. The defined contribution option allows certain eligible employees to cease participation in this Plan and begin participation in the City's defined contribution plan.
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A-10 Pension plan membership for the Plan as of the actuary report dated October 1, 2015 is shown in the following table.
Active plan members 1,430 Retirees and beneficiaries 1,006 DROP participants 197 Terminated vested plan members 63 2,696
Deferred Retirement Pension Plan (DROP). A Deferred Retirement Option Plan (DROP) was enacted on December 19, 2009 by Ordinance 4727 of the City. Under this Plan, participants who have attained eligibility may continue working with the city for up to 60. At October 1, 2015, there were 197 DROP participants.
Cost of Living Adjustment. No cost of living increase was awarded for Fiscal year 2017.
Funding Policy, Contributions Required, and Contributions Made. The City obtains an annual review by an independent actuary utilizing census data covering both retired and active plan members and balance sheet data regarding net position of the Plan based on an effective date of October 1 with the report being issued within 6 months of the fiscal year. This review is used to determine the required funding level upon which the City bases its annual contribution to the Employees' Pension and Retirement System for the budget year commencing after the issuance of that report. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute at least quarterly to the fund in an amount equal to the required City contribution as shown by the applicable actuarial valuation system. The actuarial experience of 0.97, a variable rate of 0.02 and Change in Cost Sharing of 0.65 are added to the prior Contribution Rate (18.89%), less the Amortization Payment on UAAL (0.35), plan change of 0.73, and Change in Normal Cost Rate (0.18) to calculate the current year Contribution Rate of 19.27%. For the year ended September 30, 2017, the City contributed $14,739,830, the employees contributed $7,456,297 and buybacks were $143,722.
As a result of the renegotiation of the lease agreement between Lakeland Regional Hospital and the City, the City received a one-time $15 million payment from Lakeland Regional Hospital, effective 10/1/2015. The purpose of the payment was to compensate the City for agreeing to cap the growth in the hospital's lease payments for the next 25 years. The City Commission expressed an interest in investing the one-time payment on a long-term basis so that a significant fund would accrue by the time the lease needs to be renegotiated in 25 years. In lieu of creating a new investment fund, the Commission approved an alternative plan whereby:
A-11 The $15 million was sent to the Employee Pension Fund as an advance payment against the employer's share of the unfunded pension liability. In return for this advance payment, the City (as the employer) will receive an annual credit against its regular payment into the fund. This credit will be consistent with the current amortization schedule and methodology for the Fund's unfunded liability. The budgetary savings from this reduced annual payment will be channeled into a separate investment fund so that the City can recoup its initial payment, plus interest.
The alternative plan will NOT affect employee contribution rates into the pension fund. They will remain unchanged. The alternative plan can be thought of as paying off a mortgage or a credit card balance early. Once the obligation is paid off, the monthly payments (which include interest) no longer have to be made. The monthly savings can then be put in a savings account for the future.
Net Pension Liability. The City's actuarial valuation date is October 1, 2015 rolled forward to September 30, 2016 and net pension liability was measured as of September 30, 2016.
Actuarial assumptions. The total pension liability in the October 1, 2015 actuarial evaluation rolled-forward to September 30, 2016 was determined using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return 7.25% Salary increases 4.0% to 14.0% depending on service, including inflation Inflation rate 3.00% Post-retirement benefit increases N/A Retirement rate (1) Mortality table RP-2000 Combined Healthy Participant Mortality Table for males and females with mortality improvement projected using Scale AA after 2000 ______(1) Probabilities of retirement by eligible members are assigned for each attained age and length of service
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long- term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.
A-12 The projected long-term real rate of return for the Plan net of investment expenses is 6.126%. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of measurement date September 30, 2016 (see the discussion of the pension plan's investment policy) are summarized in the following table as required by GASB 67 and 68:
Long-Term Asset Class Expected Real Rate Asset Group (Market) Target Allocation of Return Contribution Domestic Equity 35% 7.50% 2.625% International Equity 15 8.50 1.275 Domestic Bonds 15 2.50 0.375 International Bonds 5 3.50 0.175 Real Estate 10 4.50 0.450 Alternate Assets 20 6.13 1.226 Total Investments 100% 6.126%
The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that the plan members' contributions will be made at the current contribution rate and the City contributions will be made at the rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments (7.25%) was applied to all periods of projected benefit payments to determine the total pension liability.
Changes in the Net Pension Liability.
Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability (a) Net Position (b) Liability (a)-(b) Beginning Balances $646,612,089 $498,769,283 $147,842,806 Changes for the year: Service cost 12,454,643 - 12,454,643 Interest 46,369,839 - 46,369,839 Benefit Change (1,360,522) - (1,360,522) Difference between actual & expected experience (189,908) - (189,908) Contribution - employer - 29,175,783 (29,175,783) Contribution - employee - 7,468,541 (7,468,541) Projected Earnings on investments - 36,067,712 (36,067,712) Difference between projected & actual earnings - (2,408,197) 2,408,197 Benefit payments (38,124,534) (38,124,534) - Refunds (840,967) (840,967) - Administrative Expense - (246,010) 246,010 Net Changes 18,308,551 31,092,328 (12,783,777) Ending Balances $664,920,640 $529,861,611 $135,059,029
A-13 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City, calculated using the discount rate of 7.25%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.25%) or 1-percentage point higher (8.25%) than the current rate.
100% Decrease Current Discount 1% Increase Rate (6.25%) Rate (7.25%) Rate (8.25%) City's net pension liability $202,571,992 $135,059,029 $77,848,730
Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Employee's Pension and Retirement System financial report.
Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. For the fiscal year ended September 30, 2017, the City recognized pension expenses of $19,089,871. At September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows of Deferred Inflows Resources of Resources Current year contributions - employer $16,477,012 - Difference between actual and expected experience - $1,433,954 Net Difference between projected and actual earnings 17,870,605 - Total $34,347,617 $1,433,954
The $16,477,012 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Total 2018 $4,916,154 2019 4,924,526 2020 6,142,614 2021 453,357 16,436,651
A-14 Payable to the Pension Plan. At September 30, 2017, the City reported a payable of $978,932 for the outstanding amount of contributions to the pension plan required for the year ended September 30, 2017.
Police Officers' Defined Benefit Retirement System
Summary of Significant Accounting Principles. For purposes of measuring the net pension liability, deferred outflows of resources, and deferred inflows of resources related to pensions, pension expenses, information about the fiduciary net position of the City of Lakeland's Police Officers' Defined Benefit Retirement System, and additions to/deductions from the Police Officers' Defined Benefit Retirement System's fiduciary net position have been determined on the same basis as that reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.
The accrual basis of accounting is used for the Plan. Under the accrual basis of accounting, revenues are recognized when they are earned and collection is reasonably assured, and expenses are recognized when the liability is incurred. Plan participant contributions are recognized in the period in which the contributions are due. City contributions to the plan as calculated by the Plan's actuary, are recognized as revenue when due and the City has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan.
Investments in common stock and bonds traded on a national securities exchange are valued at the last reported sales price on the last business day of the year; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the mean between the past reported bid and asked prices; investments in securities not having an established market value are valued at fair value as determined by the Board of Trustees. The fair value of an investment is the amount that the Plan could reasonably expect to receive for it in a current sale between market participants, other than in a forced or liquidation sale. Purchases and sales of investments are recorded on a trade date basis.
Investment income is recognized on the accrual basis as earned. Unrealized appreciation in fair value of investments includes the difference between cost and fair value of investments held. The net realized and unrealized investment appreciation or depreciation for the year is reflected in the Statement of Changes in Fiduciary Net Position.
Plan Description. The Plan is a defined benefit pension plan covering all full-time police officers of the City of Lakeland as established by local law subject to the provisions of Chapter 185 of the State of Florida Statutes. Participation in the Plan is
A-15 required as a condition of employment. The Plan provides for pension, death, and disability benefits.
The Plan, in accordance with the above statutes, is governed by a five-member pension board. Two police officers who are elected by a majority of the members of the Plan, two City residents, and a fifth member elected by the other four members constitute the pension board. The City and the Plan participants are obligated to fund all Plan costs based upon actuarial valuations. The City is authorized to establish benefit levels and the Board of Trustees approves the actuarial assumptions used in the determination of contribution levels.
On June 1, 2009 the Lakeland City Commission adopted ordinances 5096 and 5095 - which removed all active and retired police officers from the City of Lakeland Employee Pension Plan (the General Plan) and transferred those individuals to an amended version of the Police Officers' Supplemental Pension and Retirement System (the Supplemental Plan) - which had the effect of creating an entirely new replacement plan called the Police Officers' Retirement System (the Police Plan).
Under the terms of this change, all retired police officers and/or their beneficiaries who were receiving benefits from the General Plan and/or the Supplemental Plan as of the effective date of the transfer would from that point forward be paid the exact same level of combined benefits from the Police Plan. All future retired police officers and/or their beneficiaries will receive their retirement benefits exclusively from the Police Plan based on a new defined benefit calculation formula that replaces the benefit formulas that previously existed within the General Plan and the Supplemental Plan.
Under the terms of this change, all police officers and/or their beneficiaries who were receiving benefits from the General Plan and/or the Supplemental Plan as of the effective date of the transfer would from that point forward be paid the exact same level of combined benefits from the Police Plan. All future retired police officers and/or their beneficiaries will receive their retirement benefits exclusively from the Police Plan based on a new defined benefit calculation formula that replaces the benefit formulas that previously existed within the General Plan and the Supplemental Plan.
Three Tier Structure - The current members of the plan have the option of making an election of one of the following 3 tiers within 45 days of the effective date of the Police Plan. Tier 2 is the only option for officers hired after May 20, 2009.
Tier 1 - these members shall have benefits accrued under the provisions of the City of Lakeland Employees' Pension and Retirement System, the City of Lakeland Police Officers' Supplemental Pension and Retirement System (PORF) and the Lakeland Police Officers' Share Benefit Plan frozen as of the effective date of the Police Plan. On and after the effective date of the system, Tier 1 members shall be subject to the same provisions as Tier 2 members except as otherwise provided. These members shall be
A-16 eligible to have benefits accrued in the PORF included in the City of Lakeland Employees' Pension and Retirement System Section 23.4.5 DROP upon attainment of age sixty (60).
Tier 2 - these members shall be subject to the provisions of the City of Lakeland Police Officers' Retirement System not including those administered pursuant to other City of Lakeland Plans or Systems for Tier 1 or Tier 3 members.
Tier 3 – these members who are DROP participants pursuant to Section 23.4.5 of the City of Lakeland Employees' Pension and Retirement System and making contributions to the City of Lakeland police Officers' Supplemental Pension and Retirement System ("PORF") which contributions shall continue after the effective date of the City of Lakeland Police Officers' Retirement System in an amount calculated annually by the system's actuary and shall be administered pursuant to the provisions of those systems. These members shall be eligible to have benefits accrued in the PORF included in the Section 23.4.5 DROP upon attainment of age sixty (60).
Pension plan membership for the Plan as of the actuary report dated October 1, 2015 is shown in the following table.
Active plan members 197 Retirees and beneficiaries 176 DROP participants 18 Terminated vested plan members 30 421
Deferred Retirement Option Plan (DROP). Any participant who is eligible to receive a normal retirement pension benefit may elect to participate in a deferred retirement option plan (DROP) while continuing his or her active employment as a police officer. Upon participation in the DROP, the participant becomes a retiree for all plan purposes so that he or she ceases to accrue any further benefits under the pension plan. Normal retirement payments that would have been payable to the participant as a result of retirement are accumulated and invested in the DROP to be distributed to the participant upon his or her termination of employment. Participation in the DROP ceases for a member after the 60 months. At October 1, 2015, there were 18 DROP participants.
Partial Lump Sum Option Plan (PLOP). A participant that does not elect to participate in the DROP may elect to receive an initial lump-sum payment equal to 5%, 10%, 15% or 20% of the participant's accrued benefit with the remaining 95%, 90%, 85% or 80%, respectively, payable in a form selected by the participant.
Cost of Living Adjustment. No cost of living increase was awarded for fiscal year 2017.
A-17 Funding Policy, Contributions Required, and Contributions Made. The Tier 2 participant contribution rate is re-determined each year, such that the increase in the City's required contribution and the participant's required contribution are equal. The required participant's contribution rate for Tier 2 and Tier 3 were 14.30% and 1.00% respectively for the fiscal year ended September 30, 2017.
Pursuant to Chapter 185 of the Florida Statutes, a premium tax on certain casualty insurance contracts written on City of Lakeland properties is collected by the State and is remitted to the Plan. The City is required to contribute the remaining amounts necessary to finance the benefits through periodic contributions of actuarially determined amounts.
The Fund may also accept rollover contributions from participants' other qualified deferred compensation plans. Rollover contributions may be used to purchase additional credited service. Participants are immediately vested in rollover contributions.
A rehired member may buy back not more than 5 years of continuous past service by paying into the Plan the amount of contributions that the participant would otherwise have paid for such continuous past service, plus the interest that would have been earned had such funds been invested by the Plan during that time.
The City's funding policy is to make an actuarially computed annual contribution to the Plan in an amount, such that when combined with participants' contributions and the State insurance excise tax rebate, all participants' benefits will be fully provided for by the time that they retire.
The City's actuarially determined contribution rate for the year ended September 30, 2017 was 18.27%. For the year ended September 30, 2017, the City contributed $2,691,292 and the employees contributed $2,186,659.
Pension Liability. The City's net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date.
Actuarial Assumptions. The total pension liability in the October 1, 2015 actuarial evaluation rolled-forward to September 30, 2017 was determined using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return 7.25% Salary increases 5% - 15% Inflation rate 3.00% Mortality table Active employees RP-2000 (combined healthy) with no projection Retired pensioners RP-2000 (combined healthy) with no projection Disabled pensioners RP-2000 (combined healthy) with no projection, set forward five years
A-18 The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long- term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.
Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of measurement date September 30, 2016 are summarized in the following table:
Long-term Expected Asset Class (Market) Target Allocation Real Rate of Return Domestic equity value 10% 7.50% Domestic opportunistic growth 10 7.50 Index core 20 7.50 International 15 8.50 Fixed income 25 2.50 Global fixed income 5 3.50 Alternative 10 8.00 Real estate 5 4.50 TOTAL 100%
The discount rate used to measure the total pension liability was 7.75%. The projection of cash flows used to determine the discount rate assumed that the plan members' contributions will be made at the current contribution rate and the City contributions will be made at the rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments (7.75%) was applied to all periods of projected benefit payments to determine the total pension liability.
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A-19 Changes in the Net Pension Liability.
Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability (a) Position (b) Liability (a)-(b) Changes for the year: $ 2,476,007 - $ 2,476,007 Service cost 10,566,141 - 10,566,141 Interest - $ 2,686,671 (2,686,671) Contribution - employer - 2,029,605 (2,029,605) Contribution - employee - 796,486 (796,486) Projected earnings on investments - 8,100,346 (8,100,346) Changes of assumptions 4,080,663 - 4,080,663 Difference between actual & expected experience (2,463,567) - (2,463,567) Difference between projected & actual earnings - 671,935 (671,935) Benefit payments (7,725,690) (7,725,690) - Contributions - buy back 183,211 183,211 - Administrative expense - (162,180) 162,180 Other (misc. income) - 2,451 (2,451) Net Change 7,116,765 6,582,835 533,930 Total - Beginning 137,267,167 102,044,172 35,222,995 Total - Ending $144,383,932 $108,627,007 $35,756,925
Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City, calculated using the discount rate of 7.75%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.75%) or 1-percentage point higher (8.75%) than the current rate.
Decrease Discount Increase Rate (6.75%) Rate (7.75%) Rate (8.75%) City's net pension liability $51,571,833 $35,756,925 $23,223,490
Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Police Officers' Benefit Retirement System financial report.
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A-20 Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. For the fiscal year ended September 30, 2017, the City recognized pension expenses of $3,957,040. At September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Deferred Outflows Inflows of Resources of Resources Current year contributions - employer $ 3,483,157 - Difference between actual and expected experience - $2,423,770 Changes of assumptions 3,264,530 - Net difference between projected and actual earnings 4,755,073 - Total $11,502,760 $2,423,770
$3,483,157 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2018. Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Fiscal year ended September 30th: 2018 $1,681,599 2019 1,681,599 2020 2,043,604 2021 189,031 $5,595,833
Payable to the Pension Plan. At September 30, 2017, the City reported a payable of $182,331 for the outstanding amount of contributions to the pension plan required for the year ended September 30, 2017.
Firefighters' Retirement System
Summary of Significant Accounting Principles. For purposes of measuring the net pension liability, deferred outflows of resources, and deferred inflows of resources related to pensions, pension expenses, information about the fiduciary net position of the City of Lakeland's Firefighters' Retirement System, and additions to/deductions from the Firefighters' Retirement System's fiduciary net position have been determined on the same basis as that are reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.
A-21 Basis of accounting is the method by which revenues and expenses are recognized in the accounts and are reported in the financial statements. The accrual basis of accounting is used for the Plan. Under the accrual basis of accounting, revenues are recognized when they are earned and collection is reasonably assured, and expenses are recognized when the liability is incurred. Plan member contributions are recognized in the period in which the contributions are due. City contributions to the plan as calculated by the Plan's actuary, are recognized as revenue when due and the City has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan.
Investments in common stock and bonds traded on a national securities exchange are valued at the last reported sales price on the last business day of the year; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the mean between the past reported bid and asked prices; investments in securities not having an established market value are valued at fair value as determined by the Board of Trustees. The fair value of an investment is the amount that the Plan could reasonably expect to receive for it in a current sale between a willing buyer and a willing seller, other than in a forced or liquidation sale. Purchases and sales of investments are recorded on a trade date basis.
Investment income is recognized on the accrual basis as earned. Unrealized appreciation in fair value of investments includes the difference between cost and fair value of investments held. The net realized and unrealized investment appreciation or depreciation for the year is reflected in the Statement of Changes in Fiduciary Net Position.
Plan Description. The Plan is a pension trust fund (fiduciary fund type) of the City which accounts for the single employer defined benefit pension plan for all City Firefighters. The provisions of the Plan provide for retirement, disability, and survivor benefits.
The restructured Plan is a defined benefit pension plan covering all full-time firefighters of the City of Lakeland, Florida (City). Participation in the Plan is required as a condition of employment. The Plan provides for pension, death and disability benefits. In addition, the Plan is a local law plan subject to provisions of Chapter 175 of the State of Florida Statutes.
The Plan, in accordance with the above statutes, is governed by a five-member pension board. Two firefighters who are elected by a majority of the members of the Plan, two are City residents, and a fifth member elected by the other four members constitute the pension board. The City and the Plan participants are obligated to fund all Plan costs based upon actuarial valuations. The City is authorized to establish benefit levels and the Board of Trustees approves the actuarial assumptions used in the determination of contribution levels.
A-22 Pension Benefits - The pension plan provides retirement, death and disability benefits for its participants. A participant may retire early after reaching age 50 and accumulating 10 or more years of credited service; normal retirement age is 55 and completing 10 years of credited service or after reaching age 52 with 25 years of credited service.
The amount of the normal retirement benefit is as follows:
A member who began employment as a firefighter prior to October 1, 2003 and retires on or after the normal retirement date shall receive a monthly benefit of 3.30 percent of average final compensation for each year of credited service. A member who began employment as a firefighter on or after October 1, 2003 and retires on or after the normal retirement date shall receive a monthly benefit of 3.0 percent of average final compensation for each year of credited service. The monthly benefit shall commence on the first day of the month coincident with or next following a member's retirement and be continued thereafter during the member's lifetime, ceasing upon death, but with 120 monthly payments guaranteed in any event.
Disability Benefits - A member having 10 or more years of credited service or a member who becomes totally and permanently disabled in the line of duty regardless of length of service, may retire from the City if the member becomes totally and permanently disabled as defined in subsection (b) by reason of any cause other than a cause set out in subsection at on or after the effective date of the plan. Such retirement shall herein be referred to as "disability retirement." The applicable disability presumptions in Florida Statutes 112 and 175, in effect at the time of disability shall apply.
Death Benefits - If the participant dies prior to retirement the beneficiary shall receive the following benefit:
(1) Prior to Vesting. The beneficiary of a deceased member who was not yet vested, or who has no surviving spouse, shall receive a refund of 100% of the member's accumulated contributions, without interest.
(2) Deceased Firefighters with Ten or More Years Credited Service. For any actively employed member who has ten or more years of credited service as of his date of death, his or her beneficiary is entitled to the benefits otherwise payable to the member at early or normal retirement age.
A-23 Pension plan membership for the Plan as of October 1, 2015 is shown in the following table:
Active plan members 154 Retirees and beneficiaries 100 DROP participants 15 Terminated vested plan members 8 Total 277
Deferred Retirement Option Plan (DROP). Any eligible participant may elect to participate in a deferred retirement option plan (DROP) while continuing his or her active employment as a firefighter. Upon participation in the DROP, the participant becomes a retiree for all plan purposes so that he or she ceases to accrue any further benefits under the pension plan. Normal retirement payments that would have been payable to the participant as a result of retirement are accumulated and invested in the DROP to be distributed to the participant upon his or her termination of employment. An eligible member may participate in DROP for a maximum of sixty months or any time before and must provide a thirty-day advance notice.
Back DROP - An eligible member may elect the Back-DROP option and must immediately retire and terminate city employment, and is not eligible to participate in DROP or PLOP. Under this option, a member receives a lump sum amount equal to up to sixty months of retirement benefits plus interest at a rate of 3% per annum, upon entry into the DROP, deposited into the DROP account. The member's monthly benefit is actuarially reduced to reflect the actuarial cost to the system of the lump sum amount. The monthly pension benefit is calculated based on the benefit levels in place on the date the member first became eligible for DROP.
Partial Lump Sum (PLOP) - A member with twenty-five (25) or more years of credited service who is eligible for normal or early retirement may, at the time of retirement or entry into DROP, elect to receive or have deposited into the member's DROP account, up to a maximum of twenty percent (20%) in five percent increments, of the total actuarial equivalent value of the member's accrued benefit paid as a lump sum, with the remaining percentage paid in a monthly amount in accordance with the option selected by the member. The benefit amount of the member who has attained age 50 but is not eligible for normal retirement upon electing a partial lump sum option shall be reduced in accordance with the terms of the Plan. The benefit amount of a member who elects a partial lump sum option prior to age 50 shall be actuarially reduced to reflect the actuarial cost to the system of the partial lump sum option.
At October 1, 2015 there were 15 DROP participants.
Cost of Living Adjustment. No cost of living increase was awarded for fiscal year 2017.
A-24 Funding Policy, Contributions Required, and Contributions Made. As of September 30, 2017, participants were required to contribute 7.08% of their annual earnings to the Plan. The exception is for members that were already participating in the Employees Plan DROP Plan. These participants will contribute 3% of their annual earnings. Prior to October 1, 1995, contributions to the System were made on an after- tax basis. Subsequent to this date, contributions are made on a pre-tax basis pursuant to an amendment to the Plan terms. These contributions are designated as employee contributions under Section 414(h)(2) of the Internal Revenue Code. Contribution requirements of the Plan's participants are established and may be amended by the City of Lakeland, Florida. The City's funding policy is to make actuarially computed monthly contributions to the Plan in amounts, such that when combined with participants' contributions and the State insurance excise tax rebate, all participants' benefits will be fully provided for by the time that they retire.
The City's actuarially determined contribution rate for the year ended September 30, 2017 was 12.73%. For the year ended September 30, 2017, the City contributed $1,410,862 and the employees contributed $868,091.
Pension Liability. The City's net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date.
Actuarial assumptions. The total pension liability in the October 1, 2015 actuarial evaluation rolled-forward to September 30, 2016 was determined using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return 7.25% Salary increases 6.00% Inflation rate 3.00% Mortality table RP-2000 Combined Healthy Participant Mortality Table for males and females with mortality improvement projected using Scale AA after 2000 Active employees RP-2000 combined healthy - (sex distinct) Retired pensioners RP-2000 combined healthy - (sex distinct) Disabled pensioners RP-2000 (combined healthy) with no projection, set forward 5 years
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long- term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of measurement date September 30, 2016 are summarized in the following table:
A-25 Long-term Expected Real Rate Asset Class (Market) Target Allocation of Return Domestic Equity 40.00% 7.50% International Equity 15.00 8.50 US Core Fixed Income 25.00 2.50 International Fixed Income 5.00 3.50 Real Return Alternative 12.50 5.00 REITS 2.50 2.50 TOTAL 100.00%
The discount rate used to measure the total pension liability was 7.50%. The projection of cash flows used to determine the Discount Rate assumed that Plan Member contributions will be made at the current contribution rate and that Sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the Member rate. Based on those assumptions, the Pension Plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the Long-Term Expected Rate of Return on Pension Plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability.
Changes in the Net Pension Liability
Increase (Decrease) Total Pension Plan Fiduciary Net Pension Changes for the year: Liability (a) Net Position (b) Liability (a)-(b) Service cost 2,228,737 2,228,737 Interest 6,882,719 6,882,719 Contribution - employer 1,558,306 (1,558,306) Contribution - employee 748,173 (748,173) Contribution - state 776,564 (776,564) Projected earnings on investments 6,402,044 (6,402,044) Difference between actual & expected experience 229,162 229,162 Benefit payments (5,682,715) (5,682,715) Changes of assumptions 1,835,684 1,835,684 Contributions - buy back 119,786 119,786 Administrative Expense (119,359) 119,359 Other (misc. income) 3,266 (3,266) Net Changes 5,613,373 3,806,065 1,807,308 Total - Beginning 92,048,107 83,650,025 8,398,082 Total - Ending 97,661,480 87,456,090 10,205,390
A-26 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City, calculated using the discount rate of 7.50%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50 percent) or 1-percentage-point higher (8.50 percent) than the current rate.
Decrease Discount Increase Rate (6.50%) Rate (7.50%) Rate (8.50%) City's net pension liability $21,421,296 $10,205,390 $1,174,945
Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued City of Lakeland's Firefighters' Retirement System financial report.
Deferred Outflows of Deferred Inflows Resources of Resources Current year contributions - employer $2,334,870 - Difference between actual and expected experience - $232,536 Changes in assumptions 1,573,443 - Net Difference between projected and actual earnings 4,197,614 - Total $8,105,927 $232,536
The outcome of the Deferred Outflows of resources related to pensions resulting from Employer and State contributions subsequent to the measurement date will be recognized as a reduction of the Net Pension Liability in the year ended September 30, 2018. Other amounts reported as Deferred Outflows of Resources and Deferred Inflows of Resources related to pensions will be recognized in Pension Expense as follows:
Fiscal year ended September 30th: 2018 $1,568,931 2019 1,568,931 2020 1,662,865 2021 147,838 294,978 Thereafter 294,978 $5,538,521
$2,334,870 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2018.
A-27 Payable to the Pension Plan. At September 30, 2017, the City reported a payable of $81,298 for the outstanding amount of contributions to the pension plan required for the year ended September 30, 2017.
The aggregate net pension liability, deferred inflows of resources related to pensions, deferred outflows of resources related to pensions, and pension expense for the City as of September 30, 2017 are as follows:
Police Officers' Employees' Defined Pension and Benefit Firefighters' Retirement Retirement Retirement System System System Total Deferred outflows of resources related to pensions $ 34,347,617 $11,502,760 $ 8,105,927 $ 53,956,304 Net pension liability 135,059,029 35,756,925 10,205,390 181,021,344 Deferred inflows of resources related to pensions 1,433,954 2,423,770 232,536 4,090,260 Pension expense 19,089,871 3,957,040 3,069,197 26,116,108
Condensed Financial Information
Condensed financial data for the City's Defined Benefit Pension Plans for the year ended September 30, 2017 is presented below.
Condensed Statement of Net Position
Employee's Police Officers' Pension and Defined Benefit Firefighters' Retirement Retirement Retirement System System System Assets $577,954,287 $119,468,792 $94,134,130 Liabilities 859,280 132,458 30,368 Net Position Net Position Restricted for DROP benefits 20,691,883 1,897,188 2,496,732 Net Position Restricted for pension benefits 556,403,124 117,439,146 91,607,030 $577,095,007 $119,336,334 $94,103,762
A-28 Condensed Statement of Changes in Plan Net Position
Employee's Police Officers' Pension and Defined Benefit Firefighters' Retirement Retirement Retirement System System System Additions Contributions $ 22,339,849 $ 5,734,349 $ 3,005,133 Investment incomes 67,427,096 12,712,975 9,599,190 All other 142,296 3,202 100 Total additions 89,909,241 18,450,526 12,604,423
Deductions Benefits paid 41,464,441 7,362,543 5,846,514 Refunds, former employees 970,232 180,104 - All other 241,172 198,498 110,237 Total deductions 42,675,845 7,741,145 5,956,751
Change in net position 47,233,396 10,709,381 6,647,672 Net position, beginning of year 529,861,611 108,626,953 87,456,090 Net position, end of year $577,095,007 $119,336,334 $94,103,762
For more information, pertaining to the aforementioned plans refer to the City of Lakeland, Florida stand-alone financial statements for each plan, which can be obtained by contacting the City of Lakeland, Finance Department, City Hall, 228 S. Massachusetts Ave., Lakeland, FL 33801-5086.
Defined Contribution Pension Plan
The Police Officers' Defined Benefit Retirement System ("PODBRS") included a defined contribution Share plan component as of September 30, 2010. In subsequent years, the PODBRS Board will determine Share allocations based on election made by the participants in the plan and their service during the plan year.
For more information pertaining to the Police Officers' Defined Benefit Retirement System (PODBRS) refer to the City of Lakeland, Florida stand-alone financial statements for the plan, which can be obtained by contacting the City of Lakeland, Finance Department, City Hall, 228 S. Massachusetts Ave., Lakeland, FL 33801-5086.
The assets of the City's Alternate Pension Plan were transferred to a third party administrator in the name of the participants. The City no longer has any fiduciary
A-29 responsibilities concerning the plan. The City's involvement in the plan is limited to remitting the amounts paid by the participants to a third party.
Other Postemployment Benefits
Plan Description. Effective October 1, 2007, the City adopted the provisions of GASB Statement No. 45, "Accounting and Financial Reporting by Employers for Post- employment Benefits Other Than Pensions." The City's financial statements reflect a long-term liability of $22,321,682 and $24,509,539 and related expenses of $2,205,221 and $2,526,779 in governmental and business-type activities, respectively, resulting from the adoption.
In addition to providing pension benefits, the City Commission has agreed to offer subsidized post-employment health care benefits to former employees who are receiving retirement benefits from the City in conjunction with the Employees' Pension and Retirement System Plan.
The Retiree Health Insurance Plan is a single-employer defined benefit healthcare plan administered by the City of Lakeland Retiree Healthcare Trust. The plan provides for healthcare insurance for eligible retirees and their spouses and dependents through the City-sponsored health insurance plan as formally adopted by City ordinance. One other form of subsidy consists of a payment of up to 50 percent of the cost of Part A Medicare insurance coverage purchased by a former employee who is not otherwise eligible for Medicare coverage. To date, there have been no participants in this program. Under Florida Statue 112.08 if the City offers insurance to active employees, the City must offer the same to the retirees. The difference is the City can charge the full premium to the retiree based on the active employees/city portion of the premiums for the plan their enrolled in The Plan does not issue a stand-alone publicly available financial report.
Funding Policy. The contribution percentages are set forth by City ordinance. This plan consists of a payment equal to 50 percent of the normal monthly insurance premium levied by the City's self-insured health insurance program. In fiscal year 2004, the subsidy was reduced to 40 percent; and in fiscal year 2005, the subsidy was reduced to 35 percent. Effective October 1, 2002, all current employees, who retire on or after October 1, 2002, will be offered a health premium subsidy based on years of services as follows: 10-14 years of service 15 percent, 15-19 years of service 25 percent, and 20 years or more 35 percent. Retirees are required to make an election as to participation in the City-sponsored health insurance plan upon retirement. Effective January 1, 2003, any employee, who wishes to have his/her spouse and dependents insured on the City of Lakeland's Health Insurance Plan prior to retirement, will be required to have them on the plan one year prior to retirement. Should a participant at any time elect not to purchase coverage from the City-sponsored plan, all eligibility for future participation in that plan, including rights to the subsidy, is terminated. Effective January 1, 2003, all new hires
A-30 will not be eligible for the retiree subsidy plan which has been formally adopted by City ordinance 4379.
In accordance with the implementation of Governmental Accounting Standard 45 for the treatment of Other Post-Employment Benefits (OPEB), the City has implemented this statement prospectively. The annual required contribution provided to the City as part of the actuarial valuation report prepared on October 1, 2016 for the year ended September 30, 2017 for the plan was $14,743,552. A total of 669 retirees participated in the plan during the fiscal year ended September 30, 2017 incurring total contributions of $8,100,958 paid by the City. A portion of the OPEB cost was funded on a pay-as-you-go basis. However, the City has established a Trust to accumulate and invest assets necessary to pay for the accumulated liability.
Plan Membership. A summary of the current active and inactive employees and the criteria of the classes participating in the plan is as follows:
Active plan members 2,257 Inactive plan members participating in the health plan 669 Inactive plan members currently receiving a subsidy 1,376
Normal Retirement Early Retirement General Employees: Hired before October 1, 2003 60 + 10 years 50 + 1 0 years or 30 years Hired after September 30, 2003 62 + 10 years 52 + 10 years or 30 years Hired after February 25, 2012 62 + 5 years 52 + 5 years Firefighters 55 + 10 years or 52 + 25 years 50 + 10 years Police 55 + 10 years or 25 years 10 years
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A-31 Annual OPEB Cost and Net OPEB Obligation. The City's annual other post- employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) actuarially determined in accordance with the parameters on GASB Statement 45. In 2017, the City's ARC was $14,743,552 and OPEB expense was $14,768,530. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liabilities over a period of thirty years. The following table shows the City's annual OPEB cost, current year contributions, and the net OPEB obligation at September 30, 2017 and September 30, 2016.
September 30 2017 2016 Annual Required Contribution $14,743,552 $12,645,000 Interest on net OPEB Obligation 1,806,138 1,761,000 Adjustment to ARC (1,781,160) (1,647,000) Annual OPEB cost (expense) 14,768,530 12,759,000 Contributions Made (8,100,958) (6,091,000) Change in OPEB obligation 6,667,572 6,668,000 Net OPEB obligation, beginning of year 56,026,000 49,358,000 Net OPEB obligation, end of year $62,693,572 $56,026,000
The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the five previous Fiscal Years were as follows:
% of Annual OPEB Net OPEB Annual OPEB Cost Cost Contributed Obligation 2017 $14,768,530 36% $62,693,572 2016 12,759,000 48 56,026,000 2015 10,987,000 57 49,358,000 2014 10,327,000 38 44,626,000 2013 10,898,000 38 38,196,000
Funded Status and Funding Progress. As of October 1, 2016, the most recent actuarial valuation date, the plan was 3.22% funded. The actuarial accrued liability for benefits was $203,060,668, and the actuarial value of assets was $6,535,062, resulting in an unfunded actuarial accrued liability (UAAL) of $196,525,606. The covered payroll (annual payroll of active employees covered by the plan) was $123,888,256 and the ratio of the unfunded actuarial accrued liability to the covered payroll was 158.63%.
The projection of future benefit payments for the plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events
A-32 in the future. Examples include retirement age, mortality, terminations, salaries, dependent composition, and plan participation. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
The Schedule of Funding Progress, presented as Required Supplementary information following the Notes to the Financial Statements, presents the trend information about the actuarial results relative to the accrued actuarial liability for benefits. Additionally, since the requirements of GASB Statement No. 45 have been implemented prospectively, the RSI only reflects similar information of the three preceding years.
Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of the valuation and the historical pattern of sharing of actuarial methods and assumptions used including techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events into the future; as such these actuarial amounts are subject to continual valuation.
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A-33 Significant Assumptions: The date of the actuarial valuation on which the plan's liability was determined is September 30, 2017. The following actuarial assumptions were applied.
Entry age normal based on level Actuarial cost method percentage of projected salary Valuation Date September 30, 2017 Projected benefit payment period 6.2 years Discount rate Implicit 3.63% Explicit 6.96% Health care cost trend rate: Medical and Rx benefits Select 7.00% Ultimate 4.50% Stop loss fees Select 7.00% Ultimate 4.50% Administrative Select 4.50% Ultimate 4.50% Inflation rate 2.5% per annum Salary Changes 3.5% per annum Post-employment benefit changes N/A RP-2014 Table generational table scheduled Mortality rates using MP-17 and applied gender specific
Long-term expected rate of return Tax-exempt, high quality municipal bond Asset valuation fair market value
The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll over a period of thirty years on an open basis.
A-34 Financial Statements. Financial Statements for the City's Retiree Healthcare Trust Fund for the year ended September 30, 2017 are presented below.
STATEMENT OF PLAN NET POSITION RETIREE HEALTH CARE TRUST FUND SEPTEMBER 30, 2017
ASSETS Cash and cash equivalents $ 203,564 Due from employees 70,242 Investments 7,250,917 Total assets $7,524,723
NET POSITION Restricted for other post employment benefits 1,083,443 Restricted for pension benefits and other purposes 6,441,280 other post-employment benefits $7,524,723
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A-35 STATEMENT OF CHANGES IN PLAN NET POSITION RETIREE HEALTH CARE TRUST FUND FOR THE YEAR ENDED SEPTEMBER 30, 2017
ADDITIONS Contributions: Employer $ 7,878,120 Plan members 222,838 Total contributions $ 261,950
Net investment income: Net increase in the fair value of the investments $ 554,946 Interest and dividends 239,993 Net investment income $ 794,939 Total additions, net $8,895,897
DEDUCTIONS Benefits paid $7,904,042 Refunds, former plan members 2,194 Total deductions $7,906,236 Change in net position 989,661 NET POSITION, beginning of year $6,535,062 NET POSITION, end of year $7,524,723
There are no separate statements for the Retiree Healthcare Trust Fund.
Health Insurance Trust Fund. Effective October 1, 2016, the Retiree Healthcare Trust Fund adopted the provisions of GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This Statement replaces Statements No. 43, Financial Reporting for Post-employment Benefit Plans Other Than Pension Plans, as amended by No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plants.
Actuarial assumptions. The total OPEB liability was determined by an actuarial valuation as of September 30, 2017, using the previously listed actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified.
Interest rates. Discount (or interest) rates are used to reflect the time value of money. Discount rates are used in determining the present value of the valuation date of future cash flows currently expected to be required to satisfy the postretirement benefit
A-36 obligation. The long-term expected rate of return using arithmetic mean on OPEB investments was determined using the rate of return on tax-exempt, high quality municipal bonds (20 year, tax-exempt municipal bond - 3.63%) blended with the expected rate of return on trust assets.
The discount rate used to measure the total OPEB liability was 3.63% for the implicit subsidy and 6.96% for the explicit subsidy. The discount rate increased from 3.06%. The municipal bond rate used in the discount rate is the Bond Buyer 20-Bond GO Index.
The annual money-weighted rate of return that expresses investment performance, net of investment expense, adjusted for changes in the amount actually invested was 15.1%.
Investments. Investments are held in the City's Consolidated Investment Fund. For information regarding the Consolidated Fund's investment policies, asset allocations, and descriptions of significant investments, refer to Note 3.C.
Concentration. The Plan had the following investments that comprise 5% or more of the Plan's total fiduciary net position.
% of Total Fiduciary Investment Balance Net Position BlackRock Strategic Income Opportunities $594,114 7.90% Portfolio Institutional Shares
The rates of return for the assets of the Trust as of September 30, 2017 are summarized in the following table.
Returns (with % of Net Asset Allocation % inflation) Balance Position Consolidated funds 95.3% 7.30% $7,250,917 9% Money market funds 3.1 1.50 191,064 3 Cash 0.6 0.00 12,500 0 Accounts receivable 1.0 7.30 70,242 1 Total 100.0% 8.80% $7,524,723 100%
Rate of return. For the year ended September 30, 2017, the annual rate of return (with inflation) was 6.96%.
Projected benefit payments. The long-term expected rate of return is used for the first two years of the benefit payments. Thereafter, the municipal bond rate index is applied to the remainder of the life of the plan.
A-37 Net OPEB liability. The components of the Net OPEB Liability for the Health Insurance Trust Fund as September 30, 2017 were as follows:
Total OPEB Liability $196,734,742 Fiduciary Net Position 7,524,723 Net OPEB Liability $189,210,019 Fiduciary Net Position as a percentage of the total OPEB liability 3.82%
The City is not required to report this liability on its financial statements for the year ended September 30, 2017, in accordance with the adoption requirements of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.
Changes in net OPEB liability.
Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability Beginning Balances $203,060,668 $6,535,062 $196,525,606 Changes for the year: Service Cost 7,162,205 - 7,162,205 Interest Cost 8,573,827 - 8,573,827 Benefit Payments (8,100,958) (7,906,236) (194,722) Changes in Assumptions (13,961,000) - (13,961 ,000) Contributions - Employers - 8,100,958 (8, 1 00,958) Investment Income - 794,939 (794,939) Net Changes (6,325,926) 989,661 (7,315,587) Ending Balances $196,734,742 $7,524,723 $189,210,019
Sensitivity of the OPEB liability to changes in the discount rate. The sensitivity of the net OPEB liability to a discount rate 1% (4.63%) higher and 1% lower (2.63%) than the discount rate of 3.63% is as follows:
Discount Rate Net OPEB Liability % Difference 4.63% $152,603,000 -19% 3.63 189,210,019 - 2.63 225,033,000 19%
A-38 Sensitivity to the net OPEB liability to changes in the healthcare cost trend rate. The sensitivity of the net OPEB liability using healthcare cost trend rates 1% higher and 1% lower than the current trend rates is as follows:
Discount Rate Net OPEB Liability % Difference 1% decrease $155,373,000 -18% Current trend 189,210,019 - 1% increase 220,757,440 17%
Survivor Benefit Trust Fund. The City Commission through Ordinance No. 3434, established the Employees' Survivor's Benefit Fund to provide a life insurance benefit of 12 times the monthly retiree benefit up to $150,000 to eligible beneficiaries of certain retirees meeting eligibility requirements. Upon the death of any employee who is regularly retired and currently receiving a pension benefit under the City of Lakeland Employee Pension Fund. The City pays an annual insurance premium to the underwriter who assumes the liability for benefit payments to beneficiaries. The City paid $614,078 in insurance premiums for fiscal year 2017.
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APPENDIX B
COMPOSITE OF ORDINANCE NO. 4034, AS AMENDED
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COMPILED VERSION OF ORDINANCE NO. 4034 AS AMENDED BY ORDINANCE NOS. 4214, 5206, 5330 AND 5433
Proposed Ordinance No. 99-29
ORDINANCE NO. 4034
CITY OF LAKELAND
ENERGY SYSTEM REVENUE OBLIGATION ORDINANCE
CITY OF LAKELAND ENERGY SYSTEM REVENUE OBLIGATION ORDINANCE
Table Of Contents
(This table of contents is not part of the Energy System Revenue Obligation Ordinance and is only for convenience of reference.)
Page
ARTICLE I AUTHORITY FOR THIS ORDINANCE; RESTATEMENT OF ORDINANCE NO. 2433 ...... 2 SECTION 1.01. Authority for Ordinance...... 2 SECTION 1.02. Amendment and Restatement of Original Ordinance...... 2
ARTICLE II DEFINITIONS ...... 2 SECTION 2.01. Definitions...... 2 SECTION 2.02. Singular/Plural...... 15
ARTICLE III FINDINGS ...... 15 SECTION 3.01. Findings...... 15
ARTICLE IV THIS INSTRUMENT TO CONSTITUTE CONTRACT ...... 16 SECTION 4.01. Instrument to Constitute Contract...... 16
ARTICLE V AUTHORIZATION, DESCRIPTION, FORM AND TERMS OF OBLIGATIONS ...... 16 SECTION 5.01. Authority for Issuance of Obligations...... 16 SECTION 5.02. Description of Obligations...... 16 SECTION 5.03. Execution of Obligations...... 19 SECTION 5.04. Obligations Mutilated, Destroyed, Stolen or Lost...... 20 SECTION 5.05. Provisions for Redemption...... 20 SECTION 5.06. Effect of Notice of Redemption...... 22 SECTION 5.07. Redemption of Portion of Registered Obligations...... 22 SECTION 5.08. Obligations Called for Redemption not Deemed Outstanding...... 22 SECTION 5.09. Application of Proceeds...... 23 SECTION 5.10. Temporary Obligations...... 23
ARTICLE VI SOURCE OF PAYMENT OF OBLIGATIONS; SPECIAL OBLIGATIONS OF THE ISSUER ...... 23 SECTION 6.01. Obligations Not to be Indebtedness of the Issuer...... 23 SECTION 6.02. Pledge of Trust Estate...... 24
i ARTICLE VII CREATION AND USE OF FUNDS AND ACCOUNTS; DISPOSITION OF REVENUES ...... 24 SECTION 7.01. Creation of Funds and Accounts...... 24 SECTION 7.02. Revenue and Operating Fund; Disposition of Revenues...... 24 SECTION 7.03. Capital Fund...... 26 SECTION 7.04. Debt Service Payments...... 26 SECTION 7.05. Reserve Fund...... 27 SECTION 7.06. Cancellation and Disposition of Obligations...... 29 SECTION 7.07. Deletion of Water System...... 30
ARTICLE VIII DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS ...... 30 SECTION 8.01. Deposits Constitute Trust Funds...... 30 SECTION 8.02. Investment of Moneys...... 31
ARTICLE IX GENERAL COVENANTS OF THE ISSUER ...... 31 SECTION 9.01. Maintenance of System; Disposition...... 31 SECTION 9.02. Operating Budget...... 32 SECTION 9.03. Rate Covenant...... 32 SECTION 9.04. Books and Records...... 33 SECTION 9.05. Reports and Annual Audits...... 33 SECTION 9.06. Insurance and Condemnation Awards...... 34 SECTION 9.07. Enforcement of Collections...... 34 SECTION 9.08. Additions to System...... 34 SECTION 9.09. Notice of Change in Investment Policy...... 35
ARTICLE X ISSUANCE OF ADDITIONAL OBLIGATIONS ...... 35 SECTION 10.01. Creation of Liens, Issuance of Subordinated Indebtedness, Subordinated Contract Obligations and Debt...... 35 SECTION 10.02. Issuance of Parity Obligations...... 36 SECTION 10.03. Separately Financed Project...... 37 SECTION 10.04. Credit Facilities; Qualified Swaps and Other Similar Arrangements; Parity Debt...... 38
ARTICLE XI EVENTS OF DEFAULT; REMEDIES ...... 40 SECTION 11.01. Events of Default...... 40 SECTION 11.02. Enforcement of Remedies...... 41 SECTION 11.03. Effect of Discontinuing Proceedings...... 42 SECTION 11.04. Directions to Trustee as to Remedial Proceedings...... 42 SECTION 11.05. Pro Rata Application of Funds...... 43 SECTION 11.06. Restrictions on Actions by Individual Bondholders...... 44 SECTION 11.07. Appointment of a Receiver...... 45
ii ARTICLE XII MISCELLANEOUS PROVISIONS ...... 45 SECTION 12.01. Modification or Amendment...... 45 SECTION 12.02. Defeasance and Release of Ordinance...... 47 SECTION 12.03. Tax Covenants...... 48 SECTION 12.04. Severability...... 49 SECTION 12.05. No Third-Party Beneficiaries...... 50 SECTION 12.06. Controlling Law; Members of Issuer Not Liable...... 50 SECTION 12.07. Effective Date...... 50
iii Proposed Ordinance No. 99-29
ORDINANCE NO. _____
AN EMERGENCY ORDINANCE OF THE CITY OF LAKELAND, FLORIDA, AMENDING AND RESTATING IN ITS ENTIRETY ORDINANCE NO. 2433, AS PREVIOUSLY AMENDED AND RESTATED; AUTHORIZING THE ISSUANCE OF ENERGY SYSTEM REVENUE BONDS OF THE CITY; PROVIDING FOR THE PAYMENT OF SUCH BONDS FROM CERTAIN REVENUES OF THE CITY'S ENERGY SYSTEM AND, TO THE EXTENT PROVIDED HEREIN, THE CITY'S WATER SYSTEM; PROVIDING TERMS AND CONDITIONS FOR THE ISSUANCE OF ADDITIONAL OBLIGATIONS ON A PARITY WITH SUCH BONDS; MAKING CERTAIN COVENANTS AND AGREEMENTS IN CONNECTION THEREWITH; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, on June 17, 1983, the Issuer (as hereinafter defined) enacted Ordinance No. 2433 ("Ordinance No. 2433") authorizing the issuance of Electric and Water Revenue Bonds of the Issuer; and
WHEREAS, Ordinance No. 2433 was amended and restated on January 20, 1984 and was subsequently amended by Ordinance No. 2779 enacted on March 28, 1986, Ordinance No. 2789 enacted on April 21, 1986 and Ordinance No. 3152 enacted on November 20, 1989, and was again amended and restated in its entirety by Ordinance No. 3837 enacted on August 18, 1997 (Ordinance No. 2433, as so amended and restated is referred to herein as the "Original Ordinance"); and
WHEREAS, in order to better enable the Issuer and the System (as hereinafter defined) to address anticipated regulatory and competitive changes affecting the electric utility industry, the Issuer desires to amend and restate the Original Ordinance to restructure certain covenants pertaining to the operation, management and financing of the System; and
WHEREAS, Section 4.01 of the Original Ordinance permits the amendment thereof with the consent of Owners of two-thirds or more in principal amount of the Bonds then Outstanding, or with respect to certain matters, the consent of the Owners of all the Bonds Outstanding and the requisite consent is being obtained simultaneously herewith;
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COMMISSION OF THE CITY OF LAKELAND, FLORIDA, THAT: ARTICLE I
AUTHORITY FOR THIS ORDINANCE; RESTATEMENT OF ORDINANCE NO. 2433
SECTION 1.01. Authority for Ordinance.
This Ordinance is enacted pursuant to Section 159.11, Florida Statutes, Chapter 166, Florida Statutes, Article VIII, Section 2, Constitution of the State of Florida, the Charter of the City of Lakeland, Florida and other applicable provisions of law.
SECTION 1.02. Amendment and Restatement of Original Ordinance.
On the effective date of this Ordinance, pursuant to Section 4.01 thereof, the Original Ordinance shall be amended and restated in its entirety and superceded and replaced by this Ordinance.
ARTICLE II
DEFINITIONS
SECTION 2.01. Definitions.
As used herein, unless the context otherwise requires:
"Accreted Values" means, as of any date of computation with respect to any Capital Appreciation Bond, an amount equal to the principal amount of such Capital Appreciation Bond (the principal amount at its initial offering) plus the interest accrued on such Capital Appreciation Bond from the date of delivery to the original purchasers thereof to the Compounding Date next preceding the date of computation or the date of computation if a Compounding Date, such interest to accrue at a rate not exceeding the maximum rate permitted by law, compounded periodically, plus, with respect to matters related to the payment upon redemption of the Capital Appreciation Bonds, if such date of computation shall not be a Compounding Date, a portion of the difference between the Accreted Value as of the immediately preceding Compounding Date and the Accreted Value as of the immediately succeeding Compounding Date, calculated based on the assumption that Accreted Value accrues during any period in equal daily amounts on the basis of a year of twelve 30-day months.
"Act" means Section 159.11, Florida Statutes, Chapter 166, Florida Statutes, Article VIII, Section 2, Constitution of the State of Florida, the Charter of the City of Lakeland, Florida and other applicable provisions of law.
"Annual Budget" means the annual operating budget of the System, as amended and supplemented from time to time, prepared by the Issuer for each
2 Fiscal Year in accordance with Section 9.02 below and in accordance with the laws of the State of Florida.
"Authorized Depository" means any bank, trust company, national banking association, savings and loan association, savings bank or other banking association selected by the Issuer as a depository hereunder.
"BMA Municipal Index" means The Bond Market Association Municipal Swap Index as of the most recent date for which such index was published, or such other weekly, high-grade index comprised of seven-day, tax- exempt variable rate demand notes produced by Municipal Market Data, Inc., or its successor, or as otherwise designated by The Bond Market Association or any successor thereto; provided, however, that, if such index is no longer produced by Municipal Market Data, Inc. or its successor, then "BMA Municipal Index" shall mean such other reasonably comparable index selected by the Issuer.
"Bond Counsel" means counsel experienced in matters relating to the validity of, and the exclusion from gross income for federal income tax purposes of interest on, obligations of states and their political subdivisions selected by the Issuer.
"Bondholders," "Registered Owner," "Holder," and "Owner" means the registered owners (or their authorized representatives) of Obligations issued in registered form and the holders of Obligations issued in bearer form.
"Bond Obligation" means, as of the date of computation, the sum of: (i) the principal amount of all Current Interest Bonds then Outstanding and (ii) the Accreted Value on all Capital Appreciation Bonds then Outstanding.
"1992 Bonds" means the City of Lakeland, Florida Electric and Water Revenue Bonds, Refunding Series 1992.
"1999A Bonds" means the City of Lakeland, Florida Electric and Water Refunding Revenue Bonds, Series 1999A.
"Bond Service Requirement" means for a given Bond Year the remainder after subtracting any accrued interest paid by the purchasers of Obligations and capitalized interest for that year that has been deposited into the Revenue and Operating Fund for that purpose from the sum of the principal of and interest and premium, if any, or other payments on Parity Debt coming due in such Bond Year on Obligations issued under this Ordinance and any Parity Debt issued in accordance with the terms hereof.
For purpose of determining the Bond Service Requirement, unless the interest rate is fixed for the duration of the applicable Bond Year, in which case the actual interest rate shall be used, the interest rate on Variable Rate Obligations that are Outstanding at the time of such determination, shall be assumed to be one hundred ten percent (110%) of the average interest rate on such Variable Rate
3 Obligations during the twelve months ending with the month preceding the date of calculation (or such shorter period of time as such Variable Rate Obligations shall have been Outstanding). If such Variable Rate Obligations are not Outstanding on the date of such calculation, the interest rate used to calculate the Bond Service Requirement, if the Obligations are Tax-Exempt Obligations, shall be 110% of the BMA Municipal Index on the date of calculation, and if the Obligations are Taxable Obligations shall be the interest rate on U.S. Treasury Obligation with comparable maturities, plus 50 basis points, on the date of calculation.
If a Series of Variable Rate Obligations is subject to purchase by the Issuer pursuant to a mandatory or optional tender by the holder, the "tender" date or dates shall be ignored and the stated maturity dates thereof shall be used for purposes of this calculation.
For all purposes of this Ordinance, if, with respect to any Series or portion of a Series of Variable Rate Obligations, the Issuer enters into a Qualified Swap providing for payments to the Issuer which are included in Revenues in an amount equal to interest on a notional amount equal to the principal amount of such Obligations (which may include all or any portion of the principal amount of a Series of Variable Rate Obligations) Outstanding, based upon a fixed rate or a variable index or formula different from that used to calculate interest on such Obligations, then the effective rate of interest to the Issuer with respect to such Obligations taking into account (i) the actual interest rate borne by such Obligations, (ii) payments to be received by the Issuer pursuant to such Qualified Swap and (iii) payment obligations of the Issuer to the counterparty under such Qualified Swap, all based upon interest on such notional amount as determined by reference to a fixed rate or variable index or formula, shall be used for purposes of this definition as the actual rate of interest with respect to such Obligations.
If two Series of Variable Rate Obligations, or one or more maturities within a Series, are issued simultaneously with inverse floating interest rates providing a composite fixed interest rate for such Obligations taken as a whole, such composite fixed rate shall be used in determining the Bond Service Requirement with respect to such Obligations.
For purposes of calculating the Bond Service Requirement with respect to Designated Maturity Obligations, the unamortized principal coming due on the final maturity date thereof that the Issuer reasonably anticipates refinancing, as reflected in the Annual Budget, shall not be included and in lieu thereof, there shall be included in the Bond Service Requirement for the Bond Year in which such final maturity occurs only the principal amount thereof the Issuer reasonably anticipates to become due in such Bond Year, taking into account any such anticipated refinancing of such Designated Maturity Obligations.
For purposes of calculating the Bond Service Requirement with respect to Commercial Paper Obligations, only the interest obligations with respect to such Commercial Paper Obligations and the principal amount of the Commercial Paper
4 Obligations the Issuer reasonably expects to retire and not to pay with the proceeds of roll-over Commercial Paper Obligations in such Bond Year (as reflected in the Annual Budget) shall be included in the calculation of the Bond Service Requirement. The interest rate on the Commercial Paper Obligations shall be assumed for purposes of calculating the Bond Service Requirement, to be equal to the greater of (i) 110% of the Bond Market Association Municipal Swap Index (or if such index is no longer available, such other reasonably comparable index as the Issuer shall designate) or (ii) the actual rate on such Commercial Paper Obligations.
(ix) In calculating the Bond Service Requirement on Subsidy Bonds, the amount of Subsidy Payments expected to be received on Subsidy Bonds on each respective interest payment date shall be netted against the amount of interest payable on such interest payment date, provided, however, that if for any reason, the Issuer is no longer entitled to, or will not, receive Subsidy Payments on any Outstanding Subsidy Bonds (other than as a result of a non-recurring reduction due to an offset of an amount due or alleged to be due from the Issuer to the federal government or any agency, branch or bureau thereof), for purposes of this definition, the interest on such Subsidy Bonds shall be determined without regard to such Subsidy Payments.
"Bond Year" means the annual period beginning on the first day of October of each year and ending on the last day of September of the following year; provided that when such term is used to describe the period during which deposits are to be made pursuant to Article VII hereof to amortize the principal and interest on the Obligations maturing or becoming subject to redemption, or the amount of debt service to be included in the Bond Service Requirement for purposes of Section 9.03 below, the principal and interest maturing or becoming subject to redemption on October 1 of any year shall be deemed to mature or become subject to redemption on the last day of the preceding Bond Year.
"Build America Bonds" shall mean any Obligations (or the allocable portion thereof) the Issuer has designated as "Build America Bonds" and as to which the Issuer has made an irrevocable election to have Section 54AA of the Code apply.
"Business Day" means a day other than (i) a Saturday, Sunday, legal holiday or day on which banking institutions in the city in which the Paying Agent has its principal corporate trust office are authorized or required by law or executive order to close, or (ii) a day on which the New York Stock Exchange is closed.
"Capital Appreciation Bonds" means Obligations that bear interest which is payable only at maturity or upon redemption prior to maturity in amounts determined by reference to the Accreted Values.
"Capital Costs" means the costs of (i) physical construction of or acquisition of real or personal property or interests therein for any Project, together
5 with incidental costs (including legal, administrative, engineering, consulting and technical services, insurance and financing costs), working capital and reserves deemed necessary or desirable by the Issuer (including but not limited to costs of supplies, fuel, fuel assemblies and components or interests therein), and other costs properly attributable thereto; (ii) all capital improvements or additions, including but not limited to, renewals or replacements of or repairs, additions, improvements, modifications or betterments to or for any Project; (iii) the acquisition of any other real property, capital improvements or additions, or interests therein, deemed necessary or desirable by the Issuer for the conduct of its business; (iv) any other purpose for which bonds, notes or other obligations of the Issuer may be issued under the Act (whether or not also classifiable as a Cost of Operation and Maintenance); and (v) the payment of principal, interest, and redemption, tender or Purchase Price of any (a) Obligations issued by the Issuer for the payment of any of the costs specified above, (b) any Obligations issued to refund such Obligations, or (c) Obligations issued to pay capitalized interest; provided, however, that the term Capital Costs shall not include any costs of the Issuer relating to a Separately Financed Project.
"Capital Fund" means the fund by that name established in Section 7.01 hereof.
"Chief Financial Officer" means the Finance Director of the Issuer or such other chief financial officer of the Issuer as defined in Section 218.403, Florida Statutes.
"Clerk" means the City Clerk or any Deputy City Clerk of the Issuer.
"Code" means the Internal Revenue Code of 1986, as amended, and applicable corresponding provisions of any future laws of the United States of America relating to federal income taxation, and except as otherwise provided herein or required by the context thereof, includes interpretations thereof contained or set forth in the applicable regulations of the Department of Treasury (including applicable final regulations, temporary regulations and proposed regulations), the applicable rulings of the Internal Revenue Service (including published Revenue Rulings and private letter rulings), and applicable court rulings.
"Commercial Paper Obligations" means all of the Obligations of a Series or a proportionate maturity thereof with a maturity of less than 271 days so designated by the Issuer by Supplemental Ordinance prior to the issuance thereof.
"Compounding Date" means a date for compounding of interest on Capital Appreciation Bonds as shown on a table of Accreted Values for such Capital Appreciation Bonds.
"Cost of Operation and Maintenance" means the current expenses, paid or accrued, of operation, maintenance and ordinary, current repair of the System and its facilities, and shall include, without limiting the generality of the foregoing, supplies, fuel, fuel assemblies and components required by the Issuer for
6 the operation of the System (including any payments made pursuant to a "take-or- pay" fuel supply or energy contract that obligates the Issuer to pay for fuel, energy or power regardless of whether fuel, energy or power is delivered or made available for delivery, other than any such contract or portion thereof that is designated by the Issuer pursuant to Article X, as either a Subordinated Contract Obligation or a Parity Contract Obligation), administrative expenses relating to the System, legal and engineering expenses, consulting and technical services, payments for energy conservation and load management programs, payments relating to fuel or electricity hedging instruments, payments for employee benefits, including payments to savings, pension, retirement, health and hospitalization funds, charges payable by the Issuer pursuant to any licenses, orders or mandates from any agent or regulatory body having lawful jurisdiction, and any taxes, governmental charges, and any other expenses required to be paid by the Issuer, all to the extent properly and directly attributable to the System; financing costs of any Series of Obligations; the expenses, liabilities and compensation of the Fiduciaries required to be paid hereunder or under any Supplemental Ordinance or pursuant to any agreement executed by the Issuer; all costs and expenses associated with or arising out of the research, development (including feasibility and other studies) and/or implementation of any project, facility, system, task or measure deemed desirable or necessary by the Issuer; and all other costs and expenses arising out of or in connection with the conduct of the business of the System, including those expenses the payment of which is not immediately required, such as those expenses referred in 7.02(B). Notwithstanding the foregoing, Costs of Operation and Maintenance shall not include (i) any costs and expenses attributable to a Separately Financed Project, or (ii) any costs or expenses for new construction or for reconstruction other than restoration of any part of the System to the condition of serviceability thereof when new.
"Credit Facility" means a line of credit, letter of credit, standby bond purchase agreement, policy of bond insurance, surety bond, guaranty or similar credit or liquidity enhancement device or arrangement providing credit or liquidity support with respect to any Outstanding Obligations or Subordinated Indebtedness, or any agreement relating to reimbursement of advances under any such instrument.
"Current Interest Bonds" means Obligations that bear interest which is payable periodically rather than solely at the maturity of such Obligations.
"Designated Maturity Obligations" means all of the Obligations of a Series or a particular maturity thereof, with a maturity longer than 270 days, so designated by the Issuer by Supplemental Ordinance prior to the issuance thereof, for which no mandatory sinking fund redemption requirements have been established.
"Exposure on Guaranteed Debt" means, with respect to the period of time for which calculated, (i) as to each Guaranteed Debt as to which the Issuer has not been required to make any payments under its guaranty an amount equal to
7 twenty percent (20%) of the debt service requirement for such period (calculated in the same manner as the Bond Service Requirement) on that Guaranteed Debt, and (ii) as to any Guaranteed Debt as to which the Issuer has been required to make any payments under its guaranty, an amount equal to one hundred percent (100%) of the debt service requirement for such period (calculated in the same manner as the Bond Service Requirement) on that Guaranteed Debt.
"Federal Securities" means direct non-callable obligations of the United States of America or obligations the timely payment when due of the principal of and interest on which is unconditionally guaranteed by the United States of America, to which the direct obligation or guarantee of the full faith and credit of the United States of America has been pledged, stripped interest obligations on bonds, notes, debentures and similar obligations issued by the Resolution Funding Corporation and defeased municipal bonds that have been rated in the highest Rating Category by the Rating Agencies.
"Fiduciary" or "Fiduciaries" means any trustee, Registrar or Paying Agent, or any or all of them, as may be appropriate.
"Fiscal Year" means the period commencing on October 1 of each year and ending on the succeeding September 30, or such other consecutive 12-month period as may be hereafter designated as the fiscal year of the Issuer in accordance with applicable law.
"Governing Body" means the City Commission of the Issuer.
"Guaranteed Debt" means any indebtedness or obligation for borrowed money of any Person which the Issuer has guaranteed to pay from Revenues of the System on a parity with debt service on the Obligations.
"Impact Fees" means all capital expansion fees, system improvement fees, impact fees or other similar fees and charges, separately imposed by the Issuer as a non-user capacity charge for the proportionate share of the cost of expanding, oversizing, separating or constructing new additions to the System. "Impact Fees" shall not include connection or hook-up charges or other payments or fees received by the Issuer as reimbursement for the cost of connecting or re-connecting a customer to the System.
"Investment Obligations" means any obligations in which surplus municipal funds may be invested under the laws of the State of Florida.
"Issuer" means the City of Lakeland, Florida.
"Maximum Bond Service Requirement" means, as of the date of calculation, an amount equal to the greatest Bond Service Requirement for the current or any Future Fiscal Year.
8 "Net Revenues" means, for any Fiscal Year, the amount of Revenues less the Cost of Operation and Maintenance of the System for such Fiscal Year.
"Obligations" means the 1992 Bonds, the 1999A Bonds and any other obligations, issued in any form of debt, authorized by a Supplemental Ordinance, including but not limited to, bonds, notes, bond anticipation notes, and commercial paper, which are delivered under the Original Ordinance prior to the effectiveness of this Ordinance or delivered under this Ordinance, but such term shall not include any Subordinated Contract Obligation or Subordinated Indebtedness.
"Ordinance" means this Ordinance as from time to time amended or supplemented by Supplemental Ordinance.
"Outstanding" when used in reference to Obligations or Obligations of a Series, means all Obligations which have been issued pursuant to this Ordinance except:
(a) Obligations cancelled after purchase in the open market or because of payment at or redemption prior to maturity;
(b) Obligations for the payment or redemption of which cash funds or Federal Securities or any combination thereof shall have been theretofore irrevocably set aside in a special account with the Paying Agent or other Authorized Depository (whether upon or prior to the maturity or redemption date of any such Obligations) in an amount which, together with earnings on such Federal Securities, will be sufficient to pay the principal of and interest and redemption premiums, if any, on such Obligations at maturity or upon their earlier redemption; provided that, if such Obligations are to be redeemed before the maturity thereof, notice of such redemption shall have been given according to the requirements of this Ordinance or irrevocable instructions directing the timely giving of such notice and directing the payment of the principal of and interest and redemption premiums, if any, on such Obligations at such redemption dates shall have been given to the Paying Agent; and
(c) Obligations which are deemed paid pursuant to Section 5.08 hereof or in lieu of which other Obligations have been issued under Section 5.04 hereof.
"Parity Contract Obligation" means that portion of any rates, fees, charges or payments which the Issuer is contractually obligated to pay to another entity for fuel, energy or power, for the specific purpose of paying principal or interest or both on that entity's obligations directly associated with such contract and payable to such entity regardless of whether fuel, energy or power is delivered or made available for delivery which is secured by a pledge of and lien on the Trust Estate on a parity with the lien created by Section 10.04(g) hereof to secure the Obligations.
9 "Parity Debt" means any Parity Contract Obligation, Parity Reimbursement Obligation, Parity Swap Obligation or Guaranteed Debt; provided, however, that for purposes of the definition of the term "Bond Service Requirement," Parity Debt shall with respect to Guaranteed Debt include only Exposure on Guaranteed Debt. For purposes of Section 11.05 hereof, any Parity Debt shall specify, to the extent applicable, the interest and principal components of, or the scheduled payments corresponding to interest under, such Parity Debt.
"Parity Reimbursement Obligation" has the meaning provided in Section 10.04(d) hereof.
"Parity Swap Obligation" means the obligation to pay any amount under a Qualified Swap calculated as interest on a notional amount (but excluding any termination payments and payments of any other fees, expenses, indemnification or other obligations to a counterparty), that is secured by a pledge of, and a lien on, the Trust Estate on a parity with the lien created by Section 6.02 to secure the Obligations.
"Paying Agent" means the Issuer or any Authorized Depository designated by the Issuer to serve as a Paying Agent or place of payment for the Obligations issued hereunder which shall have agreed to arrange for the timely payment of the principal of, interest on and redemption premium, if any, with respect to the Obligations to the registered owners thereof, from funds made available therefor by the Issuer, and any successors designated pursuant to this Ordinance.
"Person" means any natural person, firm, joint venture, association, partnership, business trust, corporation, public body, agency or political subdivision or other similar entity.
"Project" means any project, facility, system, equipment, or material related to or necessary or desirable in connection with the System, whether owned jointly or singly by the Issuer, including any output in which the Issuer has an interest, heretofore or hereafter authorized by the Act; provided, however, that the term "Project" shall not include any Separately Financed Project.
"Purchase Price" means, with respect to any Obligation, 100% of the principal amount thereof plus accrued interest, if any, plus in the case of an Obligation subject to mandatory tender for purchase on a date when such Obligation is also subject to optional redemption at a premium, an amount equal to the premium that would be payable on such Obligation if redeemed on such date.
"Qualified Independent Consultant" means any one or more qualified and recognized independent consultants or firm of consultants (which may include, without limitation, independent accountants and engineers), having favorable repute, skill and experience with respect to the acts and duties required of a Qualified Independent Consultant by a particular section or sections of this
10 Ordinance, as shall from time to time be retained by the Issuer for the purposes hereof.
"Qualified Swap" means, to the extent from time to time permitted by law, with respect to Obligations, any financial arrangement (i) which is entered into by the Issuer with an entity that is a Qualified Swap Provider at the time the arrangement is entered into, (ii) which is a cap, floor or collar; an interest rate, forward rate or future rate swap (such swap may be based on an amount equal either to the principal amount of such Obligations of the Issuer as may be designated or a notional principal amount relating to all or a portion of the principal amount of such Obligations); asset, index, price or market-linked transaction or agreement; other exchange or rate protection transaction agreement; other similar transaction (however designated); or any combination thereof; or any option with respect thereto, entered into by the Issuer for the purpose of moderating interest rate fluctuations or otherwise, and (iii) which has been designated in writing by the Issuer as a Qualified Swap with respect to such Obligations.
"Qualified Swap Provider" means an entity whose senior long term obligations, other senior unsecured long term obligations, financial program rating, counterparty rating, or claims-paying ability, or whose payment obligations under an interest rate exchange agreement are guaranteed by an entity whose senior long term debt obligations, other senior unsecured long term obligations, financial program rating, counterparty rating, or claims-paying ability, are rated either (i) at least as high as the third highest Rating Category of each nationally recognized securities rating agency then maintaining a rating for the Qualified Swap Provider, but in no event lower than any Rating Category designated by each such Rating Agency for the Obligations subject to such Qualified Swap, or (ii) any such lower Rating Categories which each such Rating Agency indicates in writing to the Issuer will not, by itself, result in a reduction or withdrawal of its rating on the Outstanding Obligations subject to such Qualified Swap that is in effect prior to entering into such Qualified Swap.
"Rating Agency" means each nationally recognized securities rating agency then maintaining a rating on the Obligations at the request of the Issuer.
"Rating Category" means one of the generic rating categories of any Rating Agency without regard to any refinement or gradation of such rating by a numerical modifier or otherwise.
"Redemption Price" means, with respect to any Obligation, 100% of the principal amount thereof plus the applicable premium, if any, payable upon the redemption thereof pursuant to this Ordinance.
"Registrar" means the Issuer or any agent designated from time to time by the Issuer, by ordinance or resolution, to maintain the registration books for the Obligations of any Series issued hereunder or to perform other duties with respect to registering the transfer of Obligations.
11 "Reimbursement Obligation" has the meaning provided in Section 10.04(d) hereof.
"Reserve Product" means a policy of bond insurance, a surety bond or a letter of credit or other credit facility used in lieu of a cash deposit in the Reserve Fund meeting the terms and conditions of Section 7.05 hereof.
"Reserve Product Provider" means a bond insurance provider or a bank or other financial institution providing a Reserve Product, whose bond insurance policies insuring, or whose letters of credit, surety bonds or other credit facilities securing, the payment, when due, of the principal of and interest on bond issues by public entities, at the time such Reserve Product is obtained, result in such issues being rated in one of the two highest full rating categories by each of the Rating Agencies; provided, however, that nothing herein shall require the Issuer to obtain a rating on any Bonds issued under this Ordinance.
"Reserve Fund" means the Fund by that name established in Section 7.01 hereof.
"Reserve Requirement" means the amount, or available amount under one or more Reserve Products, required to be maintained in the Reserve Fund pursuant to Section 7.05 hereof.
"Revenue and Operating Fund" means the fund by that name established in Section 7.01 hereof.
"Revenues" means (i) all rates, fees, charges, income, rents and receipts derived by the Issuer from or attributable to the ownership and operation of the System, including all revenues attributable to the System or to the payment of the costs thereof received by the Issuer under any contracts for the sale of power, energy, transmission or other use of the services, facilities or products of the System or any part thereof or any contractual arrangement with respect to the use of the System or any portion thereof or the services, output, facilities, capacity or products of the System, (ii) the proceeds of any insurance covering business interruption loss relating to the System, (iii) interest received on the investment or reinvestment of any moneys held hereunder required to be deposited or kept in the Revenue and Operating Fund, and (iv) payments received by the Issuer under a Qualified Swap; provided, however, that "Revenues" shall not include revenues from a Separately Financed Project or Impact Fees. Notwithstanding anything in the foregoing to the contrary, "Revenues" shall not include Subsidy Payments for any purpose of this Ordinance.
"Retirement Date of the 1992 Bonds" means the date on which all of the 1992 Bonds shall be paid, or defeased and deemed paid, and no longer outstanding in accordance with the terms hereof, or the registered owners of the 1992 Bonds shall have given written consent to all amendments of the Original Ordinance contained in this Ordinance.
12 "Second Lien Bonds" means, collectively, the Issuer's outstanding Electric and Water Revenue Bonds (Junior Subordinate Lien), Refunding Series 1996 and Electric and Water Revenue Bonds (Junior Subordinate Lien), Refunding and Improvement Series 1996B.
"Separately Financed Project" has the meaning provided in Section 10.03 hereof.
"Series" means any portion of the Obligations of an issue authenticated and delivered in a single transaction, payable from an identical source of revenue and identified pursuant to a Supplemental Ordinance authorizing such Obligations as a separate Series of Obligations, regardless of variations in maturity, interest rate, redemption requirements or other provisions, and any Obligations thereafter authenticated and delivered in lieu of or in substitution of a Series of Obligations issued pursuant to this Ordinance.
"Subordinated Contract Obligation" means any payment obligation (other than a payment obligation constituting Parity Debt or Subordinated Indebtedness) arising under (a) any Credit Facility which has been designated in writing by the Issuer as constituting a "Subordinated Contract Obligation," (b) any Qualified Swap which has been designated in writing by the Issuer as constituting a "Subordinated Contract Obligation," and (c) any other contract, agreement or other obligation authorized by ordinance or resolution of the Issuer and designated in writing by the Issuer as constituting a "Subordinated Contract Obligation." Each Subordinated Contract Obligation shall be payable from the Trust Estate subject and subordinate to the payments to be made with respect to the Obligations and Parity Debt, as provided for in Section 7.02A hereof, and shall be secured by a lien on and pledge of the Trust Estate junior and inferior to the lien on and pledge of the Trust Estate herein created for the payment of the Obligations and Parity Debt.
"Subordinated Indebtedness" means any bond, note or other indebtedness authorized by ordinance or resolution of the Issuer and designated in such ordinance or resolution by the Issuer as constituting "Subordinated Indebtedness," which shall be payable from the Trust Estate subject and subordinate to the payments to be made with respect to the Obligations and Parity Debt, as provided for in Section 7.02A hereof, and which shall be secured by a lien on and pledge of the Trust Estate junior and inferior to the lien on and pledge of the Trust Estate herein created for the payment of the Obligations and Parity Debt.
"Subsidy Bonds" shall mean any Build America Bonds or any other similar Obligations for which the Issuer receives direct subsidy payments in an amount equal to all or a portion of the interest paid on such Obligations.
"Subsidy Payments" shall mean payments received by the Issuer or a Paying Agent on behalf of the Issuer from the United States Treasury or the Internal Revenue Service with respect to Subsidy Bonds pursuant to Section 54AA or 6431 of the Code (as such Sections were added by Section 1531 of the American
13 Recovery and Reinvestment Act of 2009) as such sections may be expanded or modified from time to time, and any other such payments made by the federal government or any agency, branch or bureau thereof to subsidize the interest payable by the Issuer on Obligations pursuant to such Sections or any other similar provisions of the Code or other authorizations with respect to Subsidy Bonds.
"Supplemental Ordinance" means any ordinance or resolution supplemental to or amendatory of this Ordinance, enacted or adopted by the Issuer in accordance with Article XII hereof.
"System" means the complete electric power system for the production, supply, distribution and sale of electricity now owned, in whole or in part, by or under the control of the Issuer and any leasehold or other interest in any other electric plants or facilities which the Issuer acquires, together with any and all additions, extensions and improvements thereto hereafter acquired or constructed and any joint venture or ownership or other interest in any electric plant or facility or any right to use the capacity or to receive the output from any electric plant or facility and, until the Retirement Date of the 1992 Bonds (unless the Issuer shall elect under Section 7.07 hereof to retain the Water System as part of the System after the Retirement Date of the 1992 Bonds), the Water System; and, upon compliance with the requirements of Section 9.08 hereof, the term "System" may include any other utility-related services or functions, including, without limitation, the acquisition, distribution and sale of natural gas, the provision of cable television services or the provision of telecommunication services or fiber optic transmission service, as the Issuer shall determine by subsequent ordinance or resolution. The System shall not include any Separately Financed Project.
"Taxable Obligations" means any Obligations which are not Tax- Exempt Obligations.
"Tax-Exempt Obligations" means any Obligations the interest on which is intended by the Issuer to be generally excluded from gross income for federal income tax purposes.
"Trust Estate" means, collectively:
(i) all Revenues;
(ii) the proceeds of sale of Obligations until expended for the purposes authorized by the Supplemental Ordinance authorizing such Obligations;
(iii) all amounts held in the funds, accounts and subaccounts established by this Ordinance, including investment earnings thereon; and
(iv) all funds, moneys and securities and any and all other rights and interests in property, whether tangible or intangible, from time to time hereafter by delivery or by writing of any kind conveyed, mortgaged, pledged,
14 assigned or transferred as and for additional security hereunder for the Obligations by the Issuer, or by anyone on its behalf, or with its written consent.
"Variable Rate Obligations" means Obligations issued with a variable, adjustable, convertible or other similar interest rate which is not fixed in percentage for the remaining term thereof.
"Water System" means the complete water system for the treatment, storage and distribution of potable water now owned, in whole or in part, by or under the control of the Issuer and any leasehold or other interest in any other water plants or facilities which the Issuer acquires, together with any and all additions, extensions and improvements thereto hereafter acquired or constructed and any joint venture or ownership or other interest in any water plant or facility or any right to use the capacity or receive the output or services of any water plant or facility.
SECTION 2.02. Singular/Plural.
Words importing singular number shall include the plural number in each case and vice versa, and words importing persons shall include firms, corporations or other entities including governments or governmental bodies.
ARTICLE III
FINDINGS
SECTION 3.01. Findings.
It is hereby ascertained, determined and declared that:
A. The Issuer now owns, operates and maintains the System for the generation, supply and distribution of electricity and potable water within and without the jurisdiction of the Issuer and derives Revenues therefrom.
B. The principal of, interest on and premium, if any, with respect to the Obligations issued and Outstanding hereunder and all other payments required with respect thereto shall be payable solely from moneys deposited in the Revenue and Operating Fund pursuant to this Ordinance, which the Issuer has full authority to pledge in the manner provided herein. The Issuer shall never be required to levy ad valorem taxes on any property to pay the principal of, interest on or any premium with respect to the Obligations or to make any other payments with respect thereto or otherwise required herein, and the Obligations shall not constitute a lien on any property owned by or situated within the limits of the Issuer.
C. It is estimated that the Revenues and other legally available funds of the System to be derived or available in each year hereafter, to the extent available as herein described, will be sufficient to pay all of the principal of and
15 interest on the Obligations to be issued hereunder, as the same become due and to make all other payments required by this Ordinance.
D. An emergency exists in order to enact this Ordinance in connection with the approval by the Issuer of the issuance of the 1999 Bonds in order to obtain the necessary consents to the enactment hereof.
E. This Ordinance is hereby declared to be an emergency measure on the grounds of urgent public need for the benefit of the Issuer.
ARTICLE IV
THIS INSTRUMENT TO CONSTITUTE CONTRACT
SECTION 4.01. Instrument to Constitute Contract.
In consideration of the acceptance of the Obligations authorized to be issued hereunder by those who shall hold the same from time to time, this Ordinance shall be deemed to be and shall constitute a contract between the Issuer and the Bondholders. The covenants and agreements herein set forth to be performed by the Issuer shall be for the equal benefit, protection and security of the Bondholders, and all Obligations shall be of equal rank and without preference, priority or distinction over any other thereof, except as expressly provided herein.
ARTICLE V
AUTHORIZATION, DESCRIPTION, FORM AND TERMS OF OBLIGATIONS
SECTION 5.01. Authority for Issuance of Obligations.
The Issuer has previously issued and there are currently Outstanding hereunder the 1992 Bonds. The 1999A Bonds have either been previously issued and are currently Outstanding or shall be issued simultaneously with the effective date of this Ordinance. Subject and pursuant to the provisions hereof, additional Obligations may be issued from time to time pursuant to the terms hereof.
SECTION 5.02. Description of Obligations.
The Obligations authorized hereunder may be issued in one or more Series that may be delivered from time to time. The Obligations may be issued as Tax-Exempt Obligations, as Taxable Obligations, as obligations that convert from Taxable Obligations to Tax-Exempt Obligations, as fixed rate Obligations, as Variable Rate Obligations, as Capital Appreciation Bonds, as Current Interest Bonds, as Designated Maturity Obligations and/or as Commercial Paper Obligations. The Issuer shall by Supplemental Ordinance authorize each Series of Obligations and shall specify the following: the authorized principal amount of such Series, the purpose or purposes for which such Obligations are issued, the date and
16 terms of maturity or maturities of the Obligations of such Series; whether such Obligations are Designated Maturity Obligations or Commercial Paper Obligations; the interest rate or rates of the Obligations, or the method for determining such interest rate or rates, which may include variable, adjustable, convertible, auction reset or other rates, original issue discounts, Capital Appreciation Bonds and zero interest rate Obligations, provided that the average net interest cost rate on the Obligations of such Series shall never exceed the maximum interest rate permitted by applicable law in effect at the time such Series of Obligations is issued; the authorized denominations (or, with respect to Capital Appreciation Bonds, the value at maturity) of each Series of Obligations; numbering and lettering of such Obligations; the Paying Agent and place or places of payment of such Obligations; the Registrar, if applicable; the redemption prices for such Obligations and any terms of redemption not inconsistent with the provisions of this Ordinance, which may include mandatory redemptions at the election of the Holder or Registered Owner thereof; any terms permitting or requiring the tender of such Obligations by the Owner thereof for purchase; the use of the proceeds of such Series of Obligations not inconsistent with this Ordinance; the forms of such Obligations; and any other terms or provisions applicable to the Obligations of such Series, not inconsistent with the provisions of this Ordinance or the Act. All of the foregoing may be added by Supplemental Ordinance adopted or enacted at any time and from time to time prior to the issuance of such Series of Obligations. Unless otherwise so provided, each Obligations shall bear interest from the later of the original issue date shown thereon or the most recent interest payment date to which interest has been paid, until payment of the principal sum or until provision for the payment thereof on or after the maturity or redemption date has been duly provided for.
Except as otherwise provided by Supplemental Ordinance, all Obligations hereunder shall be in registered form. All Obligations issued hereunder shall be in substantially the form provided by the Supplemental Ordinance authorizing the issuance of such Obligations, shall, unless otherwise provided by Supplemental Ordinance, be payable in lawful money of the United States of America and shall bear interest from their date paid by check or draft of the Paying Agent mailed to the Registered Owner thereof. Principal of and interest and redemption premiums, if any, on Capital Appreciation Bonds, and principal of and redemption premiums, if any, on Current Interest Bonds shall be payable by check or draft at maturity or earlier redemption thereof upon presentation and surrender of such Obligations to the Registrar. In addition, notwithstanding the foregoing, if and to the extent permitted by applicable law, the Issuer shall establish a system of registration and may issue thereunder certificated registered public obligations (represented by instruments) or uncertificated registered public obligations (not represented by instruments) commonly known as book-entry obligations, combinations thereof, or such other obligations as may then be permitted by law. The Issuer shall appoint such registrars, transfer agents, depositaries, or other agents as may be necessary to cause the registration, registration of transfer and reissuance of the Obligations within a commercially reasonable time according to the then current industry standards and to cause the timely payment of interest, principal and premiums payable with respect to the Obligations. If the Issuer
17 adopts a system for the issuance of uncertificated registered public obligations, it may permit thereunder the conversion, at the option of a Holder of any Obligation then outstanding, of a certificated registered public obligation to an uncertificated registered public obligation, and the reconversion of the same. A list of the names and addresses of the Registered Owners of the Obligations shall be maintained at all times by the Registrar. The Issuer shall make such list available to any Bondholder requesting the same during normal business hours.
The registration of the Obligations issued in registered form may be transferred upon the registration books therefor upon delivery to the Registrar, accompanied by a written instrument or instruments of transfer in form and with guaranty of signature satisfactory to the Registrar, duly executed by the Registered Owner of such Obligations or by his attorney-in-fact or legal representative, containing written instructions as to the details of transfer of such Obligations, along with the social security number or federal employer identification number of such transferee. In all cases of a transfer of registered Obligations, the Registrar shall at the earliest practical time in accordance with the provisions of this Ordinance enter the transfer of ownership in the registration books for the Obligations and (unless uncertificated registration shall be requested and the Issuer has a registration system that will accommodate uncertificated registration) shall deliver in the name of the new transferee or transferees a new fully-registered Obligation or Obligations of the same Series, maturity and of authorized denomination or denominations for the same aggregate principal amount and payable from the same sources of funds. Neither the Issuer nor the Registrar shall be required to register the transfer of any Obligation during the period commencing on the fifteenth day of the month next preceding an interest payment date on the Obligations and ending on such interest payment date, or, in the case of any proposed redemption of Obligations, after such Obligations or any portion thereof have been selected for redemption. The Registrar or the Issuer may charge the Registered Owners of such Obligations for the registration of every such transfer of such Obligations an amount sufficient to reimburse it for any tax, fee or any other governmental charge required to be paid, except for any such governmental charge imposed by the Issuer, with respect to the registration of such transfer, and may require that such amounts be paid before any such new Obligations shall be delivered.
If any date for payment of the principal of, premium, if any, or interest on any Obligation is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such day shall have the same force and effect as if made on the nominal date of payment.
The form of the Obligations may provide that the Holder of any such Obligation may demand payment of principal and interest from the Issuer within a stated period after delivering notice to a designated agent for the Issuer and providing a copy of the notice with the tender of the Obligation to such agent and may provide that under certain circumstances the Holder thereof may be required to tender its Obligation for purchase. The designated agent for the Issuer, in
18 accordance with the terms of a remarketing or replacement agreement, may provide for the resale or redelivery of the Obligations on behalf of the Issuer at a price provided for in such agreement. If the Obligations shall not be resold or redelivered within a stated period, the agent for the Issuer may be authorized to draw upon a previously executed credit or liquidity agreement between the Issuer and one or more banks or other financial or lending institutions permitting the Issuer to borrow interest and principal for payment upon the Obligations to which such credit agreement shall pertain. The particular form or forms of such demand provisions, the period or periods for payment of principal and interest after delivery of notice, the appointment of the agent for the Issuer, the terms and provisions of the remarketing or replacement agreement, and the terms and provisions of the credit or liquidity agreement shall be as designated by a Supplemental Ordinance of the Issuer adopted prior to the sale of the applicable Series of Obligations.
With respect to any Series of Obligations, the Issuer may, by Supplemental Ordinance enacted or adopted prior to the issuance of such Series of Obligations, reserve or exercise the right to sell, assign or transfer rights to call Obligations of such Series for mandatory purchase.
Unless otherwise provided by Supplemental Ordinance adopted prior to the issuance of the applicable Series of Obligations, a purchase of Obligations by or through a remarketing agent, trustee, auction agent, credit facility provider or the Issuer pursuant to an optional or mandatory tender shall not be deemed a redemption of such Obligations and will not be deemed to extinguish or discharge the indebtedness evidenced by such Obligations. Any Obligations purchased by or on behalf of the Issuer pursuant to an optional or mandatory tender shall be purchased with the intent that the indebtedness evidenced by such Obligations shall not be extinguished or discharged; such indebtedness shall not be extinguished or discharged and such Obligations shall remain outstanding hereunder unless and until such Obligations are delivered to the trustee or paying agent therefor for cancellation.
SECTION 5.03. Execution of Obligations.
Unless otherwise provided by Supplemental Ordinance, the Obligations shall be executed in the name of the Issuer as provided in the Charter of the Issuer and the seal of the Issuer shall be imprinted, reproduced or lithographed on the Obligations, attested to and countersigned as provided in the Charter of the Issuer. The signatures of the officers of the Issuer on the Obligations may be by facsimile, but one such officer shall sign his manual signature on the Obligations unless the Issuer appoints an authenticating agent, registrar, transfer agent or trustee who shall cause one of its duly authorized officers to manually execute the Obligations. If any officer whose signature appears on the Obligations ceases to hold office before the delivery of the Obligations, his signature shall nevertheless be valid and sufficient for all purposes. In addition, any Obligation may bear the signature of, or may be signed by, such persons as at the actual time of execution of such Obligation shall be the proper officers to sign such Obligation
19 although at the date of such Obligation or the date of delivery thereof such persons may not have been such officers.
SECTION 5.04. Obligations Mutilated, Destroyed, Stolen or Lost.
If any Obligation is mutilated, destroyed, stolen or lost, the Issuer or its agent may, in its discretion (i) deliver a duplicate replacement Obligation, or (ii) pay an Obligation that has matured or is about to mature. A mutilated Obligation shall be surrendered to and cancelled by the Clerk of the Issuer or the duly authorized agent of the Issuer. The Bondholder must furnish the Issuer or its agent proof of ownership of any destroyed, stolen or lost Obligation; post satisfactory indemnity; comply with any reasonable conditions the Issuer or its agent may prescribe; and pay the Issuer's and/or its agent's reasonable expenses.
Any such duplicate Obligation shall constitute an original contractual obligation on the part of the Issuer whether or not the destroyed, stolen, or lost Obligation be at any time found by anyone, and such duplicate Obligation shall be entitled to equal and proportionate benefits and rights as to lien on, and source of and security for payment from, the funds pledged to the payment of the Obligation so mutilated, destroyed, stolen or lost.
SECTION 5.05. Provisions for Redemption.
Each Series of Obligations shall be subject to redemption prior to maturity at such times and in such manner as shall be established by Supplemental Ordinance of the Issuer adopted with respect to any Series of Obligations on or before the time of delivery of those Obligations. Unless otherwise provided by Supplemental Ordinance with respect to a Series of Obligations, notice of redemption shall be given by publication in THE BOND BUYER or a financial journal of general circulation in the city of New York, New York, not more than sixty and not less than thirty days prior to the redemption date, and by the deposit in the U. S. mails of a copy of said redemption notice, postage prepaid, at least thirty and not more than sixty days before the redemption date to all registered owners of the Obligations or portions of Obligations to be redeemed at their addresses as they appear on the registration books to be maintained in accordance with provisions hereof; provided, however, that if all Obligations to be redeemed shall be in registered form, no newspaper publication of such redemption notice shall be required. Failure to mail any such notice to a registered owner of an Obligation, or any defect therein, shall not affect the validity of the proceedings for redemption of any Obligation or portion thereof with respect to which no failure or defect occurred.
Each notice shall set forth the date fixed for redemption of the Obligation being redeemed, the redemption price to be paid, the date of publication, if any, of a notice of redemption, the name and address of the Registrar and, if less than all of the Obligations then outstanding shall be called for redemption, the
20 distinctive numbers and letters, including CUSIP Numbers, if any, of such Obligations to be redeemed and, in the case of Obligations to be redeemed in part only, the portion of the principal amount thereof to be redeemed. If any Obligation is to be redeemed in part only, the notice of redemption which relates to such Obligation shall also state that on or after the redemption date, upon surrender of such Obligation, a new Obligation or new Obligations in a principal amount equal to the unredeemed portion of such Obligation will be issued.
Any notice mailed as provided in this section shall be conclusively presumed to have been duly given, whether or not the owner of such Obligation receives such notice.
In addition to the publication and mailing of the notice described above, each notice of redemption and payment of the redemption price shall meet the requirements of this paragraph; provided however, that failure of such notice or payment to comply with the terms of this paragraph shall not in any manner defeat the effectiveness of a call for redemption if notice thereof is given as prescribed above in this Section 5.05.
(a) Each notice of redemption shall be sent at least thirty-five (35) days before the redemption date by registered or certified mail or overnight delivery service or telecopy to all registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Obligations (such depositories now being The Depository Trust Company, New York, New York and Midwest Securities Trust Company, Chicago, Illinois) and to one or more national information services that disseminate notices of redemption of obligations such as the Obligations.
(b) Each notice of redemption shall be published one time in THE BOND BUYER of New York, New York or, if such publication is impractical or unlikely to reach a substantial number of the holders of the Obligations, in some other financial newspaper or journal which regularly carries notices of redemption of other obligations similar to the Obligations, such publication to be made at least thirty (30) days prior to the date fixed for redemption.
(c) Upon the payment of the redemption price of Obligations being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Obligations being redeemed with the proceeds of such check or other transfer.
The Issuer shall have the right to provide conditional notices of redemption, which notices may be withdrawn or rescinded on, or at, any time prior to, the redemption dates set forth in such notices.
21 SECTION 5.06. Effect of Notice of Redemption.
Notice having been given in the manner and under the conditions hereinabove required, the Obligations or portions of Obligations so called for redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption of such Obligations or portions of Obligations on such date. On the date so designated for redemption, moneys for payment of the redemption price being held in separate accounts by the Paying Agent, an escrow agent or any Authorized Depository, in trust for the registered owners of the Obligations or portions thereof to be redeemed, all as provided in this Ordinance, interest on the Obligations or portions of Obligations so called for redemption shall cease to accrue, such Obligations and portions of Obligations shall cease to be entitled to any lien, benefit or security under this Ordinance, and the registered owners of such Obligations or portions of Obligations shall have no right in respect thereof except to receive payment of the redemption price thereof and, to the extent provided in Section 5.07 of this Article, to receive Obligations for any unredeemed portions of the Obligations.
SECTION 5.07. Redemption of Portion of Registered Obligations.
In case part but not all of an outstanding fully-registered Obligation shall be selected for redemption, the Registered Owners thereof shall present and surrender such Obligation to its designated Paying Agent (or if no such Paying Agent is designated, to the Issuer) for payment of the principal amount thereof so called for redemption, and the Issuer shall execute and deliver to or upon the order of such Registered Owner, without charge therefor, for the unredeemed balance of the principal amount of the Obligation so surrendered, an Obligation or Obligations fully-registered as to principal and interest.
SECTION 5.08. Obligations Called for Redemption not Deemed Outstanding.
Obligations or portions of Obligations that have been duly called for redemption under the provisions of this Article V, and with respect to which amounts sufficient to pay the principal of, premium, if any, and interest to the date fixed for redemption shall be delivered to and held in separate accounts by an escrow agent, any Authorized Depository or any Paying Agent in trust for the Registered Owners thereof, as provided in this Ordinance, and, if the notice of redemption with respect thereto is conditioned, upon the satisfaction of the conditions to such redemption, shall not be deemed to be Outstanding under the provisions of this Ordinance and shall cease to be entitled to any lien, benefit or security under this Ordinance, except to receive the payment of the redemption price on or after the designated date of redemption from moneys deposited with or held by the escrow agent, Authorized Depository or Paying Agent, as the case may be, for such redemption of the Obligations and, to the extent provided in Section
22 5.07 of this Article, to receive Obligations for any unredeemed portions of the Obligations.
SECTION 5.09. Application of Proceeds.
Except as otherwise provided hereby, the proceeds, including accrued interest and premium, if any, received from the sale of the Obligations of any Series shall be applied by the Issuer simultaneously with the delivery of such Obligations in accordance with the provisions of a Supplemental Ordinance of the Issuer enacted or adopted at or before the delivery of such Series of Obligations, in conformity with this Ordinance.
SECTION 5.10. Temporary Obligations.
Pending the preparation of definitive Obligations, the Issuer may execute and deliver temporary Obligations. Temporary Obligations shall be issuable as registered Obligations without coupons, of any authorized denomination, and substantially in the form of the definitive Obligations but with such omissions, insertions, and variations as may be appropriate for temporary Obligations, all as may be determined by the Issuer. Temporary Obligations may contain such reference to any provisions of this Ordinance as may be appropriate. Every temporary Obligation shall be executed and authenticated upon the same conditions and in substantially the same manner, and with like effect, as the definitive Obligations. As promptly as practicable the Issuer shall execute and shall furnish definitive Obligations and thereupon temporary Obligations may be surrendered in exchange for definitive Obligations without charge at the principal office of the Registrar, and the Registrar shall authenticate and deliver in exchange for such temporary Obligations a like aggregate principal amount of definitive Obligations of authorized denominations. Until so exchanged, the temporary Obligations shall be entitled to the same benefits under this Ordinance as definitive Obligations.
ARTICLE VI SOURCE OF PAYMENT OF OBLIGATIONS; SPECIAL OBLIGATIONS OF THE ISSUER
SECTION 6.01. Obligations Not to be Indebtedness of the Issuer.
The Obligations shall not be or constitute general obligations or indebtedness of the Issuer within the meaning of the Constitution of Florida, but shall be payable solely from and secured by a lien upon and a pledge of the Trust Estate, in the manner and to the extent herein provided. No Bondholder shall ever have the right to compel the exercise of the ad valorem taxing power of the Issuer or taxation in any form on any real or personal property to pay such Obligations or the interest thereon, nor shall any Bondholder be entitled to payment of such principal
23 and interest from any other funds of the Issuer other than the Trust Estate, all in the manner and to the extent herein provided.
SECTION 6.02. Pledge of Trust Estate.
The payment of the principal of, premium, if any, and interest on the Obligations shall be secured forthwith equally and ratably by an irrevocable lien on the Trust Estate, all in the manner and to the extent provided herein, prior and superior to all other liens or encumbrances on the Trust Estate, except as otherwise provided herein, and the Issuer does hereby irrevocably pledge the Trust Estate to the payment of the Cost of Operation and Maintenance of the System, the principal of, premium, if any, and interest on the Obligations, the funding and maintaining of any reserves therefor as required herein or by Supplemental Ordinance and for all other payments as provided herein.
ARTICLE VII
CREATION AND USE OF FUNDS AND ACCOUNTS; DISPOSITION OF REVENUES
SECTION 7.01. Creation of Funds and Accounts.
There are hereby created and established the "City of Lakeland Energy System Revenue and Operating Fund" (referred to herein as the "Revenue and Operating Fund"), the "City of Lakeland Energy System Debt Service Reserve Fund" (referred to herein as the "Reserve Fund") and the "City of Lakeland Energy System Capital Fund" (referred to herein as the "Capital Fund"). There may be created and established in the Revenue and Operating Fund and the Capital Fund one or more separate accounts or subaccounts as determined by the Issuer from time to time to be necessary or convenient. The Revenue and Operating Fund, the Reserve Fund and the Capital Fund and all accounts and subaccounts therein shall constitute trust funds for the purposes herein provided, shall be delivered to and held by the Chief Financial Officer (or an Authorized Depository designated by the Chief Financial Officer), who shall act as trustee of such funds for the purposes hereof, shall, except as otherwise provided herein, be subject to a lien and charge in favor of the Bondholders and shall at all times be kept separate and distinct from all other funds of the Issuer and used only as herein provided.
SECTION 7.02. Revenue and Operating Fund; Disposition of Revenues.
A. All Revenues and Subsidy Payments shall be deposited to the credit of the Revenue and Operating Fund as and when received. The Issuer shall also pay into the Revenue and Operating Fund such portion of the proceeds of any Series of Obligations which may have been issued to pay Costs of Operation and Maintenance as shall be specified pursuant to the Supplemental Ordinance authorizing such Series of Obligations. Amounts in the Revenue and Operating
24 Fund shall be paid out, accumulated or withdrawn from time to time for the following purposes and, as of any time, in the following order of priority:
(i) payment of reasonable and necessary Costs of Operation and Maintenance or accumulation in the Revenue and Operating Fund as a reserve (1) for working capital, (2) for such Costs of Operation and Maintenance the payment of which is not immediately required, including, but not limited to amounts determined by the Issuer to be required as an operating reserve in accordance with Section 7.02(B) below, or (3) deemed necessary or desirable by the Issuer to comply with orders or other rulings of an agency or regulatory body having lawful jurisdiction;
(ii) payment of, or accumulation in the Revenue and Operating Fund as a debt service account or sinking fund for the payment of interest on and the principal of, or Redemption Price of, the Obligations and the payment of Parity Debt, on a parity basis, on their respective due dates or redemption dates, as the case may be;
(iii) withdrawal and deposit to the credit of the Reserve Fund of amounts necessary to fund or replenish the Reserve Fund in accordance with the provisions of Section 7.05 hereof; provided however, that any deficiency in the Reserve Fund resulting from a withdrawal therefrom to cure a debt service deficiency may be made up through not to exceed thirty-six (36) substantially equal consecutive monthly deposits commencing in the month following withdrawal;
(iv) payment of principal of and interest on and other amounts payable with respect to any Subordinated Indebtedness, or payment of amounts due under any Subordinated Contract Obligations;
(v) withdrawal and deposit in the Capital Fund in such amounts as shall be determined from time to time by the Issuer; and
(vi) withdrawal for any lawful purpose; provided, however, that, prior to any application pursuant to subparagraphs (iii), (iv), (v) or (vi), respectively, the Issuer shall have determined, taking into account, among other considerations, anticipated future receipts of Revenues and Subsidy Payments contained in the annual operating budget for the System required by Section 9.02 hereof and other moneys constituting part of the Trust Estate, that funds to be so applied are not needed for any of the purposes set forth in any of the preceding subparagraphs of this Section 7.02(A).
B. The Issuer shall from time to time, and in all events prior to any withdrawal of moneys from the Revenue and Operating Fund pursuant to subsection 7.02(A)(vi) above, determine (i) the amount, to be held as a reserve in the Revenue and Operating Fund, which in the judgment of the Issuer is adequate for the purpose of providing for the costs of emergency repairs or replacements
25 essential to restore or prevent physical damage to, and prevent loss of Revenues from, the System, and (ii) the amount, to be held as a reserve in the Revenue and Operating Fund, which in the judgment of the Issuer is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments and improvements with respect to the System necessary to keep the System in good operating condition or required by any governmental agency having jurisdiction over the System.
C. Amounts, if any, set aside by the Issuer in any accounts in the Revenue and Operating Fund may be used by the Issuer at such time or times and in such amounts as determined by the Issuer for the purpose of paying all or any portion of the interest on and principal of or Redemption Price of the Obligations and payment of Parity Debt, on their respective due dates, or redemption dates, as the case may be.
SECTION 7.03. Capital Fund.
(a) The Issuer shall pay into the Capital Fund the amounts required to be so paid by the provisions of this Ordinance and any Supplemental Ordinance authorizing the issuance of any Series of Obligations for the purpose of financing Capital Costs, including, without limitation, the portion of the proceeds of any such Obligations specified in such Supplemental Ordinance, except as may be otherwise provided in a Supplemental Ordinance with respect to those Capital Costs referenced in clauses (iv) or (v) of the definition thereof.
(b) Amounts in the Capital Fund shall be applied solely to the Capital Costs of the System. Any amounts in the Capital Fund which are in excess of the amounts required to pay for such costs may at the direction of the Issuer be transferred to the Revenue and Operating Fund.
(c) When amounts are deposited in the Capital Fund to pay the capitalized cost of interest on Obligations of the Issuer, the Issuer shall pay from the Capital Fund to the Paying Agent, on or before the date or dates on which interest on such Obligations becomes due and payable, an amount equal to such interest.
(d) Notwithstanding the above provisions of this Section, amounts in the Capital Fund must be applied to the payment of principal and Redemption Price of and interest on the Obligations and the payment of Parity Debt, on a parity basis, when due at any time that other moneys are not available therefor.
SECTION 7.04. Debt Service Payments.
The Issuer shall pay out of the Revenue and Operating Fund to the respective Paying Agent (i) on or before the fifth day preceding each interest payment date for any of the Obligations the amount required for the interest payable on such date, with respect to such Obligations, (ii) on or before the fifth day preceding each principal payment due date for any of the Obligations the amount
26 required for the principal amount payable on such date, and (iii) on or before the fifth day preceding any redemption date for the Obligations the amount required for the payment of the Redemption Price of and interest on the Obligations then to redeemed.
SECTION 7.05. Reserve Fund.
(a) Amounts on deposit in the Reserve Fund may be used solely for the purpose of curing deficiencies in the Revenue and Operating Fund for the payment when due of the principal of and interest on the Obligations. If funds on deposit in the Reserve Fund or the available amount under a Reserve Product on deposit in the Reserve Fund exceed in the aggregate the Reserve Requirement, the excess cash shall be deposited into the Revenue and Operating Fund.
(b) Except as otherwise provided herein, so long as the Net Revenues for each Fiscal Year equal or exceed 150% of the Bond Service Requirement for each such Fiscal Year, the Issuer shall not be obligated to fund or maintain the Reserve Fund. If for any Fiscal Year the Net Revenues are less than 150% of the Bond Service Requirement for such Fiscal Year, the Issuer shall be obligated to fund and maintain in the Reserve Fund an amount equal to:
(i) ten percent (10%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 150% of the Bond Service Requirement for such Fiscal Year, but were greater than or equal to 140% of the Bond Service Requirement for such Fiscal Year;
(ii) twenty percent (20%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 140% of the Bond Service Requirement for the previous Fiscal Year, but greater than or equal to 130% of the Bond Service Requirement for the previous Fiscal Year;
(iii) thirty percent (30%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 130% of the Bond Service Requirement for the previous Fiscal Year, but greater than or equal to 120% of the Bond Service Requirement for the previous Fiscal Year;
(iv) forty percent (40%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 120% of the Bond Service Requirement for the previous Fiscal Year, but greater than or equal to 110% of the Bond Service Requirement for the previous Fiscal Year; and
(v) fifty percent (50%) of the Maximum Bond Service Requirement if the Net Revenues for the previous Fiscal Year were less than 110% of the Bond Service Requirement for the previous Fiscal Year.
27 If at any time the Issuer is required to fund the Reserve Fund, or to increase the amount required to be maintained in the Reserve Fund pursuant to the preceding paragraph, the amount, or increase in the amount, as applicable, may be funded in up to twelve substantially equal consecutive monthly deposits commencing not later than the month following the receipt of audited financial statements for the System for the preceding Fiscal Year in accordance with the terms hereof.
If the Issuer is required to fund the Reserve Fund pursuant to this Section 7.05(b), such obligation shall continue at the amounts required by (i) through (v) above, unless and until for two (2) consecutive Fiscal Years, the Net Revenues for the respective Fiscal Years equals or exceeds 160% of the Bond Service Requirements for the respective Fiscal Years and Net Revenues for the current Fiscal Year are budgeted in the Annual Budget in an amount at least equal to 160% of the Bond Service Requirement for such Fiscal Year. If the Net Revenues meet or exceed the amounts described in the preceding sentence, the obligation to fund the Reserve Fund shall terminate (unless and until the Net Revenues again fall below 150% of the Bond Service Requirement) and amounts then on deposit in the Reserve Fund may be treated as excess amounts in the Reserve Fund.
(c) The Reserve Requirement may be funded with cash or Investment Obligations, or one or more Reserve Products, or a combination thereof. Any such Reserve Product must provide for payment on any interest or principal payment date (provided adequate notice is given) on which a deficiency exists (or is expected to exist) in moneys held hereunder for payment of the principal of or interest on the Bonds due on such date which cannot be cured by funds in any other fund or account held pursuant to this Ordinance and available for such purpose, and shall name the Paying Agent as the beneficiary thereof. In no event shall the use of a Reserve Product be permitted if it would cause any existing rating on the Bonds or any Series thereof to be lowered, suspended or withdrawn. If a disbursement is made from a Reserve Product as provided above, the Issuer shall be obligated to reinstate the maximum limits of such Reserve Product immediately following such disbursement from the first revenues available pursuant to Section 7.02(A)(iii) or to replace such Reserve Product by depositing into the Reserve Fund pursuant to such sections, funds in the maximum amount originally available under such Reserve Product, plus amounts necessary to reimburse the Reserve Produce Provider for previous disbursements under such Reserve Product, or a combination thereof. For purposes of Section 7.02(A)(iii), amounts necessary to satisfy such reimbursement obligations of the Issuer to the Reserve Product Provider shall be deemed to be required deposits to the Reserve Fund, but shall be applied to satisfy the obligations to the Reserve Product Provider.
If the Reserve Requirement is funded in whole or in part with cash or Investment Obligations and no event of default shall have occurred and be continuing hereunder, the Issuer may at any time in its discretion, substitute a Reserve Product meeting the requirements of this Ordinance for the cash and Investment Obligations in the Reserve Fund and the Issuer may then withdraw
28 such cash and Investment Obligations from the Reserve Fund and deposit them to the credit of the Revenue and Operating Fund so long as (i) the same does not adversely affect any rating by a Rating Agency then in effect with respect to the Bonds, or any Series thereof, and (ii) the Issuer obtains an opinion of Bond Counsel to the effect that such actions will not, in and of themselves, adversely affect the exclusion from gross income of interest on the Bonds (if not Taxable Bonds) for federal income tax purposes.
Cash on deposit in the Reserve Fund shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing on any Reserve Product. If more than one Reserve Product is deposited in the Reserve Fund, drawings thereunder shall be made on a pro rata basis, calculated by reference to the maximum amounts available thereunder.
Notwithstanding anything herein to the contrary, should the Reserve Fund ever be required to be funded under the terms hereof, to the extent necessary or convenient to preserve the exclusion from gross income of interest on Obligations that are not Taxable Obligations or to preserve the eligibility of the Issuer to receive Subsidy Payments on any Subsidy Bonds, a separate account or accounts within the Reserve Fund may be established for Taxable Obligations and Subsidy Bonds and no deposit shall be required to be made to the Reserve Fund, except to such account or accounts created therein securing such Obligations. Upon the creation of a separate account or subaccount therein, the increase in the Reserve Requirement attributable to the issuance of such additional Obligations shall be deposited in such separate account or accounts together with any additional amounts required by the Supplemental Ordinance authorizing such Obligations. Moneys on deposit in such account or accounts shall be applied on a pro rata basis for the purpose of curing deficiencies in the Revenue and Operating Fund for the payment when due of the principal of and interest on such Obligations secured thereby and shall not be available with respect to any other Obligations. Deposits to the Reserve Fund and accounts or accounts therein to cure any deficiencies shall be made on a pro rata basis (such pro ration to be done on the basis of the amount of the Reserve Requirement for the Reserve Fund and each applicable account or subaccount therein), in such amounts that, after taking into account other concurrent deposits made in the Reserve Fund and accounts therein and Reserve Products then on deposit therein or credited to such accounts, if any, will be sufficient to make funds on deposit therein and the Reserve Products credited thereto equal to the applicable reserve requirement for each such account.
SECTION 7.06. Cancellation and Disposition of Obligations.
All Obligations that have been paid (whether at maturity or by acceleration, call for redemption, purchase by the Issuer, or otherwise) or delivered to the Registrar for cancellation shall be cancelled and not reissued, except as otherwise provided herein or in a Supplemental Ordinance with respect to Obligations purchased pursuant to a mandatory or optional tender.
29 SECTION 7.07. Deletion of Water System.
Except as provided below in this Section 7.07, from and after the Retirement Date of the 1992 Bonds, the Water System shall no longer be deemed to be part of the System and no revenues derived from the Water System shall be deemed to be included in Revenues for purposes of this Ordinance. Notwithstanding the preceding sentence, however, the Issuer may expressly elect, by subsequent ordinance or resolution, to retain the Water System as a part of the System after the Retirement Date of the 1992 Bonds and to continue to include revenues derived from the Water System as Revenues for the purposes hereof and the costs of operation and maintenance of the Water System as a Cost of Operation and Maintenance for the purposes hereof. The Issuer shall provide the Rating Agencies with written notice of the deletion of the Water System from the System and of any election by the Issuer to retain the Water System as part of the System after the Retirement Date of the 1992 Bonds.
ARTICLE VIII
DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS
SECTION 8.01. Deposits Constitute Trust Funds.
All funds or other property which at any time may be owned or held in the possession of or deposited with the Issuer in the Revenue and Operating Fund, the Reserve Fund or the Capital Fund and all accounts therein under the provisions of this Ordinance shall be held in trust and applied only in accordance with the provisions of this Ordinance, and shall not be subject to lien or attachment by any creditor of the Issuer.
All funds or other property which at any time may be owned or held in the possession of or deposited with the Issuer pursuant to this Ordinance shall be continuously secured, for the benefit of the Issuer and the Bondholders, either (a) by lodging with an Authorized Depository, as custodian, collateral security consisting of obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America having a market value (exclusive of accrued interest) not less than the amount of such deposit, or (b) in such other manner as may then be required or permitted by applicable state or federal laws and regulations regarding the security for, or granting a preference in the case of, the deposit of trust funds, including without limitation, the provisions of Chapter 280, Florida Statutes, as from time to time amended.
All moneys deposited with each Authorized Depository shall be credited to the particular Fund or Account to which such moneys belong.
30 SECTION 8.02. Investment of Moneys.
Moneys held for the credit of the Funds established hereunder shall be invested and reinvested by the Issuer in the Investment Obligations. Such investments or reinvestments shall mature or become available not later than the respective dates, as estimated by the Issuer, that the moneys held for the credit of said Funds will be needed for the purposes of such Funds, including, without limitation, in order to make the payments required by Section 7.04 hereof.
Obligations so purchased as an investment of moneys in any such Fund shall be deemed at all times to be a part of such Fund, and shall at all times, for the purposes of this Ordinance, be valued at the market value thereof as determined by the Issuer no less frequently than semiannually, provided that repurchase agreements and investment agreements shall be valued at par. Any deficiencies in the amounts required to be maintained on deposit in any of the Funds or accounts therein established hereunder resulting from a decline in the market value of the investments held therein shall be restored by no later than the second semiannual valuation date occurring after the valuation resulting in such deficiency.
Except as otherwise expressly provided herein or as provided by subsequent resolution or ordinance, all income and profits derived from the investment of moneys in the Revenue and Operating Fund and the Capital Fund shall be deposited in the Revenue and Operating Fund and used for the purposes specified for the Revenue and Operating Fund. All income and profits derived from the investment of moneys in the Reserve Fund shall be retained therein until the Reserve Fund is fully funded and then shall be deposited in the Revenue and Operating Fund.
All such investments shall be made in compliance with Section 12.03 below.
ARTICLE IX
GENERAL COVENANTS OF THE ISSUER
SECTION 9.01. Maintenance of System; Disposition.
The Issuer will maintain the System and all parts thereof in good condition and will operate the same in an efficient and economical manner, making such expenditures for such equipment, maintenance and repairs and for renewals and replacements thereof as may be proper for its economical operation and maintenance, provided, however, that nothing herein shall be construed to prevent the Issuer from ceasing to operate or maintain, or from leasing or disposing of any portion or component of the System if, in the judgment of the Issuer, (i) it is advisable to lease, dispose of, or not operate and maintain the same, (ii) the operation thereof by the Issuer is not essential to the maintenance and continued
31 operation of the remainder of the System, and (iii) the lease, disposition or failure to maintain or operate such component or portion of the System will not prevent the Issuer from meeting the requirements of Section 9.03 hereof. Notwithstanding anything in the foregoing to the contrary, the sale-leaseback or lease-leaseback of any portion or component of the System or any similar contractual arrangements, the effect of which is that the Issuer continues to retain as part of the Trust Estate the Revenues from such portion or component of the System, shall not constitute a lease or disposition thereof for purposes of this Section 9.01. Prior to the Retirement Date of the 1992 Bonds, the proceeds of any disposition of a component or portion of the System shall be applied as follows:
(i) any amount deemed necessary by the Issuer to pay the cost of property replacing that disposed of or to be applied to acquire other property that shall form a part of the System shall be deposited to the Capital Fund;
(ii) any other proceeds shall be used for any lawful purpose.
SECTION 9.02. Operating Budget.
Before the first day of each Fiscal Year the Governing Body shall prepare, approve and adopt in the manner prescribed by law, a detailed budget of the Revenues, Bond Service Requirement (including the anticipated amortization of Designated Maturity Obligations and Commercial Paper Obligations), and Cost of Operation and Maintenance for the next succeeding Fiscal Year. Copies of its annual budgets and all authorizations for increases in the Cost of Operation and Maintenance shall be available for inspection at the offices of the Issuer and shall be mailed to any Bondholder requesting the same. The Issuer shall not expend any moneys in excess of a budgeted appropriation, or for a purpose for which there is no appropriation unless such expenditure will not have an appreciable effect upon the Issuer's anticipated or actual Revenues available to pay debt service on the Obligations and to make the other deposits required hereunder.
SECTION 9.03. Rate Covenant.
So long as any Obligations remain Outstanding, the Issuer will fix, charge and collect, or cause to be fixed, charged and collected, subject to applicable requirements or restrictions imposed by law, such rates, rentals, fees and charges for the use of and for the services and products provided by the System as are expected to be sufficient in each Fiscal Year to produce Revenues, in an amount at least equal to the sum of (i) one hundred percent (100%) of the Costs of Operation and Maintenance for such Fiscal Year, (ii) one hundred twenty-five percent (125%) of the Bond Service Requirement for such Fiscal Year, (iii) one hundred percent (100%) of the amounts payable with respect to Subordinated Indebtedness and Subordinated Contract Obligations in such Fiscal Year, and (iv) one hundred percent (100%) of the amount required to maintain the Reserve Fund in accordance with Section 7.05 hereof.
32 Failure by the Issuer to comply with the preceding paragraph of this Section 9.03 in any Fiscal Year shall not constitute an event of default as described in Section 11.01(g) hereof so long as the Issuer shall, no later than sixty (60) days after discovering such non-compliance and in all events no later than sixty (60) days of receipt by the Issuer of audited financial statements delivered pursuant to Section 9.05 hereof which statements show such non-compliance, retain a Qualified Independent Consultant for the purpose of reviewing the System fees, rates, rents, charges and surcharges and shall implement the recommendations of such Qualified Independent Consultant with respect to such fees, rates, rents, charges and surcharges filed by the Qualified Independent Consultant with the Issuer in a written report or certificate, and such failure shall not be an event of default even though the Qualified Independent Consultant shall be of the opinion, as set forth in such report or certificate, that it would be impracticable at the time to charge such fees, rates, rents, charges and surcharges for the System as would provide funds sufficient to comply with the requirements of the preceding paragraph so long as the Issuer imposes such schedule of fees, rates, rents, charges and surcharges as in the opinion of such Qualified Independent Consultant will allow the Issuer to as nearly as then practicable comply with such requirements and the Issuer shall again be in compliance within the preceding paragraph of this Section 9.03 no later than twelve calendar months after its discovery of such non-compliance. The Issuer shall provide notice of its failure to comply with the preceding paragraph of this Section to the Owners by first class mail, postage prepaid, no later than thirty (30) days after engaging the services of a Qualified Independent Consultant pursuant to the requirements of the preceding sentence and shall provide a copy of the report or certificate of the Qualified Independent Consultant to any Owner who shall request the same in writing. Furthermore, the Issuer shall provide a copy of the report or certificate of the Qualified Independent Consultant to the Rating Agencies within thirty (30) days after receipt of same.
SECTION 9.04. Books and Records.
The Issuer shall keep separately identifiable financial books, records, accounts and data concerning the operation of the System and the receipt and disbursement of Revenues and Subsidy Payments, and any Bondholder shall have the right at all reasonable times to inspect the same.
SECTION 9.05. Reports and Annual Audits.
The Issuer shall require that an annual audit of the accounts and records with respect to the System be completed as soon as reasonably practicable after the end of each Fiscal Year by a qualified independent certified public accountant. Such audit shall be conducted in accordance with generally accepted auditing standards as applied to governments and shall include a statement by such auditors that no default on the part of the Issuer of any covenant or obligation hereunder has been disclosed by reason of such audit, or, alternatively, specifying in reasonable detail the nature of such default.
33 SECTION 9.06. Insurance and Condemnation Awards.
The Issuer will carry adequate fire, windstorm, explosion and other hazard insurance on the components of the System that are subject to loss through fire, windstorm, hurricane, cyclone, explosion or other hazards; adequate public liability insurance; other insurance of the kinds and amounts normally carried in the operation of similar enterprises in Florida; and in time of war, such insurance as may be available at reasonable cost against loss or damage by the risks and hazards of war in an amount or amounts equal to the fair market value of the System. The Issuer may, upon appropriate authorization by its Governing Body, self-insure against such risks on a sound actuarial basis. Any such insurance shall be carried for the benefit of the Issuer and, to the extent herein provided, the Bondholders. All proceeds received from property damage or destruction insurance and all proceeds received from the condemnation of the System or any part thereof are hereby pledged by the Issuer as security for the Obligations and, prior to the Retirement Date of the 1992 Bonds, applied as provided in the Senior Lien Ordinance and the Junior Subordinate Ordinance, and thereafter shall be deposited at the option of the Issuer but subject to the limitations hereinafter described either (i) into the Capital Fund, in which case, such proceeds shall be held in the Capital Fund and used to remedy the loss, damage or taking for which such proceeds are received, either by repairing the damaged property or replacing the destroyed or taken property, as soon as practicable after the receipt of such proceeds, or (ii) into the Revenue and Operating Fund for the purpose of purchasing or redeeming Obligations.
SECTION 9.07. Enforcement of Collections.
The Issuer will diligently enforce and collect the fees, rates, rentals and other charges for the use of the products, services and facilities of the System. The Issuer will not take any action that will impair or adversely affect its rights to impose, collect and receive the Revenues as herein provided, or impair or adversely affect in any manner the pledge of the Revenues made herein or the rights of the Bondholders.
SECTION 9.08. Additions to System.
The Issuer may add to the System any facilities or equipment related to the generation, transmission and/or distribution of electricity. In addition, the Issuer may add to the System any facilities or equipment for the provision of utility- related services other than the generation, distribution or transmission of electricity so long as, (i) if any Tax-Exempt Obligations are Outstanding hereunder, the Issuer shall have received an opinion of Bond Counsel that the addition to the System will not, in and of itself, cause the interest on such Tax-Exempt Obligations not to be excludable from gross income of the Holders thereof for federal income tax purposes, (ii) if the Revenues anticipated by the Issuer to be derived from such addition in its first full Fiscal Year of operations are equal to or greater than ten percent (10%) of the total Revenues derived by the System in the most recent Fiscal Year of the
34 Issuer preceding the adding of such addition to the System for which audited financial statements are available, or if the Cost of Operation and Maintenance anticipated by the Issuer to be incurred in connection with such addition in its first full Fiscal Year of operation are equal to or greater than ten percent (10%) of the total Cost of Operation and Maintenance incurred by the System in the most recent Fiscal Year preceding the adding of such addition to the System for which audited financial statements are available, prior to making such addition to the System the Issuer shall have obtained a written report of a Qualified Independent Consultant to the effect that within its first five (5) full years of operation, the annual additional Revenues generated by such addition in any one Fiscal Year of such first five (5) full years will exceed the annual additional Costs of Operation and Maintenance allocable to such additions in such Fiscal Year, and (iii) within ninety (90) days after adding such addition to the System the Issuer shall have provided written notice of same to each Rating Agency.
SECTION 9.09. Notice of Change in Investment Policy.
The Issuer shall notify each Rating Agency then rating any Obligations Outstanding hereunder if it modifies any of its policies related to investment of funds as set forth in Ordinance No. 3976 enacted on December 7, 1998.
ARTICLE X
ISSUANCE OF ADDITIONAL OBLIGATIONS
SECTION 10.01. Creation of Liens, Issuance of Subordinated Indebtedness, Subordinated Contract Obligations and Debt.
The Issuer shall not issue any bonds or other evidences of indebtedness, other than the Obligations and Parity Debt as provided herein, secured by a pledge of the Trust Estate and shall not create or cause to be created any lien or charge on the Trust Estate except to the extent provided in Section 6.01; provided, however, that the Issuer may, at any time, or from time to time, incur Subordinated Indebtedness or enter into Subordinated Contract Obligations payable out of, and which may be secured by a pledge of, such amounts as may from time to time be available for the purpose of the payment thereof in accordance with Section 7.02(A)(iv) hereof and such pledge shall be, and shall be expressed to be, subordinate in all respects to the pledge created by this Ordinance as security for payment of the Obligations and provided further, however, that nothing contained in this Ordinance shall prevent the Issuer from issuing (i) bonds, notes, or other obligations or evidences of indebtedness under another and separate resolution or ordinance to finance a Separately Financed Project; or (ii) other bonds, notes, or other obligations or evidences of indebtedness under another and separate resolution or ordinance payable from, among other sources, those moneys withdrawn by the Issuer from the Revenue and Operating Fund pursuant to Section 7.02(A)(vi) hereof.
35 SECTION 10.02. Issuance of Parity Obligations.
Except as otherwise provided in this section, no additional Obligations may be issued under this Ordinance unless the Issuer shall have first complied with the requirements of this Section. Additional Obligations may be issued from time to time hereunder for any lawful purpose of the Issuer in connection with the System.
(1) Additional Obligations may be issued or Parity Debt may be incurred from time to time under this Ordinance upon compliance with the following conditions:
(a) the Issuer shall have enacted a Supplemental Ordinance authorizing such Obligations or Parity Debt and providing the terms thereof as contemplated herein and reciting that all of the covenants contained herein will be fully applicable to such Obligations;
(b) the Chief Financial Officer of the Issuer shall certify in writing that, upon the delivery of such Obligations or incurrence of such Parity Debt, the Issuer will not be in default in the performance of the terms and provisions of this Ordinance or of any of the Obligations or Parity Debt;
(c) the Chief Financial Officer of the Issuer shall certify in writing that the Net Revenues of the System as shown on the then-most recent available audited financial statements of the System, adjusted as permitted below, equal or exceed the one hundred twenty-five percent (125%) of the Bond Service Requirement for all Outstanding Obligations and Parity Debt and the additional Obligations proposed to be issued or Parity Debt proposed to be incurred for the first complete Bond Year during which such additional Obligations or Parity Debt shall be Outstanding; and
(d) the Governing Body shall have received an opinion or opinions from the City Attorney of the Issuer and/or Bond Counsel to the effect that (i) the Issuer has the right and power under the Act to enact this Ordinance and this Ordinance has been duly and lawfully enacted by the Issuer, is in full force and effect and is valid and binding upon the Issuer and is enforceable in accordance with its terms and no other authorization of this Ordinance is required, (ii) this Ordinance creates a valid lien upon and pledge of the Trust Estate, (iii) the Obligations are, or Parity Debt is, valid and binding limited obligations of the Issuer, enforceable in accordance with their terms and this Ordinance and have been duly and validly authorized and issued in accordance with the Act and this Ordinance, and (iv) the Issuer has the full lawful power and authority to issue the Obligations for the purposes for which they are authorized.
In calculating Net Revenues of the System for purposes of clause (c) above, the Chief Financial Officer may, at his or her option, adjust the amount of Net Revenues shown on the most recent available audited financial statements of the System in the following respects:
36 (i) If, prior to the issuance of the additional Obligations or incurrence of Parity Debt, the Issuer shall have increased the rates, fees, rentals or other charges for services of the System, the Net Revenues may be adjusted to show the Net Revenues that would have been derived from the System if such increased rates, fees, rentals or other charges had been in effect for the full Fiscal Year covered by such audited financial statements;
(ii) If the Issuer shall have acquired or shall have contracted to acquire all or part of any privately or publicly owned utility system which is to be added to the System and the cost of which is to be paid, in whole or in part, from proceeds of the proposed additional Obligations, then the Net Revenues shall be increased by adding thereto the Net Revenues that would have been derived if such addition to the System had been included in the System for the full Fiscal Year covered by such audited financial statements; and
(iii) If the Issuer, in connection with the issuance of the additional Obligations or incurrence of Parity Debt, shall enter into a contract (with a duration or term not less than the final maturity of such additional Obligations) with any public or private entity whereby the Issuer agrees to furnish services of the System to such entity, then the Net Revenues shown on the audited financial statements shall be increased by the estimated amount which such public or private entity has agreed to pay in one Fiscal Year for the furnishing of such services, after deducting therefrom the cost of operation, maintenance, repair, renewal and replacement allocable to providing such services.
Obligations issued and Parity Debt incurred pursuant to the terms and conditions of this Section shall be deemed on a parity with all Obligations and Parity Debt then Outstanding, and all of the covenants and other provisions of this Ordinance shall be for the equal benefit, protection and security of the holders of any Obligations originally authorized and issued and Parity Debt incurred pursuant to this Ordinance and the holders of any Obligations and Parity Debt evidencing additional obligations subsequently created within the limitations of and in compliance with this Section.
SECTION 10.03. Separately Financed Project.
Nothing in this Ordinance shall prevent the Issuer from authorizing and issuing bonds, notes, or other obligations or evidences of indebtedness, other than Obligations, for any project authorized by the Act, or from financing or otherwise providing for any such project from other available funds (such project being referred to herein as a "Separately Financed Project"), if the debt service on such bonds, notes, or other obligations or evidences of indebtedness, and the Issuer's share of any operating expenses related to such Separately Financed Project, are payable solely from the revenues or other income derived from the ownership or operation of such Separately Financed Project, from other available funds of the
37 Issuer not constituting part of the Trust Estate or from other funds withdrawn by the Issuer from the Revenue and Operating Fund pursuant to Section 7.02(A)(vi) hereof.
SECTION 10.04. Credit Facilities; Qualified Swaps and Other Similar Arrangements; Parity Debt.
(a) The Issuer may include such provisions in a Supplemental Ordinance authorizing the issuance of a Series of Obligations secured by a Credit Facility as the Issuer deems appropriate, and no such provisions shall be deemed to constitute an amendment to this Ordinance requiring action under Article XII hereof, including:
(1) So long as a Credit Facility providing security (but not liquidity) is in full force and effect, and payment on the Credit Facility is not in default, then, in all such events, the issuer of the Credit Facility shall be deemed to be the sole Bondholder of the Outstanding Obligations the payment of which such Credit Facility secures when the approval, consent or action of the Bondholders for such Obligations is required or may be exercised under this Ordinance. The rights of the issuer of a Credit Facility under this clause (1) may not be assigned or delegated by the issuer of such Credit Facility without the written consent of the Issuer.
(2) In the event that the principal, sinking fund installments, if any, and Redemption Price, if applicable, and interest due on any Outstanding Obligations shall be paid under the provisions of a Credit Facility, all covenants, agreements and other obligations of the Issuer to the Bondholders of such Obligations shall continue to exist and such issuer of the Credit Facility shall be subrogated to the rights of such Bondholders in accordance with the terms of such Credit Facility.
(b) In addition, such Supplemental Ordinance may establish such provisions as are necessary (i) to comply with the provisions of each such Credit Facility, (ii) to provide relevant information to the issuer of the Credit Facility, (iii) to provide a mechanism for paying principal installments and interest on Obligations secured by the Credit Facility, and (iv) to make provision for any events of default or for additional or improved security required by the issuer of a Credit Facility.
(c) In connection therewith the Issuer may enter into such agreements with the issuer of such Credit Facility providing for, inter alia: (i) the payment of fees and expenses to such issuer for the issuance of such Credit Facility, (ii) the terms and conditions of such Credit Facility and the Obligations affected thereby, and (iii) the security, if any, to be provided for the issuance of such Credit Facility.
(d) The Issuer may secure such Credit Facility by an agreement providing for the purchase of the Obligations secured thereby with such
38 adjustments to the rate of interest, method of determining interest, maturity, or redemption provisions as specified by the Issuer in the applicable Supplemental Ordinance. The Issuer may also in an agreement with the issuer of such Credit Facility agree to directly reimburse such issuer for amounts paid under the terms of such Credit Facility (together with interest thereon, the "Reimbursement Obligation"); provided, however, that no Reimbursement Obligation shall be created for purposes of this Ordinance, until amounts are paid under such Credit Facility. Any such Reimbursement Obligation, which may include interest calculated at a rate higher than the interest rate on the related Obligation, may be secured by a pledge of, and a lien on, the Trust Estate on a parity with the lien created by Section 6.02 to secure the Obligations (a "Parity Reimbursement Obligation"), but only to the extent principal amortization requirements with respect to such reimbursement either (i) are equal to the amortization requirements for such related Obligations, without acceleration, or (ii) provide for the amortization of principal in substantially equal installments over a period of not less than seven (7) years, or may constitute a Subordinated Contract Obligation, as determined by the Issuer. Parity Reimbursement Obligations shall not include any payments of any fees, expenses, indemnification, or other similar obligations to any such provider, which payments shall be Subordinated Contract Obligations.
(e) Any such Credit Facility shall be for the benefit of and secure such Obligations or portion thereof as specified in the applicable Supplemental Ordinance.
(f) In connection with the issuance of any Obligations or at any time thereafter so long as Obligations remain Outstanding, the Issuer may, to the extent from time to time permitted pursuant to law, enter into Qualified Swaps. The Issuer's obligation to pay any amount under any Qualified Swap may constitute a Parity Swap Obligation, or may constitute a Subordinated Contract Obligation, as determined by the Issuer. Parity Swap Obligations shall not include any payments of any termination or other fees, expenses, indemnification or other obligations to a counterparty to a Qualified Swap, which payments shall be Subordinated Contract Obligations.
(g) The Issuer's obligation to pay that portion of any rates, fees, charges or payments which the Issuer is contractually obligated to pay to another entity for fuel, energy or power, for the specific purpose of meeting principal or interest or both on that entity's obligations directly associated with such contract and payable to such entity regardless of whether fuel or energy is delivered or made available for delivery, may be secured by a pledge of, and lien on, the Trust Estate on a parity with the lien created by Section 6.02 to secure the Obligations (a "Parity Contract Obligation"), or may constitute a Subordinated Contract Obligation or an Operating Expense, as determined by the Issuer.
39 ARTICLE XI
EVENTS OF DEFAULT; REMEDIES
SECTION 11.01. Events of Default.
Each of the following events is hereby declared an "event of default," that is to say if:
(a) payment of principal of any Obligation shall not be made when the same shall become due and payable, either at maturity (whether by acceleration or otherwise) or on required payment dates by proceedings for redemption or otherwise; or
(b) payment of any installment of interest shall not be made when the same shall become due and payable; or
(c) the Issuer shall for any reason be rendered incapable of fulfilling its obligations hereunder to the extent that the payment of or security for the Obligations would be materially adversely affected, and such conditions shall continue unremedied for a period of thirty (30) days after the Issuer becomes aware of such conditions; or
(d) an order or decree shall be entered, with the consent or acquiescence of the Issuer, appointing a receiver or receivers of the Issuer, the System, the Revenues, or any part thereof or the filing of a petition by the Issuer for relief under federal bankruptcy laws or any other applicable law or statute of the United States of America or the State of Florida, which shall not be dismissed, vacated or discharged within thirty (30) days after the filing thereof; or
(e) any proceedings shall be instituted, with the consent or acquiescence of the Issuer, for the purpose of effecting a composition between the Issuer and its creditors or for the purpose of adjusting the claims of such creditors, pursuant to any federal or state statutes now or hereafter enacted, if the claims of such creditors are under any circumstances payable from the Revenues; or
(f) the entry of a final judgment or judgments for the payment of money against the Issuer as a result of the ownership, operation or control of the System or which subjects any of the funds pledged hereunder to a lien for the payment thereof in contravention of the provisions of this Ordinance for which there does not exist adequate insurance, reserves or appropriate bonds for the timely payment thereof, and any such judgment shall not be discharged within ninety (90) days from the entry thereof or an appeal shall not be taken therefrom or from the order, decree or process upon which or pursuant to which such judgment shall have been granted or entered,
40 in such manner as to stay the execution of or levy under such judgment, order, decree or process or the enforcement thereof; or
(g) the Issuer shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Obligations or in this Ordinance on the part of the Issuer to be performed, and such default shall continue for sixty (60) days after written notice specifying such default and requiring the same to be remedied shall have been given to the Issuer by the Registered Owners of not less than twenty-five percent (25%) of the Bond Obligation; notwithstanding the foregoing, however, an event of default shall not be deemed to have occurred under this paragraph (g) if the default of the Issuer can not be cured within sixty (60) days of such notice but can be cured within a reasonable period of time and the Issuer in good faith institutes curative action within such sixty-day period and diligently pursues such action until the default has been corrected.
Notwithstanding the foregoing, with respect to the events described in clauses (c) and (g), the Issuer shall not be deemed in default hereunder if such default can be cured within a reasonable period of time and if the Issuer in good faith institutes appropriate curative action and diligently pursues such action until the default has been corrected.
SECTION 11.02. Enforcement of Remedies.
Upon the happening and continuance of any event of default specified in Section 11.01 of this Article, then and in every such case the Owners of not less than twenty-five percent (25%) of the Bond Obligation may appoint any state bank, national bank, trust company or national banking association qualified to transact business in Florida to serve as trustee for the benefit of the Holders of all Obligations then outstanding (the "Trustee"). Notice of such appointment, together with evidence of the requisite signatures of the Holders of twenty-five percent (25%) of the Bond Obligation and the trust instrument under which the Trustee shall have agreed to serve shall be filed with the Issuer and the Trustee and notice of such appointment shall be published in THE BOND BUYER or a financial journal of general circulation in the City of New York, New York and mailed to the Registered Owners of the Obligations; provided, however, that if all Obligations then Outstanding are in registered form, no newspaper publication shall be required. After the appointment of a Trustee hereunder, no further Trustees may be appointed; however, the Holders of a majority of the Bond Obligation may remove the Trustee initially appointed and appoint a successor and subsequent successors at any time. If the default for which the Trustee was appointed is cured or waived pursuant to this Article, the appointment of the Trustee shall terminate with respect to such default.
41 After a Trustee has been appointed pursuant to the foregoing, the Trustee may proceed, and upon the written request of Owners of twenty-five percent (25%) of the Bond Obligation shall proceed to protect and enforce the rights of the Bondholders under the laws of the State of Florida, including the Act, and under this Ordinance, by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board, body or officer having jurisdiction, either for the specific performance of any covenant or agreement contained herein or in aid of execution of any power herein granted or for the enforcement of any proper legal or equitable remedy, all as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights.
In the enforcement of any remedy against the Issuer under this Ordinance the Trustee shall be entitled to sue for, enforce payment of and receive any and all amounts then or during any default becoming, and at any time remaining, due from the Issuer for principal, interest or otherwise under any provisions of this Ordinance or of such Obligations and unpaid, with interest on overdue payments of principal and, to the extent permitted by law, on interest at the rate or rates of interest specified in such Obligations, together with any and all costs and expenses of collection and of all proceedings hereunder and under such Obligations, without prejudice to any other right or remedy of the Trustee or of the Bondholders, and to recover and enforce any judgment or decree against the Issuer, but solely as provided herein and in such Obligations, for any portion of such amounts remaining unpaid and interest, costs and expenses as above provided, and to collect (but solely from moneys in the Revenue and Operating Fund, as the case may be, and any other moneys available for such purpose) in any manner provided by law, the moneys adjudged or decreed to be payable.
SECTION 11.03. Effect of Discontinuing Proceedings.
In case any proceeding taken by the Trustee or any Bondholder on account of any default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or such Bondholder, then and in every such case the Issuer, the Trustee and Bondholders shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken.
SECTION 11.04. Directions to Trustee as to Remedial Proceedings.
Anything in this Ordinance to the contrary notwithstanding, the Holders of a majority of the Bond Obligation shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings to be taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law or the provisions of this Ordinance, and that the Trustee shall
42 have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders not parties to such direction.
SECTION 11.05. Pro Rata Application of Funds.
Anything in this Ordinance to the contrary notwithstanding, if at any time the moneys in the Revenue and Operating Fund, as the case may be, shall not be sufficient to pay the principal (or Accreted Values with respect to the Capital Appreciation Bonds) of or the interest on the Obligations as the same become due and payable, such moneys, together with any moneys then available or thereafter becoming available for such purpose, whether through the exercise of the remedies provided for in this Article or otherwise, shall be applied as follows:
(a) Unless the principal of all the Obligations and Parity Debt shall have become due and payable, all such moneys shall be applied (1) to the payment of all installments of interest then due on the Obligations and the interest component of Parity Debt then due, in the order of the maturity of the installments of such interest, to the persons entitled thereto, ratably, without any discrimination or preference, and (2) to the payment of all installments of principal of Obligations and Parity Debt then due.
(b) If the principal of all the Obligations and Parity Debt shall have become due and payable, all such moneys shall be applied to the payment of the principal and interest (or Accreted Values with respect to Capital Appreciation Bonds) then due and unpaid upon the Obligations and Parity Debt, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Obligation or Parity Debt over any other Obligation or Parity Debt, ratably, according to the amounts due, respectively, for principal and interest (or Accreted Values with respect to Capital Appreciation Bonds), to the persons entitled thereto without any discrimination or preference except as to any difference in the respective rates of interest specified in the Obligations and Parity Debt.
Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section, such moneys shall be applied by the Trustee at such times, and from time to time, as the Trustee in its sole discretion shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future; the setting aside of such moneys, in trust for the proper purpose, shall constitute proper application by the Trustee; and the Trustee shall incur no liability whatsoever to the Issuer, to any Bondholder or owner of Parity Debt or to any other person for any delay in applying any such moneys, so long as the Trustee acts with reasonable diligence, having due regard to the circumstances, and ultimately applies the same in accordance with such provisions of this Ordinance as may be
43 applicable at the time of applicable by the Trustee. Whenever the Trustee shall exercise such discretion in applying such moneys, it shall fix the date (which shall be an interest payment date unless the Trustee shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue and the Accreted Value of Capital Appreciation Bonds shall cease to accrete. The Trustee shall give such notice as it may deem appropriate of the fixing of any such date, and shall not be required to make payment to the owner of any Obligation unless such Obligation shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.
SECTION 11.06. Restrictions on Actions by Individual Bondholders.
No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the execution of any trust hereunder or for any other remedy hereunder unless such Bondholder previously shall have given to the Trustee written notice of the event of default on account of which such suit, action or proceeding is to be taken, and unless the Holders of not less than twenty-five percent (25%) of the Bond Obligation shall have made written request of the Trustee after the right to exercise such powers or right of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers hereinabove granted or to institute such action, suit or proceeding in its or their name, and unless, also, there shall have been offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, including the reasonable fees of its attorneys (including fees on appeal), and the Trustee shall have refused or neglected to comply with such request within a reasonable time; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Ordinance or for any other remedy hereunder. It is understood and intended that no one or more Owners of the Obligations hereby secured shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Ordinance, or to enforce any right hereunder, except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the benefit of all Bondholders, and that any individual rights of action or any other right given to one or more of such Owners by law are restricted by this Ordinance to the rights and remedies herein provided.
Nothing contained herein, however, shall affect or impair the right of any Bondholder, individually, to enforce the payment of the principal of and interest on his Obligation or Obligations at and after the maturity thereof, at the time, place, from the source and in the manner provided in this Ordinance.
44 SECTION 11.07. Appointment of a Receiver.
Upon the happening and continuance of an event of default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Ordinance, the Trustee shall be entitled, as a matter of right, without regard to the solvency of the Issuer, to the appointment of a receiver or receivers of the System, pending such proceedings, with such powers as the court making such appointments shall confer, whether or not the Revenues and other funds pledged hereunder shall be deemed sufficient ultimately to satisfy the Obligations outstanding hereunder.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Modification or Amendment.
A. (1) Prior to the Retirement Date of the 1992 Bonds, except as provided in Section 12.01(A)(2) hereof, no material modification or amendment of this Ordinance or any ordinance amendatory hereof or supplemental hereto, may be made without the consent in writing of owners of two-thirds or more of the Bond Obligation then Outstanding; provided, however, that no such modification or amendment shall permit a change in the maturity of the Obligations or a reduction in the rate of interest thereon or principal thereof, or affect the unconditional promise of the Issuer to fix, maintain and collect fees, rentals and other charges for the System or to pay the interest of and principal on the Obligations, as the same mature or become due, from the Revenues of the System, or reduce the percentage of owners of such Obligations required above for such modification or amendments, without the consent of Owners of all the Obligations then Outstanding.
(2) This Ordinance may be amended, changed, modified and altered prior to the Retirement Date of the 1992 Bonds without the consent of the Owners of the Obligations, (i) to cure any ambiguity, correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions contained herein, (ii) to provide other changes which would not adversely affect the interests of the Owners of the Obligations, or (iii) to provide for the issuance of Obligations in coupon form if, in the opinion of nationally recognized bond counsel, such issuance will not affect the exclusion from gross income for federal income tax purposes of interest on the Obligations that are not Taxable Obligations.
B. After the Retirement Date of the 1992 Bonds, no modification or amendment of this Ordinance, or of any Supplemental Ordinance, materially adverse to the Bondholders may be made without the consent in writing of the Owners of not less than a majority of the Bond Obligation, but no modification or amendment shall permit a change (a) in the maturity of any of the Obligations or a reduction in the rate of interest thereon, (b) in the amount of the principal obligation of any Obligation, (c) that would affect the unconditional obligation of the
45 Issuer to collect and hold the Revenues as herein provided, or provide for the receipt and disbursement of such Revenues as herein provided, or (d) that would reduce such percentage of Owners of the Bond Obligation, required above, for such modifications or amendments, without the consent of all of the Bondholders. For the purpose of Bondholders' voting rights or consents, the Obligations, if any, owned by or held for the account of the Issuer, directly or indirectly, shall not be counted. Notwithstanding the foregoing, and so long as the same shall not result in the interest on Obligations other than Taxable Obligations Outstanding hereunder being included in gross income of the holders thereof for federal income tax purposes, the Issuer may, from time to time and at any time after the Retirement Date of the 1992 Bonds without the consent of the Bondholders, enter into such supplemental ordinances or resolutions (which supplemental ordinances or resolutions shall thereafter form a part hereof):
(i) To cure any ambiguity, inconsistency or formal defect or omission in this Ordinance or in any Supplemental Ordinance, or
(ii) To grant to or confer upon the Bondholders any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Bondholders, or
(iii) To provide for the sale, authentication and delivery of additional Obligations or refunding Obligations and the disposition of the proceeds from the sale thereof, in the manner and to the extent authorized by Article X above, or
(iv) To modify, amend or supplement this Ordinance or any ordinance or resolution supplemental hereto in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect or to permit the qualification of the Obligations for sale under the securities laws of any of the states of the United States of America, and, if the Issuer so determines, to add to this Ordinance or any ordinance or resolution supplemental hereto such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute, or
(v) To provide for the issuance of coupon Obligations or certificated or uncertificated registered public obligations as contemplated in Section 5.02 hereof, or
(vi) To provide for changes suggested by a nationally recognized securities rating agency as necessary to secure or maintain the rating on the Obligations, or
(vii) To subject to the terms of this Ordinance any additional funds, securities or properties, or
46 (viii) To make any other change or modification of the terms hereof which, in the reasonable judgment of the Issuer is not prejudicial to the rights or interests of the Holders of the Obligations hereunder.
C. Notice of any amendments or modifications of this Ordinance shall be given by the Issuer to the Rating Agencies then rating any Obligations Outstanding hereunder.
SECTION 12.02. Defeasance and Release of Ordinance.
If, at any time after the date of issuance of the Obligations, (a) all Obligations secured hereby, or any Series thereof, or maturity or portion of a maturity within a Series, shall have become due and payable in accordance with their terms or otherwise as provided in this Ordinance, or shall have been duly called for redemption, or the Issuer gives the Paying Agent irrevocable instructions directing the payment of the principal of, premium, if any, and interest on such Obligations at maturity or at any earlier redemption date scheduled by the Issuer, or any combination thereof, (b) the whole amount of the principal, premium, if any, and the interest so due and payable upon all of such Obligations then outstanding, at maturity or upon redemption, shall be paid, or sufficient moneys shall be held by the Paying Agent, an escrow agent or any Authorized Depository, in irrevocable trust for the benefit of such Bondholders (whether or not in any accounts created hereby) which, as verified by a report of a nationally recognized independent certified public accountant or nationally recognized firm of independent certified public accountants, when invested in Federal Securities maturing not later than the maturity or redemption dates of such principal, premium, if any, and interest will, together with the income realized on such investments, be sufficient to pay all such principal, premium, if any, and interest on said Obligations at the maturity thereof or the date upon which such Obligations are to be called for redemption prior to maturity, and (c) provisions shall also be made for paying all other sums payable hereunder by the Issuer, then and in that case the right, title and interest of such Bondholders hereunder and the pledge of and lien on the Trust Estate, and all other pledges and liens created hereby or pursuant hereto, with respect to such Bondholders shall thereupon cease, determine and become void, and if such conditions have been satisfied with respect to all Obligations issued hereunder and then Outstanding, all balances remaining in any other funds or accounts created by this Ordinance other than moneys held for redemption or payment of Obligations and to pay all other sums payable by the Issuer hereunder shall be distributed to the Issuer for any lawful purpose; otherwise this Ordinance shall be, continue and remain in full force and effect.
For purposes of determining the amount of interest due and payable with respect to Variable Rate Obligations pursuant to (b) above, the interest on such Variable Rate Obligations shall be calculated at the maximum rate permitted by the terms thereof; provided, however, that if on any date, as a result of such Variable Rate Obligations having borne interest at less than such maximum rate
47 for any period, the total amount of moneys and Federal Securities on deposit with the Paying Agent for the payment of interest on such Variable Rate Obligations is in excess of the total amount which would have been required to be deposited with the Paying Agent on such date in respect of such Variable Rate Obligations in order to satisfy the above provisions, the Paying Agent shall pay the amount of such excess to the Issuer for use in such manner as required or permitted pursuant to an opinion of Bond Counsel in order not to cause interest on the Obligations (other than Taxable Bonds) or any bonds issued to refund the Obligations to cease to be excludable from gross income for federal income tax purposes.
For purposes of determining the amount of principal, premium, if any, and interest due and payable pursuant to (b) above with respect to Obligations subject to mandatory purchase or redemption by the Issuer at the option of the Registered Owner thereof ("Put Bonds"), as long as a liquidity credit facility remains in place such amount shall be the maximum amount of principal of and premium, if any, and interest on such Put Bonds which could become payable to the Registered Owners of such Put Bonds upon the exercise of any such demand options provided to the registered owners of such Put Bonds. If any portion of the moneys deposited with the Paying Agent for the payment of the principal of and premium, if any, and interest on Put Bonds is not required for such purpose the Paying Agent shall pay the amount of such excess to the Issuer for use in such manner as required or permitted pursuant to an opinion of Bond Counsel in order not to cause interest on the Obligations (other than Taxable Bonds) or any bonds issued to refund the Obligations to cease to be excluded from gross income for federal income tax purposes.
If a portion of a maturity of a series of Obligations subject to mandatory sinking fund redemption shall be defeased as provided above, the principal amount of the Obligations so defeased shall be allocated to the mandatory sinking fund installments designated by the Issuer, or if no such designation is made, such principal amount shall be allocated to mandatory sinking fund installments in inverse order of maturity.
SECTION 12.03. Tax Covenants.
It is the intention of the Issuer and all parties under its control that the interest on the Obligations issued hereunder that are not Taxable Obligations be and remain excluded from gross income for federal income tax purposes and to this end the Issuer hereby represents to and covenants with each of the Holders of the Obligations issued hereunder that are not Taxable Bonds that it will comply with the requirements applicable to it contained in Section 103 and Part IV of Subchapter B of Chapter 1 of Subtitle A of the Code to the extent necessary to preserve the exclusion of interest on the Obligations issued hereunder that are not Taxable Obligations from gross income for federal income tax purposes. Specifically, without intending to limit in any way the generality of the foregoing, the Issuer covenants and agrees:
48 (1) to make or cause to be made all necessary determinations and calculations of the amount required to be paid to the United States of America pursuant to Section 148(f) of the Code (the "Rebate Amount") and required payments of the Rebate Amount;
(2) to set aside sufficient moneys from the Revenues or other legally available funds of the Issuer, to timely pay the Rebate Amount to the United States of America;
(3) to pay the Rebate Amount to the United States of America at the times and to the extent required pursuant to Section 148(f) of the Code;
(4) to maintain and retain all records pertaining to the Rebate Amount with respect to the Obligations that are not Taxable Obligations issued hereunder and required payments of the Rebate Amount with respect to the Obligations that are not Taxable Obligations for at least six years after the final maturity of the Obligations that are not Taxable Obligations or such other period as shall be necessary to comply with the Code;
(5) to refrain from taking any action that would cause any Obligations or any Series or portion thereof issued hereunder, other than Taxable Obligations and bonds issued with the intent that they shall constitute "private activity bonds" under Section 141(a) of the Code, to be classified as "private activity bonds" under Section 141(a) of the Code; and
(6) to refrain from taking any action that would cause the Obligations that are not Taxable Obligations issued hereunder to become arbitrage bonds under Section 148 of the Code.
The Issuer understands that the foregoing covenants impose continuing obligations of the Issuer that will exist as long as the requirements of Section 103 and Part IV of Subchapter B of Chapter 1 of Subtitle A of the Code are applicable to the Obligations.
Notwithstanding any other provision of this Ordinance, including, in particular Section 12.02 hereof, the obligation of the Issuer to pay the Rebate Amount to the United States of America and to comply with the other requirements of this Section 12.04 shall survive the defeasance or payment in full of the Obligations that are not Taxable Obligations.
SECTION 12.04. Severability.
If any one or more of the covenants, agreements or provisions of this Ordinance should be held contrary to any express provision of law or contrary to the policy of express law, though not expressly prohibited, or against public policy, or
49 shall for any reason whatsoever be held invalid, then such covenants, agreements or provisions shall be null and void and shall be deemed separate from the remaining covenants, agreements or provisions of this Ordinance or of the Obligations issued hereunder.
SECTION 12.05. No Third-Party Beneficiaries.
Except as herein or by Supplemental Ordinance otherwise expressly provided, nothing in this Ordinance expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the parties hereto and the owners and holders of the Obligations issued under and secured by this Ordinance, any right, remedy or claim, legal or equitable, under or by reason of this Ordinance or any provision hereof, this Ordinance and all its provisions being intended to be and being for the sole and exclusive benefit of the parties hereto and the owners and holders from time to time of the Obligations issued hereunder.
SECTION 12.06. Controlling Law; Members of Issuer Not Liable.
All covenants, stipulations, obligations and agreements of the Issuer contained in this Ordinance shall be deemed to be covenants, stipulations, obligations and agreements of the Issuer to the full extent authorized by the Act and provided by the Constitution and laws of the State of Florida. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member of the Governing Body, agent or employee of the Issuer in his individual capacity, and neither the members of the Issuer nor any official executing the Obligations shall be liable personally on the Obligations or this Ordinance or shall be subject to any personal liability or accountability by reason of the issuance or the execution by the Issuer or such members thereof.
SECTION 12.07. Effective Date.
This Ordinance shall become effective upon its passage in the manner provided by law and (i) upon receipt of the consent of Owners of two-thirds of the principal amount of the Bonds outstanding under the Original Ordinance and (ii) (a) a receipt of consent of the holders of the Issuer's outstanding Second Lien Bonds or (b) upon the occurrence of an event whereby no Second Lien Bonds shall any longer be outstanding, either through redemption, defeasance or in any other manner. All moneys in any fund or account under the Original Ordinance shall, upon the effective date hereof, be transferred to the Revenue and Operating Fund. The Issuer may create corresponding subaccounts in the Revenue and Operating Fund for the moneys in the Rebate Accounts created under the Original Ordinance.
50 PASSED AND CERTIFIED AS TO PASSAGE, this 7th day of April, 1999.
ATTEST: Ralph L. Fletcher, Mayor
______Acting City Clerk
Approved as to form and correctness:
______City Attorney
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APPENDIX C
AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF ELECTRIC UTILITIES FOR THE YEAR ENDED SEPTEMBER 30, 2017
[THIS PAGE INTENTIONALLY LEFT BLANK] Department of Electric Utilities An Enterprise Fund of the City of Lakeland, Florida TABLE OF CONTENTS
Transmittal Letter (Unaudited) 3
Statistical and Financial Data (Unaudited) 5
Report of Independent Auditors 9
Management’s Discussion and Analysis (Unaudited) 11
Basic Financial Statements Statements of Net Position 17
Statements of Revenues, Expenses 19 And Changes in Net Position
Statements of Cash Flows 20
Notes of Financial Statements 22
Required Supplementary Information Schedule of Lakeland Electric’s Proportionate Share of the Net Pension Liability 58
Schedule of Lakeland Electric’s Contributions 58
Notes to Required Supplementary Information 59
ELECTRIC MANAGEMENT LAKELAND CITY COMMISSION Joel Ivy Gina Jacobi William Mutz Stephanie Madden General Manager Assistant General Manager Mayor Commissioner At Large Fiscal Operations Justin Troller Scott Franklin Joey Curry David Kus Commissioner At Large Commissioner Southeast Assistant General Manager Assistant General Manager Delivery Customer Service Phillip Walker Michael Dunn Michael Beckham Commissioner Northwest Commissioner Southwest Assistant General Manager Production Bill Read Commissioner Northeast
2017 Audited Financial Statements - 2 TRANSMITTAL LETTER
March 31, 2018
Honorable Mayor, Members of the Utility Committee and Customers of Lakeland Electric
It is our pleasure to submit this annual financial report for the fiscal year ended September 30, 2017 for the City of Lakeland, Florida’s Department of Electric Utilities (Lakeland Electric, or “LE”). Management assumes full responsibility for the completeness and accuracy of the information contained in this report. We believe, to the best of our knowledge and belief, this report is complete and reliable in all material respects and the information fairly represents the Utility’s financial condition.
Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it.
PROFILE OF LAKELAND ELECTRIC Lakeland Electric is an enterprise fund governed by a Utility Committee that consists of all seven members of the City Commission plus five citizens representing a cross-section of the customer base. Lakeland Electric is the largest department of the City. It has a budgeted staff of 546 full- time employees including approximately 300 employees who are members of the Utility Workers Union of America, Local 604.
The Utility’s service territory consists of approximately 246 square miles and includes the incorporated area of the City and a number of unincorporated communities lying within a 15- mile radius of the City. The Utility’s territory is bordered on the north by the Withlacoochee Rural Electric Cooperative, Inc. and on the east, west, and south by Tampa Electric Company. The City of Bartow also borders the Utility on the south. During Fiscal Year 2017, an average of 128,535 electric accounts was served, of which 83% were residential.
Lakeland Electric is a vertically integrated utility providing generation, transmission, and distribution services to its customers. The utility has over 1,945 miles of distribution lines of which 670 miles are underground, 156 miles of transmission lines including 128 miles of 69 kV lines, and 28 miles of 230 kV lines. Lakeland Electric also has 890 MW of net dependable generating capacity and is a member of the Florida Municipal Power Pool (FMPP) that includes Orlando Utilities Commission (OUC) and Florida Municipal Power Authority (FMPA).
MAJOR INITIATIVES Battery Storage Project – Lakeland Electric installed a 40kWh battery storage project at the City of Lakeland’s Beerman Family Tennis Center. The project’s aim is to gain a better understanding of the technology’s potential, particularly with respect to curbing peak demand. The final inspection was approved December 11, 2017 and the unit is currently being integrated into the City of Lakeland’s data network.
Rate Study - During 2018, Lakeland Electric will conduct a comprehensive rate study to evaluate the need for a base rate increase.
3 - Affordable, Dependable, Sustainable FINANCIAL HIGHLIGHTS Lakeland Electric’s income in fiscal Year 2017 was adversely impacted by Hurricane Irma, the most intense hurricane to strike the continental United Stated since Katrina in 2005. Irma inflicted widespread damage to the Lakeland Electric system and a majority of the utility’s customers lost power for 3 – 12 days. The loss in sales immediately following Irma’s landfall coupled with milder weather overall resulted in a 1.7% decline in energy consumption. Customer growth was solid at 1.4%.
Other financial highlights include: • Change in net position of $5.2 million. • Debt service coverage of 232%. Well above our covenant requirement. • Days Cash on Hand of 209 days. Solidly in AA credit range. • Credit outlook raised by Fitch Ratings™ from stable to positive.
ACKNOWLEDGMENTS This report represents countless hours of preparation. The utmost appreciation is extended to all members of the staff who assisted and contributed to its preparation. We would like to thank the City of Lakeland’s Finance Director, Mike Brossart; Assistant Finance Director, Deidra Joseph, John Zuercher, Internal Audit Director and former Lakeland Electric Controller, Mark Meeks for their support throughout the process. We appreciate the assistance and cooperation of Crowe Horwath, LLP for their completion of the independent audit. Special recognition is given to the employees of the Fiscal Operations Department who worked diligently to ensure the timeliness and accuracy of this report. We also express our appreciation to our General Manager, Joel Ivy and to the Utility Committee for the continued leadership they provide to ensure that Lakeland Electric is “powered for life”.
Respectfully Submitted,
Gina G. Jacobi, MBA, CGFM Assistant General Manager – Fiscal Operations
David Harrell, CPA Lakeland Electric Controller
2017 Audited Financial Statements - 4 STATISTICAL AND FINANCIAL DATA (Unaudited) Percent FY2017 FY2016 Incr/-Decr Retail electric customers: Residential 107,213 105,619 1.5% Commercial and Industrial 12,954 12,862 0.7% Roadway and private area lights 8,368 8,301 0.8% 128,535 126,782 1.4%
Number of employees (FTE's) 510 529 -3.6%
Electric plants 3 3 0.0% Net normal generating capacity 890 890 0.0%
Retail service territory (square miles) 246 246 0.0%
Substations 24 24 0.0% Transmission lines (miles) 69 KV 128 128 0.0% 230 KV 28 28 0.0% Distribution lines: Overhead (miles) 1,275 1,275 0.0% Underground (miles) 670 654 2.5%
Retail sales (MWh) 3,003,586 3,056,153 -1.7% Average demand (MWh) 359 358 0.3% Summer peak (MWh) 643 646 -0.5% Winter peak (MWh) 539 589 -8.5%
(Dollars in thousands) Percent Current Year Prior Year Incr/-Decr Retail sales of electricity $ 176,972 $ 180,514 -2.0% Other retail revenue 7,286 7,462 -2.4% Retail fuel revenue 114,583 102,788 11.5% Sales for resale 4,643 5,789 -19.8% Fuel and purchased power expenses (120,510) (109,466) 10.1% Other operating expenses (99,223) (83,364) 19.0% Depreciation expense (net) (38,269) (41,784) -8.4% Operating income 45,482 61,939 -26.6% Nonoperating revenue 5,832 6,795 -14.2% Nonoperating expenses (17,660) (18,385) -3.9% Transfers to other funds (28,448) (30,678) -7.3% Change in net position $ 5,206 $ 19,671 -73.5%
Utility plant, net $ 649,740 $ 656,497 -1.0% Long-term bond debt, due beyond twelve months $ 363,475 $ 387,725 -6.3%
Debt service coverage from operations 2.32 2.87 -19.2% Days cash (excluding restricted and sinking cash) 209 230 -9.1%
5 - Affordable, Dependable, Sustainable OPERATING SUMMARY FY2017
OPERATING REVENUE
Retail fuel charges $114,583,410
Residential Sales 105,596,437
Commercial & Industrial Sales 62,532,243
Other operating revenue 7,286,280
Public street & highway lighting 5,474,740
Sales for resale 4,642,718
Public authority sales, intra-city 3,367,713 Residential 38% Street & highway lighting 2% Retail fuel charges 35% Sales for resale 1% Commercial & industrial 21% Public authority sales, intra-city 1% TOTAL $303,483,541 Other operating revenue 2%
OPERATING EXPENSES
Fuel and Purchase Power $120,510,181
Depreciation 38,267,289
Transmission & Distribution 31,752,229
Production 29,371,069
Administrative & General 22,889,097
Customer Service & Accounting 8,025,266
State Tax on Electric Sales 7,186,435 Fuel & Purchase Power 47% Administrative & General 9% Depreciation 15% Customer Service & Accounting 3% Transmission & Distribution 12% State Taxes on Electricity Sales 3% TOTAL $258,001,566 Production 11%
2017 Audited Financial Statements - 6 Retail Customer Count FY17 and Previous Ten Years Net Retail Customer Load FY17 and Previous Ten Years
130,000 3,100
128,000 3,000
126,000
2,900 124,000
122,000 2,800 Customers Megawatts
120,000
2,700 118,000
116,000 2,600 07 08 09 10 11 12 13 14 15 16 17 07 08 09 10 11 12 13 14 15 16 17
Retail Sales of Electricity FY17 and Previous Four Years Operating Expenses FY17 and Previous Four Years
350,000 250,000
300,000 200,000
250,000
150,000 200,000
150,000 $ MILLIONS
$ MILLIONS 100,000
100,000
50,000 50,000
0 0 13 14 15 16 17 13 14 15 16 17 Non-Fuel Charges Fuel Charges Non-Fuel Expenses Fuel Expenses
7 - Affordable, Dependable, Sustainable [This page intentionally left blank]
2017 Audited Financial Statements - 8 Crowe Horwath LLP Independent Member Crowe Horwath International
INDEPENDENT AUDITOR’S REPORT
Honorable Mayor, City Commissioners and City Manager City of Lakeland, Florida
Report on the Financial Statements
We have audited the accompanying financial statements of the Department of Electric Utilities of the City of Lakeland, Florida, (the Department), as of and for the years ended September, 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the Department’s basic financial statements, as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Department’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Department, as of September, 30, 2017 and 2016, and the changes in its financial position and its cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.
9 - Affordable, Dependable, Sustainable Emphasis of Matter
As discussed in Note A, the financial statements present only the Department, and do not purport to, and do not, present fairly the financial position of the City of Lakeland, Florida as of September 30, 2017 and 2016, the changes in its financial position, or, where applicable, its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of Lakeland Electric’s proportionate share of the net pension liability, and schedule of Lakeland Electric’s contributions on pages 11 through 15 and 58 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Department’s basic financial statements. The Transmittal Letter and the Statistical and Financial Data on pages 3 through 7 are presented for purposes of additional analysis and is not a required part of the basic financial statements.
The Transmittal Letter and Statistical and Financial Data on pages 3 through 7 has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated April 11, 2018 on our consideration of the Department’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Department’s internal control over financial reporting and compliance.
Crowe Horwath LLP
Tampa, Florida April 11, 2018
2017 Audited Financial Statements - 10 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES Management’s Discussion and Analysis (unaudited)
Management’s Discussion and Analysis provides a narrative overview of City of Lakeland’s Department of Electric Utilities’ (Lakeland Electric) financial activities for fiscal year ending September 30, 2017. Lakeland Electric’s operations consist of electric generation, transmission and distribution. The condensed financial data below summarizes Lakeland Electric’s financial position and results of operations for the fiscal year ending September 30, 2017 and the previous two fiscal years.
Condensed Statements of Net Position:
Fiscal years ended September 30, (Dollars in thousands) 2017 2016 2015 Assets Current assets $ 167,326 $ 165,568 $ 150,372 Utility plant, net 649,740 656,497 666,644 Other noncurrent assets 90,183 23,153 86,158 907,249 845,218 903,174 Deferred outflows of resources 70,391 92,266 70,498
Liabilities Current liabilities 56,990 49,637 42,995 Noncurrent liabilities 517,251 560,461 550,149 574,241 610,098 593,144
Deferred inflows of resources 64,535 67,045 66,541
Net position Net assets invested in capital assets, net of related debt 222,755 211,864 203,263 Restricted - capital improvement - 6,955 4 Unrestricted 116,109 114,839 110,720 $ 338,864 $ 333,658 $ 313,987
Condensed Statements of Revenues, Expenses and Changes in Net Position:
Fiscal years ended September 30, (Dollars in thousands) 2017 2016 2015 Operating revenues Sales of energy - retail $ 291,555 $ 283,302 $ 296,955 Sales of energy and capacity sales - wholesale 4,643 5,789 5,521 Other electric operating revenue 7,286 7,462 7,027 303,484 296,553 309,503 Operating expenses Fuel and purchased power 120,510 109,466 124,527 Energy supply 29,371 26,370 27,859 Energy delivery 31,752 23,860 23,405 Customer service and accounting 8,025 7,041 6,583 State tax on electric sales 7,186 7,463 7,827 Administrative and general 22,889 18,630 23,777 Depreciation (net) 38,269 41,784 40,734 258,002 234,614 254,712 Operating income 45,482 61,939 54,791 Non-operating activity Investment and other income 5,832 6,795 4,227 Interest and amortization expense (17,660) (17,995) (18,787) Loss on disposal of fixed assets - (390) - Net transfers (to) from other funds (28,448) (30,678) (29,506) Change in net position $ 5,206 $ 19,671 $ 10,725
11 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES Management’s Discussion and Analysis (unaudited) - continued
Net Position of Lakeland Electric The net position of Lakeland Electric increased by $5.2 million during fiscal year 2017 compared to a $19.7 million increase in 2016. Operating income was $45.5 million in 2017 compared to $61.9 million in the preceding year. The year-over-year declines are primarily attributable to Hurricane Irma, which inflicted widespread damage to the Lakeland Electric system on September 10, 2017.
Financial Highlights
Lakeland Electric’s 2017 retail megawatt hour (MWh) sales were down 1.7 percent from the previous fiscal year, which was Lakeland’s warmest in more than a decade. Additionally, during late summer, Hurricane Irma caused a majority of Lakeland Electric's customers to lose power for 3 - 12 days. Non-fuel sales of electricity decreased by $3.5 million from the previous fiscal year, with $2.8 million of the decrease attributable to residential customers.
Non-operating revenue decreased by $1.0 million from the previous fiscal year. Investment revenue increased by $2.1 million, however a ($2.8) million unfavorable fair value adjustment on Lakeland Electric's share of the City's pooled investments was recognized in 2017, compared to a gain of $0.3 million recognized in the previous fiscal year. Fair value adjustments, up and down, are caused by the impact of interest rate changes on fixed income securities. Most of Lakeland Electric’s investments are held through maturity.
Lakeland Electric’s nonfuel operating expenses, excluding gross receipts tax and depreciation, were $92.0 million in 2017, compared to $75.9 million in 2016, representing an overall increase of $16.1 million or 21 percent. On September 10, 2017, Hurricane Irma inflicted widespread damage to the City of Lakeland's electric system. Nonfuel O&M expenses in 2017 include $10.4 million of hurricane-related damage. Although Lakeland Electric anticipates that a substantial percentage of its storm recovery costs will be eligible for reimbursement through federal financial assistance, no grant agreement was in place during 2017. Accordingly, no accrual was recorded in 2017 for any possible future disaster relief funding. Administrative and General Expenses were $4.3 million higher than the previous year mostly as the result of adjustments to the pension liability in 2016, as recognized in accordance with GASB Statement No. 68. Total operating and maintenance costs (excluding fuel, gross receipts tax, and depreciation) averaged $30.64 per retail MWh in 2017, compared to $24.84 in 2016.
Fuel and purchased power expense increased by $11.0 million in 2017, despite of the decreased volume of retail MWh sales. The main driver was a 28 percent annual increase in Lakeland Electric’s average cost of natural gas, which is primarily a result of a rebound in the natural gas market. Lakeland Electric’s coal tonnage burned increased by 6 percent as its average price of coal decreased by (3) percent. The volume of wholesale power purchases increased annually by 70 percent in 2017 because of an extended outage of McIntosh Unit 5 early in the fiscal year.
Lakeland Electric recovers fuel costs from retail customers in the form of a fuel charge that is subject to a quarterly revision based on a forecast of fuel costs for the following twelve months. As of September 30, 2017, the retail fuel charge was $38.75 per MWh, compared to $34.25 per MWh twelve months earlier. The fuel recovery balance represents, on an accrual basis, the cumulative difference between fuel expenses incurred to serve retail load and fuel revenues realized. Lakeland Electric began 2017 with a cumulative over-recovered fuel position of $26.7 million. A City of Lakeland ordinance provides for a fuel reserve balance of up to 15 percent of annual budgeted fuel costs (a maximum of $18.0 million in FY2017) to offset costs associated with fuel inventories and prepaid fuel hedging. The cumulative fuel over-recovery as of September 30, 2017 was $22.0 million. The fuel reserve was over-funded to the extent of $4.0 million, for which a regulatory liability was recognized. See Note E, Regulatory Assets and Liabilities and Note S, Deferred Inflows of Resources – Fuel Reserve.
Lakeland Electric recovers environmental compliance costs from retail customers in the form of an environmental compliance charge which is set annually, with the objective of achieving a zero cumulative recovery balance at the end of the subsequent budget year. An environmental compliance rate of $2.532 per
2017 Audited Financial Statements - 12 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES Management’s Discussion and Analysis (unaudited) - continued
Financial Highlights (continued)
MWh was in effect during 2017 and 2016. Lakeland Electric had a cumulative over-recovered environmental compliance cost balance of $1.3 million, classified as a regulatory liability, as of the end of 2017. Based on sales and environmental compliance expense projections, a rate of $2.109 per MWh was recommended for 2018. See Note E.
Lakeland Electric recovers energy conservation charges in a similar manner to environmental compliance charges. The conservation charge is currently a flat fee of 50¢ per month per customer. Lakeland Electric had a cumulative over-recovered energy conservation charge balance of $0.3 million, classified as a regulatory liability, as of the end of 2017. See Note E.
Lakeland Electric provides a dividend at a rate of $9.68 per MWh to the City of Lakeland’s General Fund in the form of monthly cash transfers. The total amount of the dividend in 2017 was $29.2 million, compared to $29.6 million in 2016.
Capital Assets
Lakeland Electric has historically funded the cost of capital improvements through a combination of bond financing and cash generated from retail utility rates. Remaining bond proceeds from the Series 2016 Revenue and Refunding Bonds provided the initial $6.8 million of capital funding for fiscal year 2017. Cash set aside from base rates provided funding for the remainder of capital spending during the year.
Capital spending (net of contributions in aid of construction) totaled $31.9 million in 2017 compared to $32.8 million during fiscal year 2016 and $35.4 million in 2015. Capital expenditures during 2017 included $18.7 million for energy supply projects, $12.5 million for energy delivery projects, and $.7 million for building improvements and equipment. Lakeland Electric's projected capital improvement requirements from rates is expected to average approximately $39 million over the next four years.
Depreciation expense has exceeded capital spending during recent fiscal years resulting in a gradual decline in the balance of net plant assets. Depreciation expense, net of amortization of contributions in aid of construction, was $38.3 million in 2017 compared to $41.8 million in 2016.
Lakeland Electric recorded contributions in aid of construction from outside the Department in the amount of $2.4 million during fiscal year 2017, compared to $2.5 million in 2016. These amounts are included in the Plant in Service balance in the Statements of Net Position. See Note S.
The table below contains a summary of Lakeland Electric’s plant investment, net of accumulated depreciation, as of September 30, 2017 and 2016. Refer to Note H, Utility Plant, for more detailed information regarding utility plant assets. (In Thousands) September 30 2017 2016 Land $ 15,595 $ 15,595 Construction in process 20,400 8,592 Buildings 10,300 10,793 Machinery and equipment 12,304 12,899 Equipment under capital leases 852 1,009 Electric transmission and distribution 323,100 323,589 Electric supply 267,189 284,020
$ 649,740 $ 656,497
13 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES Management’s Discussion and Analysis (unaudited) - continued
Capital Assets (continued)
The total net normal generating capacity of the production units owned by Lakeland Electric is 890 MW. The most efficient unit in Lakeland Electric’s fleet is McIntosh 5, a 354 MW combined cycle natural gas unit. McIntosh 3, a 342 MW coal- fired unit, is jointly owned by Lakeland Electric and Orlando Utility Commission (OUC). Lakeland Electric’s 60 percent ownership share of Unit 3 is 205 MW. In addition to its base load and peaking units, Lakeland Electric shares a power pool with Florida Municipal Power Agency (FMPA) and OUC, which provides access to relatively low-cost natural gas generated power to supply peak demand. Lakeland Electric has sufficient generation and transmission capacity to cover its projected load requirements for at least the next five years.
Long Term Debt
As of September 30, 2017, Lakeland Electric had $363.5 million in net long-term bond debt outstanding compared to $387.7 million at the end of 2016 as shown in the table below. The current portion of the long-term debt is paid on the first day of the subsequent fiscal year (Octoberst 1 ). Refer to Note L, Revenue Bonds, for more detailed information regarding long-term debt.
(In Thousands) September 30 2017 2016 Electric System Revenue Bonds: Series 2006 $ - $ 1,055 Series 2010 152,615 168,895 Series 2012 - 100,000 Series 2016 135,110 138,650 Series 2017 97,000 - 384,725 408,600
Less Current Portion (21,250) (20,875) $ 363,475 $ 387,725
As indicated in Note L (Revenue Bonds), the coverage on bonded debt of Lakeland Electric for 2017 was 2.32 times the annual debt service requirement for the fiscal year ended 2017. Lakeland Electric is not obligated to fund a Debt Service Reserve Fund, provided that “net revenues” equal or exceed 150 percent of the bond service requirement for each year. Based on debt service requirement and forecasted revenues and expenses, debt service coverage is expected to remain greater than 2 times the annual debt service requirement in fiscal year 2018.
Lakeland Electric sets aside apportioned funds to meet its current debt service requirements (see Note F, Asset Apportionments). In August 2017, Lakeland Electric issued its Series 2017 Floating Rate Notes which refunded all of the Series 2012 Variable Rate Bonds that were scheduled to mature on October 1, 2017. Immediately prior to the 2017 refunding transaction, Lakeland Electric paid down $3 million of outstanding principal on the Series 2012 Bonds.
Economic Factors
The average demand for energy placed on the system from retail customers during Fiscal Year 2017 was 359 megawatts (MW), compared to 358 MW during the previous year. The peak demand during the winter was 539 MW on January 9, 2017, and a summer peak demand of 643 MW was reached on July 26, 2017. Lakeland Electric expects to see a growth of approximately 1 percent in the retail customer base during fiscal year 2018.
2017 Audited Financial Statements - 14 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES Management’s Discussion and Analysis (unaudited) - continued
Economic Factors (continued)
Lakeland Electric’s ten largest customers account for less than 20 percent of revenue. Well over half of the annual revenue comes from residential customers.
The Bond Ratings Services of Fitch Ratings™, Moody’s™, and Standard & Poor's™ have assigned long-term ratings of AA-, Aa3, and AA, respectively, to Lakeland Electric’s energy system bonds. During the early part of Fiscal Year 2018, Fitch reaffirmed Lakeland Electric's AA- rating and changed its outlook from stable to positive.
Currently Known Facts or Conditions That May Have a Significant Effect on the Net Position or Results of Operations
Lakeland Electric's rates, among all customer classes, have consistently been among the lowest in Florida for many years. Residential electric rates during September 2017 were the second lowest of any municipal electric utility in the state.
Days cash is a key financial metric used as a measure of liquidity, essential for maintaining strong bond ratings. An internal goal of Lakeland Electric is to maintain 150-175 days of operating cash. At the end of 2017, Lakeland Electric had over 209 days of cash compared to 230 days in the previous fiscal year. The decrease is largely the result of a temporary build-up of unrestricted capital reserves in the prior fiscal year. Days cash is forecasted to remain above 150, with no base electric rate increase, through FY2018. A rate study will be conducted during FY2018 and could result in recommended rate changes for FY2019.
Lakeland Electric has been, and will continue to be impacted by various regulatory and legislative requirements. In the opinion of Lakeland Electric, the System is currently in compliance with all current federal, state and local environmental regulations. Lakeland Electric cannot predict at this time whether any additional legislation or rules will be enacted which might affect operations, and if such laws or rules are enacted, what the additional capital and operating costs, if any, might occur in the future because of such actions. The estimation of costs of compliance is subject to significant uncertainties and the financial impact of future proposals could be substantial.
Using This Annual Report
The annual financial report includes the Statements of Net Position, Statements of Revenues, Expenses and Change in Net Position, Statements of Cash Flows and notes to the financial statements for Lakeland Electric, an enterprise fund of the City of Lakeland. Please refer to the City of Lakeland’s Comprehensive Annual Financial Report for additional information regarding the City of Lakeland, as a whole.
Requests for Information
This financial report is designed to provide a general overview of Lakeland Electric’s finances. Questions concerning any of the information provided in this report or requests for additional financial information may be addressed to: Lakeland Electric Finance, 501 East Lemon Street, Lakeland, FL 33801.
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2017 Audited Financial Statements - 16 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES STATEMENTS OF NET POSITION
September 30 2017 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 42,522,537 $ 57,371,795 Accounts receivable 47,948,236 41,749,329 Less allowance for uncollectibles (857,908) (736,931) Fuel hedges 4,186,999 3,289,949 Inventories 34,035,924 33,137,545 Asset apportionments (cash and equivalents) set aside for Current portion of bonds payable 21,250,000 20,875,000 Accrued interest payable 7,216,706 9,086,747 Accounts payable 2,401,875 - Accrued liabilities 8,594,329 - Restricted assets (cash and equivalents) set aside for Accounts payable 5,000 601,668 Accrued liabilities 22,305 193,199 Total current assets 167,326,003 165,568,301
NONCURRENT ASSETS Asset apportionments (including $73,183,724 and $ 73,316,038 of cash and cash equivalents in 2017 and 2016, respectively) 73,660,909 73,316,038 Restricted assets (including $15,081,793 and $20,723,060 of cash and cash equivalents in 2017 and 2016, respectively) 15,319,569 21,864,972 Utility plant Land 15,595,265 15,595,265 Construction in progress 20,400,199 8,591,770 Utility plant in service 1,340,491,177 1,322,510,937 Less accumulated depreciation (726,746,930) (690,200,533) Total utility plant, net 649,739,711 656,497,441
OTHER ASSETS Regulatory assets 1,202,916 1,287,642 Total Assets 907,249,108 918,534,392
DEFERRED OUTFLOWS OF RESOURCES Unamortized loss on refunding of bond debt 31,020,673 34,931,160 Unrealized loss on hedges - 348,521 Hedge derivative outflows 26,073,175 36,695,648 Deferred outflows of resources related to pensions 13,296,993 20,290,620 Total deferred outflows of resources 70,390,841 92,265,949
See accompanying notes to financial statements
17 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES STATEMENTS OF NET POSITION (continued)
September 30 2017 2016 LIABILITIES CURRENT LIABILITIES, payable from current assets Accounts payable $ 13,981,812 $ 15,037,580 Accrued liabilities 3,379,411 3,514,453 Obligation under capital leases 139,046 328,184 Liabilities payable from apportioned assets Accrued interest payable 7,216,706 9,086,747 Current portion of bonds payable 21,250,000 20,875,000 Accounts payable 2,401,875 - Accrued liabilities 8,594,329 - Liabilities payable from restricted assets Accounts payable 5,000 601,668 Accrued liabilities 22,305 193,199 Total current liablities 56,990,484 49,636,831
OTHER LIABILITIES Obligation under capital leases - 139,045 Restricted liabilities 15,314,251 14,909,828 Regulatory liabilities 5,588,094 7,086,148 Interest rate swaps 26,073,175 36,695,648 Accrued liabilities, less current portion 3,996,611 4,169,330 Net other post employment benefits obligation 19,904,620 17,945,523 Net pension liability 53,534,111 58,777,353 Revenue bonds payable, less current portion 363,475,000 387,725,000 Unamortized bond premium 29,364,687 33,012,771 Total other liabilities 517,250,549 560,460,646 Total liabilities 574,241,033 610,097,477
DEFERRED INFLOWS OF RESOURCES Unamortized contributions in aid of construction 44,979,842 45,591,950 Fuel reserve 18,001,167 20,301,603 Unearned revenue - 398,321 Unrealized gain on hedges 929,482 - Deferred inflows of resources related to pensions 624,849 753,373 Total deferred inflows of resources 64,535,340 67,045,247
NET POSITION Net investment in capital assets 222,754,725 211,864,152 Restricted Capital improvement - 6,955,144 Unrestricted 116,108,851 114,838,321 $ 338,863,576 $ 333,657,617
See accompanying notes to financial statements
2017 Audited Financial Statements - 18 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
Year ended September 30, 2017 2016
OPERATING REVENUES Sales of energy - retail $ 291,554,543 $ 283,301,838 Sales of energy and capacity sales - wholesale 4,642,718 5,788,651 Other electric operating revenue 7,286,280 7,461,974 Total operating revenues 303,483,541 296,552,463
OPERATING EXPENSES Fuel and purchased power 120,510,181 109,465,695 Energy supply 29,371,069 26,370,033 Energy delivery 31,752,229 23,859,751 Customer service 8,025,266 7,041,335 State tax on electric sales 7,186,435 7,463,268 Administrative and general 22,889,097 18,629,834 Total operating expenses 219,734,277 192,829,916
OPERATING INCOME BEFORE DEPRECIATION 83,749,264 103,722,547 Depreciation expense (41,321,215) (44,758,745) Depreciation - contributions in aid of construction 3,053,926 2,974,785 OPERATING INCOME 45,481,975 61,938,587
NONOPERATING REVENUES (EXPENSES) Investment revenue (less $61,897 and $430,378 capitalized in 2017 and 2016, respectively) 8,102,640 5,987,716 Net increase (decrease) in the fair value of cash equivalents (2,814,184) 293,448 Miscellaneous revenue 543,621 513,947 Interest expense (less $811,841 and $725,754 capitalized in 2017 and 2016, respectively) (17,135,391) (17,626,744) Amortization expense (524,884) (368,188) Loss on disposal of fixed assets - (389,796)
TOTAL NONOPERATING REVENUES (EXPENSES) (11,828,198) (11,589,617) INCOME BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 33,653,777 50,348,970 DIVIDEND TO GENERAL FUND (29,223,213) (29,583,546) TRANSFERS FROM OTHER FUNDS 1,231,000 - TRANSFERS TO OTHER FUNDS (455,605) (1,094,763) CHANGE IN NET POSITION 5,205,959 19,670,661 NET POSITION, beginning of year 333,657,617 313,986,956 NET POSITION, end of year $ 338,863,576 $ 333,657,617
See accompanying notes to financial statements
19 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES STATEMENTS OF CASH FLOWS
Year ended September 30 2017 2016 Cash flows from operating activities: Receipts from customers $ 296,457,319 $ 307,176,468 Payments for interfund services (14,426,224) (13,702,590) Payments to suppliers (148,603,188) (131,230,071) Payments to employees (44,731,387) (41,020,519) Net cash provided by operating activities 88,696,520 121,223,288
Cash flows used in noncapital financing activities: Interest paid on meter deposits (641,203) (722,130) Operating transfers to other funds (28,447,818) (30,678,309) Cash flows used in noncapital financing activities (29,089,021) (31,400,439)
Cash flows used in capital financing activities: Interest paid on long-term debt issued to finance capital assets (20,403,315) (15,454,423) Proceeds from issuance of long-term debt 97,000,000 16,269,713 Payments on and maturities of long-term debt (120,875,000) (27,370,619) Debt issue costs (3,648,084) (674,950) Purchase of capital assets (28,858,794) (32,555,681) Cash flows used in capital financing activities: (76,785,193) (59,785,960)
Cash flows from investing activities: Investment revenue 8,102,640 6,418,094 Net increase (decrease) in the fair value of cash equivalents (2,814,184) 293,448 Cash flows provided by investing activities 5,288,456 6,711,542 Net increase (decrease) in cash and cash equivalents (11,889,238) 36,748,431
Cash and cash equivalents, beginning of year 182,167,507 145,419,076 Cash and cash equivalents, end of year $ 170,278,269 $ 182,167,507
Classified as: Current $ 42,522,537 $ 57,371,795 Apportioned 112,646,634 103,277,785 Restricted 15,109,098 21,517,927 Total $ 170,278,269 $ 182,167,507
See accompanying notes to financial statements
2017 Audited Financial Statements - 20 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES STATEMENTS OF CASH FLOWS (continued)
Year ended September 30 2017 2016 Adjustments to reconcile operating income to net cash provided by operating activities: Operating income $ 45,481,975 $ 61,938,587 Depreciation 41,321,215 44,758,745 Depreciation - contributions in aid of construction (3,053,926) (2,974,785) Miscellaneous revenue 543,621 513,947 Decease (increase) in receivables, net (6,077,930) 4,387,814 Decrease (increase) in inventory (898,379) 1,419,413 Decrease (increase) in regulatory assets 84,726 - (Increase) decrease in deferred outflows related to pensions 10,193,034 (14,161,060) Decrease in fair value of derivatives 380,951 6,935,098 Increase (decrease) in accounts payable (976,956) 603,195 (Decrease) increase in accrued liabilities 8,192,127 (60,832) Increase in regulatory liabilities (3,798,451) 6,035,114 Increase in deposits payable 404,423 165,115 (Decrease) in unearned revenue (398,321) (477,985) Increase (decrease) in net pension liability (5,243,242) 10,516,079 (Decrease) increase other deferred inflows of resources 582,556 (375,257) Increase in net OPEB obligation 1,959,097 2,000,100 Net cash used in operating activities $ 88,696,520 $ 121,223,288
Noncash investing, capital, or financing activities: Proceeds from refunding used for defeasement of debt $ - $ 120,789,907 Capitalized interest expense 811,841 725,754 Less capital interest revenue 61,897 520,553 $ 873,738 $ 122,036,214
See accompanying notes to financial statements
21 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements present the financial position, changes in net position, and cash flows of the City of Lakeland, Department of Electric Utilities (Lakeland Electric) only and not of the City as a whole. Lakeland Electric is an enterprise fund that accounts for the City's electric utility operations. These operations are accounted for in a manner similar to private business enterprises with the stated intent that the costs (expenses, including amortization and depreciation) of providing goods or services to the general public on a continuing basis are financed or recovered primarily through user charges.
Basis of Accounting: Lakeland Electric uses the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America, as required by the Governmental Accounting Standards Board (GASB). Lakeland Electric has adopted the uniform system of accounts (USOA) prescribed by the Federal Energy Regulatory Commission (FERC) for electric operations. Lakeland Electric does not follow any accounting methods that conflict with the GASB.
Regulatory Accounting: Lakeland Electric applies certain accounting principles allowed by the GASB with respects to Regulated Operations. Lakeland Electric’s rates are designed to recover the cost of providing services and Lakeland Electric is able to collect those rates from its customers. This guidance allows Lakeland Electric to defer certain expenses and revenues, and to record various regulatory assets and liabilities in accordance with rate actions of the Lakeland City Commission. See Note E, Regulatory Assets and Liabilities.
Cash and Cash Equivalents: Lakeland Electric has defined Cash and Cash Equivalents to include cash on hand, demand deposits, cash with paying agents, as well as Lakeland Electric’s equity in the City’s pooled cash (see Note C). Additionally, Lakeland Electric’s equity in the City’s internal investment pool (see Note C) is considered to be a cash equivalent since Lakeland Electric can deposit or effectively withdraw cash from the pool at any time without prior notice or penalty. Investments that are categorized as cash equivalents on the Statement of Net Position are reported at fair value. See Note C.
Receivables: Lakeland Electric bills customers monthly on a cyclical basis. Lakeland Electric has recognized, in its receivables, an estimated amount for services rendered but not yet billed as of September 30, 2017 and 2016, respectively. An estimate of uncollectible accounts is recognized based upon historical experience.
Inventories: Inventories (see Note D) are valued at cost, not in excess of replacement cost, using the weighted average cost method.
Restricted and Apportioned Assets: Revenue bond ordinances and certain other agreements with parties outside the City require the restriction of certain fund assets for specific purposes such as meter deposits held on behalf of utility customers and bond proceeds, which are restricted by bond ordinance for the purpose of funding certain capital improvements. Apportionments do not represent legal restrictions imposed by parties external from the local government and may be rescinded at any time. Refer to Notes F and G.
2017 Audited Financial Statements - 22 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Utility Plant: Utility plant is valued at historical cost, or estimated historical cost, if actual historical cost is not available. The acquisition value of assets that have been contributed are classified as utility plant assets in the period in which received. Interest costs on funds used for the construction of utility plant are capitalized as part of the costs of these assets.
Routine maintenance and repairs, including additions and improvements of less than $2,500 are charged to operating expense as incurred. Individual equipment items with a cost of $1,500 or more are capitalized. In accordance with standard industry accounting practice, electric transformers and certain specialty plant replacement components which are critical in nature are classified as utility plant and are depreciated prior to being placed in service. Total depreciation expense as a percentage of depreciable assets was approximately 3.1 percent and 3.4 percent in 2017 and 2016, respectively. Depreciation expense was lower in fiscal year 2017 than in the previous 3 fiscal years because certain aging assets have become fully depreciated. Depreciation expense has exceeded capital spending in recent fiscal years. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Land improvements 40 years Buildings 50 years Utility Plant 25 - 35 years Improvements, other than buildings 10 - 45 years Machinery and equipment 5 - 40 years
Intangible Assets: In accordance with GASB, intangible assets are classified as Fixed Assets (Utility Plant), and are depreciated according to Lakeland Electric’s capitalization policy.
Impaired Assets: Lakeland Electric records impaired assets in accordance with GASB Statement No. 42. No material impairment losses were identified during the fiscal year ending September 30, 2017.
Contributions in Aid of Construction: Lakeland Electric receives non-refundable payments from consumers and developers for the extension of electric services, and receives funds from developers, customers, and others for assets owned and maintained by Lakeland Electric. Lakeland Electric’s capital projects are budgeted net of outside recoveries, which is consistent with its rate design. Through the use of regulatory accounting, contributions in aid of construction are recorded as deferred inflows of resources, and amortized over the life of the corresponding assets. See Note S.
Deferred Outflows/Inflows of Resources: Within the Statements of Net Position, certain items that were previously reported as assets and liabilities are recognized as deferred outflows of resources and deferred inflows of resources because they result in the useof resources in the current period for the benefit of future periods. For details regarding Deferred Outflows and Deferred Inflows of Resources refer to Notes J and S, respectively.
23 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accumulated Unpaid Vacation and Sick Pay: The amounts of unpaid vacation and sick leave accumulated by Lakeland Electric employees are accrued as expenses when incurred. Total available sick leave hours are multiplied by the current pay rate to determine the accrued liability. The entire unpaid liability for sick leave is classified as a noncurrent liability based on Lakeland Electric’s benefit accrual policies. Lakeland Electric has separated that portion of the liability for vacation time that is expected to be paid from current assets as a current liability. The amount is included in accrued liabilities. See Note K, Accrued Liabilities and Long-Term Debt.
Derivatives and Interest Rate Swap Agreements: Derivative instruments are used by Lakeland Electric in conjunction with debt financing and fuel purchases and are reported at fair value. See Note R, Derivative and Hedging Activities.
Due to/from Other Funds: Amounts receivable from or payable to other funds in the City of Lakeland are reflected in the accounts of the fund until liquidated by payment or authorized inter-fund transactions. Lakeland Electric had no amounts due to or receivable from other funds of the City of Lakeland as of September 30, 2017 or 2016.
Operating/Non-operating Revenue: Revenues that are earned as a result of the business operations of Lakeland Electric are recorded as operating revenues. Interest earnings and other miscellaneous revenues are recorded as non-operating revenues.
Use of Estimates: Management has made estimates and assumptions relating to the reporting of assets and liabilities in conformity with GAAP. Actual results may differ.
Amortization: Lakeland Electric records amortization using the effective interest rate method. Bond discounts, premiums, and losses on refunding of debt are amortized over the life of the issue. Lakeland Electric elects to follow accounting for regulated operations, which provides for debt issuance costs which are recovered through rates to be classified as a regulatory asset and amortized over the life of the associated debt.
Transfers to/From Other Funds: Lakeland Electric accounts for subsidy payments to other funds as transfers to other funds in the Statements of Revenues, Expenses and Changes in Net Position. A dividend is paid to the General Fund at a rate of $9.68 per MWh. Lakeland Electric distributed annual transfers to the City of Lakeland as follows:
September 30, 2017 2016
Annual dividend to the City of Lakeland $ 29,223,213 $ 29,583,546 Transfer to Information Technology Fund 455,605 551,614 Transfer (from) / to Fleet Management Fund (1,231,000) 543,149
$ 28,447,818 $ 30,678,309
Other Significant Accounting Policies: Other significant accounting policies are set forth in the financial statements and the notes thereto.
2017 Audited Financial Statements - 24 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B – ACCOUNTING AND REPORTING CHANGES
New Accounting Pronouncements:
In August 2015, the GASB issued Statement No. 77, Tax Abatements Disclosures. The objective of this Statement is to require disclosure of tax abatement information about (1) a reporting government’s own tax abatement agreements and (2) those that are entered into by other governments and that reduce the reporting government’s tax revenues. Tax abatements are widely used by state and local governments, particularly to encourage economic development. The provisions for this Statement are effective for the City’s fiscal year ending September 30, 2017. This statement requires governments that enter into tax abatement agreements to disclose information regarding the agreement. Implementation of GASB 77 had no effect on the financial statements of Lakeland Electric.
In December 2015 the GASB issued Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. The provisions for this Statement are effective for the City’s fiscal year ending September 30, 2017. Implementation of GASB 78 had no effect on the financial statements of Lakeland Electric.
In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain Component Units. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This statement amends the blending requirements for the financial presentation of component units for all state and local governments which was established in GASB Statement No. 14, The Financial Reporting. The provisions for this Statement are effective for the City’s fiscal year ending September 30, 2017. Implementation of GASB 80 had no effect on the financial statements of Lakeland Electric.
In March 2016, the GASB issued Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. The new disclosures were added to Note N - Defined Benefit Pension Plan.
25 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CASH, CASH EQUIVALENTS AND INVESTMENTS Deposits: All of the City of Lakeland cash accounts have been pooled and all deposits are in a single financial institution and are carried at cost. The deposits are insured or collateralized. Florida Statute, Chapter 280, sets forth the qualifications and requirements that a financial institution must meet in order to become a qualified public depository. The statute also defines the amount and type of collateral that must be pledged in order to remain qualified. The financial institution in which the City maintains its deposits is a qualified public depository. Refer to the City of Lakeland’s Comprehensive Annual Financial Report (CAFR) for additional disclosures. The following is a summary of the key controls which the City of Lakeland utilizes to mitigate investment risk. Interest rate risk exists when there is a possibility that changes in interest rates could adversely affect an investment’s fair value. The City utilizes the “segmented time distribution” method as a measure of interest rate risk. Credit risk is the risk of loss due to the failure of the security issuer or other counterparty.
Custodial credit risk is the risk that in the event of a bank failure, the City of Lakeland’s deposits may not be returned. Florida Statutes require deposits by governmental units in a financial institution be collateralized. The City of Lakeland’s policy, in accordance with the Florida Security for Public Deposits Act, requires that deposits in a financial institution be collateralized, and requires the use of only authorized dealers and institutions, and qualified public depositories who meet the standards as set forth by the State of Florida and the Securities and Exchange Commission’s Rule 15c3-1. In the event of a failure of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses. Accordingly, all amounts reported as deposits are deemed as insured or collateralized with securities held by the entity or its agent in the entity’s name. The carrying amount of Lakeland Electric’s share of pooled demand and time deposits with financial institutions as of September 30, 2017 was $28,010,109. The carrying amount of Lakeland Electric’s pooled demand and time deposits in the previous fiscal year was $28,957,517.
The types of investments in which the City of Lakeland may directly invest are governed by several forms of legal and contractual provisions. The City of Lakeland may directly invest in obligations of or obligations on which the principal and interest of is unconditionally guaranteed by the United States of America, obligations issued or guaranteed by any agency or instrumentality of the United States of America, interest bearing time deposits and repurchase agreements issued by banks, trust companies or national banking associations which are secured by obligations of or guaranteed by the United States of America or its agencies or instrumentalities. The City of Lakeland also may invest monies with the Florida State Board of Administration or other investments which at the time are legal investments under the laws of the State of Florida. Additionally, the various funds of the City have combined some of their resources into an internal investment pool in order to maximize investment earnings. The pool is comprised of money market funds, time deposits, notes, bonds, amounts invested with the Florida State Board of Administration, other securities, and accrued interest.
Lakeland Electric has an equity interest in the City’s internal investment pool. There were no violations of legal or contractual provision for deposits and investments during the year. Information regarding credit risk categories for pooled investments is disclosed in the CAFR of the City of Lakeland. Credit risk is the risk of loss due to the failure of the security issuer or other counterparty. The City of Lakeland’s investment policy minimizes credit risk by limiting investments in securities that have higher credit risks, pre-qualifying the financial institutions, brokers/dealers, intermediaries, and advisors with which the City will do business, and diversifying the investment portfolio so that potential losses on individual securities will be minimized.
Lakeland Electric’s cash consisted of equity in pooled investments in the amounts of $142,266,635 and $153,208,466 for September 30, 2017 and September 30, 2016, respectively. Lakeland Electric has elected to pool its cash with the City of Lakeland. At September 30, 2017, Lakeland Electric held a 34% interest in the investments of the pool compared to a 36% interest in the previous year. For additional information on the assets held by the pool, refer to Note 3 in the City of Lakeland’s Comprehensive Annual Financial Report.
2017 Audited Financial Statements - 26 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED)
As of September 30, 2017, Lakeland Electric’s share of the City’s Investment Pool debt security investments had the following credit quality ratings:
S&P Rating: Market % AAA $ 578,787 0.41% AA+ to AA- 46,670,757 32.81% A+ to A- 7,574,948 5.32% BBB+ to BBB- 45,653,573 32.09% BB+ to BB- 4,262,789 3.00% Below BB- 5,183,984 3.64% NR 32,341,797 22.73% $ 142,266,635 100.00% Moody's Rating: Aaa $ 40,196,106 28.25% Aa1 to Aa3 1,525,318 1.07% A1 to A3 12,727,452 8.95% Baa1 to Baa3 38,327,003 26.94% Ba1 to Ba3 4,946,975 3.48% Below Ba3 7,432,655 5.22% NR 37,111,126 26.09% $ 142,266,635 100.00%
Concentration of Credit Risk: The City of Lakeland limits investments to avoid over concentration in securities from a specific issuer or business sector (excluding US Treasury securities) and continuously invests a portion of the portfolio in readily available funds such as local government investment pools, money market funds or overnight repurchase agreements.
The City of Lakeland’s overall investment policy concentration limits and actual concentration limits in investment types as of September 30, 2017 are as follows:
Type of Security (Market) Maximum % of Total % of Total US Government Obligations 100% 0.00% Federal Agency & Instrumentality Obligations 100% 39.70% Local Government Investment Pools 100% 0.00% Certificates of Deposits 25% 0.00% Collateralized Repurchase Agreements 15% 0.00% Other Investment Pools (rated "A" or better) 10% 0.00% Mutual Funds 0% 0.40% High Grade Corporate Debt 15% 47.80% Investment Grade Obligations of State and Local Govts 15% 10.70% Money Market Mutual Funds N/A 1.40% 100.00%
The High Grade Corporate Debt exceeded the maximum percentage temporarily as investment policy provides discretion for temporary variances, such as due to market changes. No investments in a single security exceeded 15 percent of the fixed income portfolio.
27 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED) As of September 30, 2016, Lakeland Electric’s share of the City’s Investment Pool debt security investments had the following credit quality ratings:
S&P Rating: Market % AAA $ 1,444,508 0.94% AA+ to AA- 60,575,935 39.54% A+ to A- 14,020,777 9.15% BBB+ to BBB- 36,305,292 23.70% BB+ to BB- 8,135,295 5.31% Below BB- 3,908,719 2.55% NR 28,817,940 18.81% $ 153,208,466 100.00% Moody's Rating: Aaa $ 48,455,533 31.63% Aa1 to Aa3 5,853,625 3.82% A1 to A3 11,210,685 7.32% Baa1 to Baa3 42,008,187 27.42% Ba1 to Ba3 6,210,618 4.05% Below Ba3 6,114,471 3.99% NR 33,355,347 21.77% $ 153,208,466 100.00%
Concentration of Credit Risk:
The City of Lakeland’s overall investment policy concentration limits and actual concentration limits in investment types as of September 30, 2016 are as follows:
Type of Security (Market) Maximum % of Total % of Total US Government Obligations 100% 0.00% Federal Agency & Instrumentality Obligations 100% 37.80% Local Government Investment Pools 100% 0.00% Certificates of Deposits 25% 0.00% Collateralized Repurchase Agreements 15% 0.00% Other Investment Pools (rated "A" or better) 10% 0.00% Mutual Funds 0% 0.40% High Grade Corporate Debt 15% 42.38% Investment Grade Obligations of State and Local Govts 15% 17.71% Money Market Mutual Funds N/A 1.71% 100.00%
The High Grade Corporate Debt exceeded the maximum percentage temporarily as investment policy provides discretion for temporary variances, such as due to market changes. No investments in a single security exceeded 15 percent of the fixed income portfolio. The investment in obligations of state and local governments exceeded the maximum percentage. However, Section IV 7b of the policy provides an increase to 30 percent for state and local government obligations if, in the judgment of the Investment Administrator, said obligations provide sufficient additional returns. No individual issue purchased exceeded 50 percent in relation to the total portfolio.
2017 Audited Financial Statements - 28 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED)
As of September 30, 2017 and 2016, the fair value of the total investment pool of the City of Lakeland and Lakeland Electric’s share of the pool was as follows:
Reported Amount Fair Value As of September 30, 2017: Total Investment Pool $ 406,854,252
Lakeland Electric’s Share of the Investment Pool $ 142,266,635
As of September 30, 2016: Total Investment Pool $ 421,738,771
Lakeland Electric’s Share of the Investment Pool $ 153,208,466
As of September 30, 2017 and 2016, other amounts classified as cash equivalents and investments are as follows: September 30 2017 2016
Demand deposits $ 28,010,109 $ 28,957,517 Petty cash 1,525 1,525 $ 28,011,634 $ 28,959,042
Cash, cash equivalents and investments are included in the following captions in the accompanying Statements of Net Position: September 30 2017 2016
Current assets: Cash and cash equivalents $ 42,522,537 $ 57,371,795 Asset Apportionments: Cash and cash equivalents 84,636,525 74,258,895 Cash with paying agent 28,010,109 29,018,890 Restricted assets: Cash and cash equivalents 15,109,098 21,517,925 $ 170,278,269 $ 182,167,505
29 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D - INVENTORIES The major classes of inventory consist of the following: September 30 2017 2016
Fuel oil $ 5,925,148 $ 6,025,376 Coal 5,611,696 7,106,188 Spare parts 22,499,080 20,005,981 $ 34,035,924 $ 33,137,545
NOTE E – REGULATORY ASSETS AND LIABILITIES
Unamortized debt issue costs: Lakeland Electric treats unamortized debt issuance costs as a regulatory asset as allowed for regulated operations that recover their debt issuance costs through rates. These debt issue costs are amortized using the effective interest method, over the life of the related debt.
September 30, 2017 2016 Unamortized balance, beginning of year $ 1,287,642 $ 860,206 Additions 177,755 930,179 Less: amortization (262,481) (247,514) deletions - (255,229) Unamortized balance, end of year $ 1,202,916 $ 1,287,642
Environmental compliance and energy conservation charges: Accounting guidance for regulated operations allows the recognition of revenues provided either before or after the cost is incurred as assets or (liabilities) in accordance with rate actions of the City Commission. The regulatory assets/liabilities below represent the amounts due from, or (payable to) retail customers.
September 30, Environmental compliance charge recovery 2017 2016 (Liability) balance, beginning of year $ (465,174) $ (905,627) Charges recovered through rates 7,612,688 7,605,221 Less environmental compliance expenses 6,742,321 8,045,674 (Liability) balance, end of year $ (1,335,541) $ (465,174)
September 30, Energy conservation charges recovery 2017 2016 (Liability) asset balance, beginning of year $ (258,929) $ (145,407) Charges recovered through rates 719,428 708,577 Less future conservation charges 679,502 595,055 (Liability) balance, end of year $ (298,855) $ (258,929)
2017 Audited Financial Statements - 30 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E – REGULATORY ASSETS AND LIABILITIES (CONTINUED)
Fuel charges: The cumulative over-recovery of fuel charges, in excess of the long-term fuel reserve established by the Lakeland City Commission (see Note S), is classified as a regulatory (liability), calculated as follows:
September 30, 2017 2016 Fuel reserve balance $ 18,001,167 $ 20,301,603 Less cumulative over-recovery of fuel charges 21,954,865 26,663,649 (Liability) balance $ (3,953,698) $ (6,362,046)
Below is a summary of regulatory assets and regulatory liabilities recorded in the Statements of Net Position of Lakeland Electric:
September 30, Regulatory assets: 2017 2016 Unamortized debt issuance costs $ 1,202,916 $ 1,287,642
September 30, Regulatory liabilities: 2017 2016 Environmental compliance charges $ 1,335,541 $ 465,174 Energy conservation charges 298,855 258,929 Fuel charges 3,953,698 6,362,045 $ 5,588,094 $ 7,086,148
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31 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F – ASSET APPORTIONMENTS
Debt service funds are set aside on a monthly basis and apportioned for the purpose of paying current principal and interest requirements.
The Capital Expansion Fund is used to fund capital expansion, as part of the plan to achieve Lakeland Electric’s objectives.
The Emergency Repair Fund is intended to fund large unbudgeted expenditures such as would be required for restoration from damage caused by a storm disaster. During fiscal year 2017, the Emergency Repair Fund transferred $4,428,141 to cover storm costs related to Hurricane Irma paid through September 30, 2017.
Total asset apportionments and related liabilities of Lakeland Electric as of September 30, 2017 and 2016 consist of the following:
September 30, 2017: Debt Service Capital Emergency Sinking Expansion Repair Total
Cash and cash equivalents $ 1,192,601 $ 70,475,110 $ 12,968,814 $ 84,636,525 Cash with paying agent/trustee 28,010,109 - - 28,010,109 Accounts receivable 477,185 - 477,185 Asset apportionments $ 29,202,710 $ 70,952,295 $ 12,968,814 $ 113,123,819
Accounts Payable $ - $ 2,401,875 $ - $ 2,401,875 Accrued Expenses - 8,594,329 - 8,594,329 Accrued interest payable 7,216,706 - - 7,216,706 Current portion of long term debt 21,250,000 - - 21,250,000 Liabilities payable from apportioned assets, due within twelve months $ 28,466,706 $ 10,996,204 $ - $ 39,462,910
September 30, 2016: Debt Service Capital Emergency Sinking Expansion Repair Total
Cash and cash equivalents $ 1,145,744 $ 57,952,552 $ 15,160,599 $ 74,258,895 Cash with paying agent/trustee 29,018,890 - - 29,018,890 Accounts receivable - - - - Accrued receivable - - - - Asset apportionments $ 30,164,634 $ 57,952,552 $ 15,160,599 $ 103,277,785
Accounts payable $ - $ - $ - $ - Accrued expenses - - - - Accrued interest payable 9,086,747 - - 9,086,747 Current portion of long term debt 20,875,000 - - 20,875,000 Liabilities payable from apportioned - assets, due within twelve months $ 29,961,747 $ - $ - $ 29,961,747
2017 Audited Financial Statements - 32 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE G - RESTRICTED ASSETS
The Reserve for Customer Deposits, which is completely offset by a liability payable from restricted assets reserve, represents cash held from electric customers. Guarantees from customers, other than cash, are not recorded as assets or liabilities on Lakeland Electric’s Statements of Net Position.
Lakeland Electric participates in an energy efficiency revolving loan program which began in December 2009, and was initially funded by a $250,000 block grant from the Federal Department of Energy (DOE).
Bond proceeds are restricted for the purpose of funding certain electric system capital projects. Remaining bond proceeds from the Series 2016 Revenue and Refunding Bonds provided the initial capital funding for fiscal year 2017.
Lakeland Electric’s total restricted assets and restricted liabilities, as of September 30, 2017 and 2016 consist of the following:
Customer Total September 30, 2017: Deposits Block Grant Bond Proceeds Restricted
Cash and cash equivalents $ 15,086,557 $ 22,541 $ - $ 15,109,098 Accounts receivable - 237,776 - 237,776 Restricted assets $ 15,086,557 $ 260,317 $ - $ 15,346,874
Accounts payable $ - $ 5,000 $ - $ 5,000 Accrued expenses - - - - Accrued interest payable 22,305 - - 22,305 Advances - 250,000 - 250,000 Customer deposits 15,064,251 - - 15,064,251 Restricted liabilities, due within twelve months $ 15,086,556 $ 255,000 $ - $ 15,341,556
Customer Total September 30, 2016: Deposits Block Grant Bond Proceeds Restricted
Cash and cash equivalents $ 14,685,727 $ 12,341 $ 6,819,859 $ 21,517,927 Accounts receivable - 242,040 899,872 1,141,912 Restricted assets $ 14,685,727 $ 254,381 $ 7,719,731 $ 22,659,839
Accounts Payable $ - $ - $ 601,668 $ 601,668 Accrued expenses - - 167,300 167,300 Accrued interest payable 25,899 - - 25,899 Advances - 250,000 - 250,000 Customer deposits 14,659,828 - - 14,659,828 Restricted liabilities, due within twelve months $ 14,685,727 $ 250,000 $ 768,968 $ 15,704,695
33 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H - UTILITY PLANT
Utility plant in service consists of the following:
Fiscal year 2017: September 30, September 30, 2016 Additions Deletions 2017 Non-depreciable assets: Land $ 15,595,265 $ - $ - $ 15,595,265 Construction in process 8,591,771 32,600,552 20,792,124 20,400,199 24,187,036 32,600,552 20,792,124 35,995,464 Depreciable assets: Buildings 25,589,625 791,924 - 26,381,549 Machinery and equipment 28,033,591 830,256 4,067,147 24,796,700 Equipment under capital leases 1,572,285 - - 1,572,285 Electric plants in service: Electric delivery 522,112,985 16,119,929 1,433,064 536,799,850 Electric supply 745,202,451 11,847,010 6,108,668 750,940,793 Total plant assets 1,322,510,937 29,589,119 11,608,879 1,340,491,177
Less Accumulated Depreciation: Buildings 14,796,176 1,390,370 104,621 16,081,925 Machinery and equipment 15,134,002 1,880,672 4,522,336 12,492,338 Equipment under capital leases 563,393 157,224 - 720,617 Electric plants in service: - Electric delivery 198,524,118 15,323,859 147,861 213,700,116 Electric supply 461,182,844 22,569,090 - 483,751,934 Total plant assets 690,200,533 41,321,215 4,774,818 726,746,930 Total Utility plant net of accumulated depreciation $ 656,497,441 $ 20,868,456 $ 27,626,185 $ 649,739,711
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2017 Audited Financial Statements - 34 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H - UTILITY PLANT (CONTINUED)
Fiscal year 2016: September 30, September 30, 2015 Additions Deletions 2016 Non-depreciable assets: Land $ 15,595,265 $ - $ - $ 15,595,265 Construction in process 12,223,993 33,098,546 36,730,768 8,591,771 27,819,258 33,098,546 36,730,768 24,187,036 Depreciable assets: Buildings 23,359,901 2,229,724 - 25,589,625 Machinery and equipment 33,285,146 1,755,977 7,007,532 28,033,591 Equipment under capital leases 1,572,285 - - 1,572,285 Electric plants in service: Electric delivery 495,094,496 27,124,758 106,269 522,112,985 Electric supply 743,677,145 7,133,843 5,608,537 745,202,451 Total plant assets 1,296,988,973 38,244,302 12,722,338 1,322,510,937
Less Accumulated Depreciation: Buildings 13,175,128 1,621,048 - 14,796,176 Machinery and equipment 21,686,018 1,712,857 8,264,873 15,134,002 Equipment under capital leases 406,174 157,219 - 563,393 Electric plants in service: Electric delivery 183,985,116 14,599,600 60,598 198,524,118 Electric supply 438,911,688 26,668,017 4,396,861 461,182,844 Total plant assets 658,164,124 44,758,741 12,722,332 690,200,533 Total Utility plant net of accumulated depreciation $ 666,644,107 $ 26,584,107 $ 36,730,774 $ 656,497,441
Allowance for Funds Used During Construction: In accordance with GASB guidance regarding capitalized interest, Lakeland Electric has adopted the policy of capitalizing net interest costs on funds used for the construction of fixed assets. As required by the provisions of the related accounting guidance, interest charges are capitalized as part of capital costs during acquisition or construction of capital assets provided that Lakeland Electric has any outstanding debt. Interest earnings on borrowed funds, if any, are also capitalized. The remaining bond proceeds from the Series 2016 Bonds were exhausted during the first half of 2017.
September 30 2017 2016
Interest cost on bonds was reduced by amounts capitalized as follows: Total interest expense on bonds payable $ 17,299,223 $ 17,567,094 Capitalized interest revenue 61,897 430,378 Less capitalized interest expense (811,841) (725,754) $ 16,549,279 $ 17,271,718
35 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I - UTILITY PLANT PARTICIPATION AGREEMENT
On April 4, 1978, the City entered into a fifty-year participation agreement with the Orlando Utilities Commission (OUC). Under the terms of this agreement, the City of Lakeland has a 60 percent interest and OUC a 40 percent interest in McIntosh Unit 3, a 365 MW coal-fired steam generating unit. OUC constructed, at its expense, a 230 KV transmission line to deliver its share of the output to its service area. The City of Lakeland issued revenue bonds to cover a portion of its initial investment in the plant. OUC also issued revenue bonds to cover a portion of its investment in the plant and the cost of its 230 KV transmission line. Each participant is solely responsible for its debt issued.
The City has operational control of this project and accounts for its undivided ownership interest based on its pro-rata share of the project's construction costs and operating expenses. Capital costs related to renewal and replacement of Unit 3 during fiscal year 2017 were $3,984,278 with an OUC share of $1,593,711. Shared operating expenses for the fiscal years ending September 30, 2017 and 2016, were as follows:
Fiscal year 2017 City Share OUC Share Total
McIntosh unit #3 fuel expense $ 35,728,226 $ 23,818,817 $ 59,547,043 McIntosh unit #3 direct operating & maintenance expenses 9,631,485 6,420,990 16,052,475 Other shared operating and administrative expenses 5,773,383 3,848,922 9,622,305 $ 51,133,094 $ 34,088,729 $ 85,221,823
Fiscal year 2016 City Share OUC Share Total
McIntosh unit #3 fuel expense $ 33,964,943 $ 22,643,295 $ 56,608,238 McIntosh unit #3 direct operating & maintenance expenses 8,529,821 5,686,547 14,216,368 Other shared operating and administrative expenses 5,981,740 3,987,827 9,969,567 $ 48,476,504 $ 32,317,669 $ 80,794,173
No separate financial statements are issued for the utility participation agreement.
NOTE J – DEFERRED OUTFLOWS OF RESOURCES
GASB requires certain items, which do not meet the definition of assets or liabilities, to be accounted for as deferred outflows or inflows of resources. Unamortized loss on refunding of debt is classified as a deferred outflow of resources, because it results in the use of resources in the current period for the benefit of future periods. It is amortized over the life of the issue using the effective interest rate method. Refer to Note R for details regarding hedge derivative outflows.
September 30 2017 2016 Unamortized loss on refunding of debt, beginning balance $ 34,931,160 $ 16,415,262 Additions - 21,822,907 Deletions - (96,199) Amortization (3,910,487) (3,210,810) 31,020,673 34,931,160 Fuel hedges (see Note R) - 348,521 Interest rate swaps (See Note R) 26,073,175 36,695,648 Pension contributions 13,296,993 20,290,620 Total deferred outflows of resources $ 70,390,841 $ 92,265,949
2017 Audited Financial Statements - 36 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K – ACCRUED LIABILITIES AND LONG-TERM DEBT
Accrued liabilities are classified on the Statements of Net Position as follows:
September 30 2017 2016 Current: Accrued taxes payable $ 760,726 $ 702,864 Accrued payroll 1,622,736 1,798,093 Compensated absences 995,949 1,013,496 $ 3,379,411 $ 3,514,453
Accrued liabilities, less current portion: Compensated absences $ 3,996,611 $ 4,169,330 Other post employment benefits 19,904,620 17,945,523 Net pension liability 53,534,111 58,777,354 $ 77,435,342 $ 80,892,207
Long-term bond debt, due beyond twelve months consists of the following:
September 30 2017 2016 Revenue bonds payable, less current portion $ 363,475,000 $ 387,725,000 Plus unamortized bond discount (net of premium) 29,364,687 33,012,771 $ 392,839,687 $ 420,737,771
The following is a summary of long-term obligation transactions for the year ended September 30, 2017:
Balance Balance Amount October 1 September 30 Due within 2016 Incurred Satisfied 2017 One Year Net pension liability $ 58,777,354 $ - $ 5,243,243 $ 53,534,111 $ - Net OPEB obligation 17,945,523 1,959,097 - 19,904,620 - Compensated absences 5,182,826 823,230 1,013,496 4,992,560 995,949 Capital lease obligations 467,229 - 328,183 139,046 139,046 Revenue bonds payable 408,600,000 97,000,000 120,875,000 384,725,000 21,250,000 Unamortized bond premium 33,012,771 - 3,648,084 29,364,687 - $ 523,985,703 $ 99,782,327 $ 131,108,006 $ 492,660,024 $ 22,384,995
37 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K – ACCRUED LIABILITIES AND LONG-TERM DEBT (CONTINUED)
For comparison to the table on the preceding page, the following is a summary of long-term obligation transactions of Lakeland Electric for the year ended September 30, 2016:
Balance Balance Amount October 1 September 30 Due within 2015 Incurred Satisfied 2016 One Year Net pension liability $ 48,261,275 $ 10,516,079 $ - $ 58,777,354 $ - Net OPEB obligation 15,945,423 2,000,100 - 17,945,523 - Compensated absences 5,486,455 683,598 987,227 5,182,826 1,013,496 Capital lease obligations 787,757 - 320,526 467,229 328,184 Revenue bonds payable 417,790,000 138,650,000 147,840,000 408,600,000 20,875,000 Unamortized bond premium 15,966,579 20,482,754 3,436,562 33,012,771 - $ 504,237,489 $ 172,332,531 $ 152,584,315 $ 523,985,703 $ 22,216,680
NOTE L - REVENUE BONDS
Lakeland Electric’s revenue bonds payable as of September 30, 2017 consists of the following:
Interest Final September 30, September 30, Rate % Maturity 2016 Additions Deletions 2017
Series 2006 4.00% to 5.00% 10-01-2036 $ 1,055,000 $ - $ 1,055,000 $ - Series 2010 4.00% to 5.25% 10-01-2036 168,895,000 - 16,280,000 152,615,000 Series 2012 Variable 10-01-2017 100,000,000 - 100,000,000 - Series 2016 2.50% to 5.00% 10-01-2036 138,650,000 - 3,540,000 135,110,000 Series 2017 Variable 10-01-2022 - 97,000,000 - 97,000,000 408,600,000 $ 97,000,000 $ 120,875,000 384,725,000 Less current portion (20,875,000) (21,250,000) $ 387,725,000 $ 363,475,000
2017 Audited Financial Statements - 38 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L - REVENUE BONDS (CONTINUED)
The following is a schedule of the debt service requirements, excluding the current portion of outstanding revenue bonds and excluding the impact of interest swaps on variable rate bonds, as of September 30, 2017:
Series 2010 Series 2016 Floating Rates Notes Fiscal Year(s) Principal Interest Principal Interest Principal* Interest 2019 $ 17,950,000 $ 6,853,550 $ 4,350,000 $ 5,604,169 $ - $ 1,316,775 2020 13,840,000 5,956,050 4,560,000 5,386,669 1,795,000 1,316,775 2021 4,695,000 5,264,050 4,770,000 5,158,669 7,000,000 1,292,408 2022 4,925,000 5,029,300 9,620,000 4,920,169 - 1,197,383 2023 5,140,000 4,819,988 10,020,000 4,439,169 - 1,197,383 2024-2028 28,195,000 20,291,588 57,470,000 14,203,344 - 5,986,914 2029-2033 30,290,000 12,933,375 31,415,000 4,304,675 17,565,000 5,796,186 2034-2038 30,475,000 4,102,088 8,760,000 1,122,000 70,640,000 3,117,092 $ 135,510,000 $ 65,249,989 $ 130,965,000 $ 45,138,864 $ 97,000,000 $ 21,220,916
TOTAL Fiscal Year(s) Principal Interest Total 2019 $ 22,300,000 $ 13,774,494 $ 36,074,494 2020 20,195,000 12,659,494 32,854,494 2021 16,465,000 11,715,127 28,180,127 2022 14,545,000 11,146,852 25,691,852 2023 15,160,000 10,456,539 25,616,539 2024-2028 85,665,000 40,481,846 126,146,846 2029-2033 79,270,000 23,034,236 102,304,236 2034-2038 109,875,000 8,341,179 118,216,179 $ 363,475,000 $ 131,609,767 $ 495,084,767
* The remaining $97,000,000 of Floating Rates Notes are scheduled to mature on October 1, 2022. It has been assumed for debt service purposes that the replacement debt for the FRNs retains the same maturity schedules that convert these obligations to a synthetic fixed rate.
39 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L - REVENUE BONDS (CONTINUED)
The following is a schedule of combined senior and junior lien revenue bond coverage from operations for fiscal year 2017 and the previous five years:
Fiscal Net Revenues Debt Service Debt Service Total Debt Bond Year Available Principal Interest Service Coverage 2017 $ 89,581,341 $ 21,250,000 $ 17,299,223 $ 38,549,223 2.32 2016 110,517,658 20,875,000 17,567,094 38,442,094 2.87 2015 99,751,104 16,530,000 18,575,791 35,123,491 2.84 2014 111,991,243 20,775,499 25,469,790 46,245,289 2.42 2013 90,272,554 20,313,195 26,313,189 46,626,384 1.94 2012 97,653,479 24,456,267 27,136,639 51,592,906 1.89
Bond coverage was calculated as follows for the year ended September 30, 2017:
Charges for services $ 303,483,541 Investment and other revenue 5,832,077 Total revenue $ 309,315,618 Less cost of operations (219,734,277)
Net revenues from operations available for debt service 89,581,341
Debt service requirement: Interest on bonds payable 17,299,223 Current portion of bonds payable 21,250,000 Total debt service requirement $ 38,549,223
Bond coverage from operations 2.32
2017 Audited Financial Statements - 40 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L - REVENUE BONDS (CONTINUED)
All energy system bonds are secured by a first lien on and pledge of the net revenues of Lakeland Electric. As of September 30, 2017, Lakeland Electric is in compliance with all required covenants of the bond ordinances, including compliance with federal arbitrage regulations.
Energy System Revenue and Refunding Bonds, Series 2006: In August 2006, the City issued the Energy System Revenue and Refunding Bonds, Series 2006 in the amount of $44,870,000 to finance certain capital improvements for the electric power system of the City, to refund, on a current basis, a portion of the City’s outstanding Energy System Refunding Revenue Bonds, Series 1999B, and to pay certain costs and expenses related to the issuance of the bonds. The bonds mature on October 1, 2036. Principal payments are payable October 1 of each year and interest payments are payable October 1 and April 1 of each year. $24,645,000 of the Series 2006 bond principal was redeemed in February 2016 as part of the Series 2016 Revenue and Refunding Bonds transaction. Another $11,665,000 of the Series 2006 principal was paid using legally available apportioned assets. The remaining principal balance of $1,055,000 was paid on October 1, 2016.
Energy System Revenue and Refunding Bonds, Series 2010: In October 2010, the City issued the Energy System Revenue and Refunding Bonds, Series 2010 in the amount of $199,300,000 to (1) finance certain capital improvements to the electric power system of the City, (2) to refund on a current basis, a portion of the City’s outstanding Electric and Water Refunding Revenue Bonds, Series 1999A and to refund on an advance basis, all of the City’s outstanding Energy System Revenue Bonds, Series 2001B, (3) to pay costs associated with the termination of a conditional bond warrant agreement, and (4) to pay certain costs and expenses related to the issuance of the Bonds. The bonds mature on October 1, 2036. Principal payments are payable October 1 of each year and interest payments are payable October 1 and April 1 of each year. As of September 30, 2017, the remaining principal and interest requirement for these bonds aggregate to $221,719,388.
The current and advance refunding reduced the aggregate debt service requirement on the refunded bonds only nominally from $308.2 million to $308.0 million over the remaining 25-year life of the bonds. The majority of the financial benefit of the transaction was monetized in January of 2007 when the City sold a warrant to Goldman Sachs for the price of $7,680,000. That warrant gave Goldman Sachs the right to compel the City to refund the 1999A bonds. In addition to those proceeds, there was approximately $2,200,000 in net cash proceeds from the refunding paid to the City to finance capital projects.
The transaction also resulted in recognition of a loss on refunding of $13,165,887, representing the difference in the carrying value of the new debt and the refunded debt, including the write-off and recognition of unamortized bond issue costs associated with each issue, the write-off of unamortized loss on refunding from a previous refunding transaction associated with the 1999A bonds of $1,222,088, and the monetization of $7,680,000 of future decreases of debt service costs.
Energy System Revenue and Refunding Bonds, Series 2016: In February 2016, the City issued the Energy System Revenue and Refunding Bonds, Series 2016 in the amount of $138,650,000. The Series 2016 bonds refunded all of the Series 2014 bonds, a portion of the outstanding Series 2006 bonds, and provided $37.4 million in proceeds to fund Electric System capital projects. The Series 2016 bonds bear fixed interest rates ranging from 2.00 to 5.00 percent, and mature from October 1, 2016 through October 1, 2036. In concert with the refunding of the 2014 bonds, which were variable rate obligations, the City terminated portions of three associated floating-to-fixed interest rate swaps. The refunding portion of the transaction did not produce net present value savings or a material economic gain or loss. Rather, it was designed to restructure and simplify the Electric System’s debt profile. The remaining principal and interest requirements for these bonds aggregate to $183,154,572.
41 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L - REVENUE BONDS (CONTINUED)
Variable Rate Energy System Refunding Bond, Series 2017: In August 2017, the City issued the Variable Rate Energy System Refunding Bond, Series 2017 in the amount of $97,000,000 to refund the City’s outstanding Variable Rate Energy System Revenue and Refunding Bonds, Series 2012 that were scheduled to mature on October 1, 2017. Immediately prior to this 2017 refunding, the City paid down $3,000,000 of outstanding principal on the Series 2012 Bonds. The 2017 bonds mature on October 1, 2022. The bonds bear a variable rate of interest equal to the one-month LIBOR index plus 0.52 percent. Principal payments of $1,795,000 and $7,000,000 are payable on April 1, 2020 and 2021, respectively. Interest payments are payable on the first business day of each month. Although the 2017 bonds bear a variable rate of interest, they have been effectively converted to a fixed rate as a result of pre-existing interest rate swap agreements. There was no gain or loss on refunding of the debt.
The Electric and Energy bonds series are secured by a pledge of operating revenues of the Electric Utility. The total principal and interest remaining to be paid on all of the Electric Revenue Bonds is $523,094,878. Principal and interest paid for the current year and total net customer revenues were $40,704,725 and $109,711,739 respectively.
As of September 30, 2017, the City is in compliance with all required covenants of the bond ordinances, including compliance with federal arbitrage regulations.
Interest Rate Swaps: As a means to reduce borrowing costs and to hedge the variable rate exposure related to certain bonds, the City has entered into a number of interest rate swap agreements.
An interest rate swap is a derivative, a financial instrument whose value and terms are derived from the SIFMA index. In the case of the interest rate swaps employed by the City of Lakeland, the intent is two-fold. First to achieve an all-in financing cost (representing interest payments to bondholders combined with net interest payments and receipts on the derivatives) that is less than the financing cost associated with traditional fixed rate bonds based on market conditions at the time of each bond issue. The second objective is to minimize the interest rate risk associated with the inherent volatility associated with “naked” variable rate debt. Under the terms of these interest rate swaps, the City of Lakeland pays an amount to a counterparty that is based on a specified notional amount (which closely approximates the outstanding principal amount of the related bonds) times a specified fixed interest rate. In exchange, the counterparty makes a payment to the City that is based on the same notional amount times a variable rate of interest. When the variable and fixed components of the interest rate swaps are combined with the variable cash payments made by the City to the actual bondholders, the end result is a net, fixed rate of interest. In February 2016, Lakeland Electric elected to terminate a portion of interest rate swaps associated with variable rate bonds, using legally available apportioned assets, at a cost of $20,678,000.
In the case of the City’s interest rate swaps, effectiveness testing measures the extent to which the terms of the interest rate swaps insulate the City from changes in the market rate of interest payable on the bonds. The City of Lakeland’s interest rate swaps have been evaluated using all of the methods outlined by GASB Statement No. 53, except the dollar-offset method, and have passed at least one of the prescribed effectiveness tests. Accordingly, the market values of the derivatives are recorded as offsetting items on the Statements of Net Position. The fair value of Lakeland Electric’s interest rate swaps as of September 30, 2017 was ($26,073,175). Also see Note R, Derivative and Hedging Activities.
2017 Audited Financial Statements - 42 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L - REVENUE BONDS (CONTINUED)
Variable Rate Hedges: As a result of the swap agreements, the City will receive (on a combined basis) variable rate payments equal to between 67 percent and 74.125 percent of LIBOR times the notional amount of the swap agreements. The notional amount of the swap agreements roughly corresponds to the outstanding amount of the Series 2017 variable rate bonds. In return, the City will make fixed rate payments of between 3.163 percent and 4.283 percent times the notional amount of the swap agreements. These agreements fix the variable rate exposure of the 2017 bonds at the fixed rates noted above (plus the fixed rate spread paid on the bonds) to the extent that the variable rate payments received by the City under the swap agreements are equal to the variable rates paid by the City on the 2017 bonds. The City is subject to the basis risk between the LIBOR based variable rates it receives and the actual rates paid on the 2017 bonds, which are based on SIFMA. Over time the variable rates paid and received are expected to be equivalent.
The swap agreements use the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay, bankruptcy, or rating downgrades to either counterparty. As of September 30, 2017, the City was not subject to credit risk with its counterparties because the fair market values of the swap agreements were negative.
The market values of the derivatives are recorded as offsetting items on the Statements of Net Position, and accordingly, recognition of changes in fair market value are deferred until the period when transactions are settled. See Note R, Derivatives and Hedging Activities.
NOTE M – CAPITAL LEASES
On November 5, 2012, Lakeland Electric entered into a 60-month lease-purchase agreement for a medium wheel loader and for interconnection communication equipment. Lakeland Electric’s share of the present value of the future minimum lease payments at the inception of the contract, with an interest rate of 2.36 percent, was $1,572,285. The lease concludes in February 2018. As of September 30, 2017, the remaining total lease obligation was $139,046 which is payable during fiscal year 2018.
NOTE N - DEFINED BENEFIT PENSION PLAN
Summary of Significant Accounting Principles: For purposes of measuring the net pension liability, deferred outflows of resources, and deferred inflows of resources related to pensions, pension expenses, information about the fiduciary net position of the City of Lakeland’s Employees’ Pension and Retirement System, and additions to/deductions from the Employees’ Pension and Retirement System’s fiduciary net position have been determined on the same basis as reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.
The Plan is maintained using the accrual basis of accounting. Employee and employer contributions are recognized as revenue in the period in which the employee services are performed. Expenses are recognized when they are incurred and revenues are recognized when they are earned. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Generally Accepted Accounting Principles in the United States of America require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, the actual results could differ from those estimates. Investments are recorded at fair value. Dividends and interest are recognized when earned. Gains and losses on sales are recognized on the trade date.
43 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N - DEFINED BENEFIT PENSION PLAN (CONTINUED)
Plan Description: The City of Lakeland Employees’ Pension and Retirement System administers the City of Lakeland Employees’ Pension Plan – a single employer, defined benefit pension plan that provides pensions for all full-time, regular employees of the City. The authority for the establishment and amendment of the Plan, benefits, vesting, and contributions are established by City Ordinances. Government plans are not subject to the provisions of the Employee’s Retirement Income Security Act of 1974 (ERISA). Management of the plan is vested in the Employees’ Pension Board, which consists of seven (7) active members – three (3) of which are elected by plan members for 3-year terms, three (3) appointed by the City Commission for 3-year terms and one (1) appointed by the board. This Plan is a pension trust fund (fiduciary fund type) of the City that contains three pension plan options (Plans A, B, and C). Each plan option is part of a single employer, defined benefit pension plan offered by the City with a defined contribution option available to certain eligible employees. Plan A is eligible to employees of the City hired prior to October 1, 2003. Plan B is eligible to employees hired on or after October 1, 2003 through February 15, 2012. Plan C is eligible to employees hired after December 29, 2011 or who have made an irrevocable election to convert their prospective benefit calculation to Plan C as of February 15, 2012.
The defined contribution option allows certain eligible employees to cease participation in this Plan and begin participation in the City’s defined contribution plan.
Deferred Retirement Option Plan (DROP): A Deferred Retirement Option Plan (DROP) was enacted on December 19, 2009 by Ordinance 4727. Under this Plan, participants who have attained eligibility may continue working with the city for up to sixty months while receiving a retirement benefit that is deposited into a DROP account. As of September 30, 2017, Lakeland Electric had a total of 57 participants.
Cost of Living Adjustment: No cost of living increase was awarded for fiscal year 2017.
Funding Policy, Contributions Required, and Contributions Made: Under Ordinance 5287, section 23.1.1, the Plan grants the authority to the City Commission to establish and modify contribution requirements of the City and active plan members. The Plan is subject to periodic review by an independent actuary. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute at least quarterly to the fund in an amount equal to the required city contribution as shown by the applicable actuarial valuation system. The actuarial experience 0.97, a variable rate of 0.02 and Change in Cost Sharing 0.65 are added to the prior Contribution Rate (18.89%), less the Amortization Payment on Unfunded Actuarial Accrued Liability (UAAL) (0.35), plan change of (0.73), and Change in Normal Cost Rate (0.18) to calculate the current year Contribution Rate of 19.27%. Contributions to the pension plan from Department of Electric Utilities were $5,590,678 for the year ended September 30, 2017 and $11,436,475 for the year ended September 30, 2016.
At September 30, 2017, the Department of Electric Utilities reported a liability of $53,534,111 for its proportionate share of the net pension liability of the Employees’ Pension and Retirement System. The City’s net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The proportionate share of the net pension liability of the Employee’s Pension and Retirement System at September 30, 2016 was $58,777,353. The Department of Electric Utilities’ portion of the net pension liability was based on the Department of Electric Utilities’ share of the actual contributions to the pension plan relative to the actual total contributions of the City of Lakeland. At September 30, 2017, the Department of Electric Utilities’ proportion was 40%, which was the same as the proportion measured as of September 30, 2016. The Department of Electric Utilities recognized pension expenses of $7,566,748 and $7,416,244 in fiscal year 2017 nad 2016, respectively.
2017 Audited Financial Statements - 44 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N - DEFINED BENEFIT PENSION PLAN (CONTINUED)
Funding Policy, Contributions Required, and Contributions Made (continued): The Department of Electric Utilities reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
2017 2016
Deferred Deferred Deferred Deferred Outflows of Inflows of Outflows of Inflows of Resources Resources Resources Resources Proportionate share of contributions subsequent to the measurement date $ 5,590,678 $ - $ 11,436,475 $ - Difference between actual and expected experience 7,706,315 - 8,854,145 - Difference between projected and actual earnings 624,849 - 753,373 Total $ 13,296,993 $ 624,849 $ 20,290,620 $ 753,373
$5,590,678 reported as deferred outflows of resources related to pensions resulting from Lakeland Electric’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended September 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expenses as follows:
Fiscal year ended September 30th: 2018 $ 2,118,046 2019 2,121,653 2020 2,646,446 2021 195,321 $ 7,081,466
Actuarial Assumptions: The total pension liability in the actuarial evaluation was determined using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return 7.25% Salary increases 4.0% to 14.0% depending on service, including inflation Inflation rate 3.00% Post-retirement benefit increases N/A Retirement rate (1) Mortality table Generational RP-2000 for males and females with mortality improvement projected using Scale AA after 2000
(1) Probabilities of retirement eligible members are assigned for each attained age and length of service
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.
45 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N - DEFINED BENEFIT PENSION PLAN (CONTINUED)
Actuarial Assumptions (continued): The projected long-term real rate of return for the Plan net of investment expenses is 6.126 percent. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation (see the discussion of the pension plan’s investment policy) are summarized in the following tables as required by GASB 67 and 68:
As of September 30, 2017 Long-Term Expected Asset Group Asset Class (Market) Target Allocation Real Rate of Return Contribution Domestic Equity 35.00% 7.50% 2.625% International Equity 15.00% 8.50% 1.275% Domestic Bonds 15.00% 2.50% 0.375% International Bonds 5.00% 3.50% 0.175% Real Estate 10.00% 4.50% 0.450% Alternate Assets 20.00% 6.00% 1.226% Total Investments 100.00% 6.126%
As of September 30, 2016 Long-Term Expected Asset Group Asset Class (Market) Target Allocation Real Rate of Return Contribution Domestic Equity 40.00% 7.50% 3.000% International Equity 15.00% 8.50% 1.275% Domestic Bonds 20.00% 2.50% 0.500% International Bonds 5.00% 3.50% 0.175% Real Estate 10.00% 4.50% 0.450% Alternate Assets 10.00% 6.00% 0.600% Total Investments 100.00% 6.000%
The discount rate used to measure the total pension liability was 7.25 percent. The projection of cash flows used to determine the discount rate assumed that the plan members’ contributions will be made at the current contribution rate and the City contributions will be made at the rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments (7.25 percent) was applied to all periods of projected benefit payments to determine the total pension liability.
2017 Audited Financial Statements - 46 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N - DEFINED BENEFIT PENSION PLAN (CONTINUED)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents Lakeland Electric’s proportionate share of the net pension liability calculated using the discount rate of 7.25 percent, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.25 percent) or 1-percentage point higher (8.25 percent) than the current rate.
As of September 30, 2017 1% Current 1% Decrease Discount Increase Rate (6.25%) Rate (7.25%) Rate (8.25%) Lakeland Electric's proportionate share of the net pension liability $ 80,294,473 $ 53,534,111 $ 30,857,290
As of September 30, 2016 1% Current 1% Decrease Discount Increase Rate (6.25%) Rate (7.25%) Rate (8.25%) Lakeland Electric's proportionate share of the net pension liability $ 85,175,004 $ 58,777,353 $ 36,406,970
Pension Plan Fiduciary Net Position: Detailed information about the pension plan’s fiduciary net position is available in the separately issued Employee’s Pension and Retirement System financial report.
Termination of Benefits: If a member employee is terminated, either voluntarily or involuntarily, the following benefits are payable: If the employee is not vested, the employee shall be entitled to a refund of amounts contributed by the employee. If the employee is vested, the employee will be entitled to the accrued monthly retirement benefit to commence on normal retirement date, provided the employee’s contributions are left in the fund. A terminated employee may also elect an early retirement benefit as described above. The authority for establishing or amending the benefit provisions and contribution provisions is contained in City ordinances.
Additional Information: For more information regarding the aforementioned plan, refer to the City of Lakeland, Florida, Employees’ Pension and Retirement System stand-alone financial statements which can be obtained by contacting the City of Lakeland, Finance Department, City Hall, 228 S. Massachusetts Ave., Lakeland, FL 33801-5086.
NOTE O - BUSINESS SEGMENT
Lakeland Electric is a department of the City of Lakeland, operating in only one business segment, that of providing electric service. The City of Lakeland has been generating power and providing electric service since 1904. Its service area is primarily the City of Lakeland and the immediate area surrounding the City.
NOTE P - POST-EMPLOYMENT BENEFITS
In addition to the pension benefits described in Note N, the City Commission has agreed to offer subsidized post-employment health care benefits to former employees who are receiving retirement benefits from the City.
On May 1, 1989, the City Commission agreed to subsidize 50 percent of the cost of Part A of Medicare insurance coverage purchased by any person receiving retirement benefits from the City of Lakeland. This agreement can be rescinded by the City at any time. To date, there have been no participants in this program.
47 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE P - POST-EMPLOYMENT BENEFITS (Continued)
On September 18, 1989, the City Commission agreed to subsidize the cost of health insurance coverage offered to any person receiving retirement benefits from the City of Lakeland. Effective September 22, 2002 the retirees’ health insurance premium subsidy of 50 percent was reduced as follows: in fiscal year 2004 to 45 percent, in fiscal year 2005 to 40 percent, and in subsequent fiscal years to 35 percent. Effective October 1, 2002, the health insurance premium subsidy is based on years of service. Lakeland Electric’s annual cost of this benefit was $506,009 and $490,183 during fiscal years 2017 and 2016, respectively, and is funded on a pay-as-you-go basis.
Effective January 1, 2004, any employee who wishes to have his/her spouse and dependents insured will be required to have them on the plan for one year prior to retirement. Should a participant at any time elect not to purchase coverage from the City-sponsored plan, all eligibility for future participation in that plan, including rights to the subsidy, are terminated. The subsidy program can be terminated by the City at any time. During the fiscal year ended September 30, 2014, there were more than 200 retired employees of Lakeland Electric participating in the program.
In accordance with GASB’s prescribed accounting treatment for Other Post Employment Benefits (OPEB), the City has measured the long-term liability and associated required contributions necessary to finance the explicit subsidy provided to retired employees as a percentage of annual insurance premiums and an implicit subsidy associated with the state mandate that health insurance premiums for retired employee equal the amount charged to active employees, without regard to the increased health insurance costs associated with retired employees based on claims experience. The City has elected to fund the explicit subsidy within a formal Trust established to accumulate and invest assets necessary to pay for the accumulated liability. The City has not established a trust to finance cost of the implicit subsidy.
The annual OPEB cost is calculated based on the annual required contribution (ARC) actuarially determined in accordance with the parameters of GASB. The Net OPEB obligation represents the excess of the annual required contribution necessary to amortize both the explicit and implicit subsidies on an actuarially sound basis over the amount actually funded on a pay-as-you go basis for the City of Lakeland. The portion of the liability attributable to the operations of Lakeland Electric was $19,904,620 as of September 30, 2017, and $17,945,523 as of September 30, 2016.
NOTE Q - DEFERRED COMPENSATION PROGRAM
The City has a Deferred Compensation Program pursuant to Chapter 75-295, as amended by Chapter 76-279, Florida Statutes. In accordance with the Deferred Compensation Program, the City may, by contract and/or collective bargaining agreement, agree with any City employee to defer up to 25 percent of an employee's gross salary (not to exceed $18,000 in one year).
Under the terms of the Deferred Compensation program, the City may purchase, at the direction of the employee, fixed or variable life insurance, annuity contracts or mutual fund shares for the purpose of "informally" funding the deferred compensation agreements of the employee. The investments will, at all times, remain solely the property of the employee, held in trust until the employee is eligible to draw the amounts contributed. The compensation deferred under the program is not included in employees' taxable income until such amounts are actually received by employees under the terms of the program.
NOTE R – DERIVATIVE AND HEDGING ACTIVITIES
Accounting for Derivatives and Hedging Activities: Derivatives have a market value, require no initial investment, and may be net settled. The City follows GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. Statement No. 53 requires derivatives to be categorized as either hedging derivative instruments or investment derivatives. Hedging derivative instruments are associated with specific hedging transactions wherein the intent is to significantly reduce risks. Changes in fair value of hedges are reported as either deferred inflows or deferred outflows in the statement of net position. For accounting purposes, in order to qualify as a hedge, the relationship between the derivative and the underlying asset must result in a hedge that is "effective" in mitigating risk. If the hedge transaction is considered "ineffective" the valuation of the instrument is considered investment income or loss on the Statements of Revenues, Expenses, and 2017 Audited Financial Statements - 48 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R – DERIVATIVE AND HEDGING ACTIVITIES (Continued)
Changes in Net Position. GASB Statement No. 53 outlines five methods for evaluating hedge effectiveness:
Consistent Critical Terms Synthetic Instrument Dollar Offset Regression Analysis Other Quantitative Methods
For purposes of performing hedge effectiveness testing, Lakeland Electric can use any or all of the evaluation methods and is not limited to using the same method from period to period. Therefore, if the result of any one prescribed evaluation method indicates the hedge is ineffective, Lakeland Electric may apply another method to verify effectiveness. In addition, the calculations for effectiveness may be based on either a life-to-date period or be limited to the immediately preceding annual accounting period.
Fuel Hedges: For purposes of performing hedge effectiveness testing, Lakeland Electric can use any or all of the evaluation methods and is not limited to using the same method from period to period. Therefore, if the result of any one prescribed evaluation method indicates the hedge is ineffective, Lakeland Electric may apply another method to verify effectiveness. In addition, the calculations for effectiveness may be based on either a life-to-date period or be limited to the immediately preceding annual accounting period.
To achieve its goals of minimizing volatility in both cash flow and fuel rates to the ratepayers, Lakeland Electric hedges at various volumes for a rolling 30 month forward period with emphasis on upside protection through the purchase of swaps. Due to a depressed natural gas market, the costs of the program became significant. To control the cost of the program, Lakeland Electric's Utility Committee implemented changes to the policy in March 2010. When a swap is placed, at or near the same time, a put option will be placed to provide opportunity to participate ina downward market. Swaps should be placed at no more than $1/MMBTU above market and option premiums at $0.50/MMBtu resulting in a maximum cost of $1.50/MMBtu. Each quarter, when a fuel rate change is proposed, the next 12 months of forecasted volumes will be approximately 63 percent hedged as follows:
1st quarter will be 100 percent hedged 2nd quarter will be 75 percent hedged 3rd quarter will be 50 percent hedged 4th quarter will be 25 percent hedged
Fuel related derivative transactions are executed in accordance with the fuel hedging policies established by Lakeland Electric's Energy Risk Management Oversight Committee. The primary objective of these policies is to minimize exposure to natural gas price volatility for cash flow and fuel rate stabilization purposes. The Committee has a defined organizational structure and responsibilities, which include approving all brokerage relationships, counterparty credit worthiness, specific fuel volumes and financial limits in addition to overall policy compliance. Acquisition of these hedge transactions are managed by The Energy Authority (TEA) based on a contractual relationship created in March 2007.
49 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R – DERIVATIVE AND HEDGING ACTIVITIES (CONTINUED)
TEA performs the front and back office functions associated with such trades in accordance with overall hedging policies developed jointly by TEA and the aforementioned oversight committee of Lakeland Electric. The recording of fuel derivatives, when appropriate, is included on the Statement of Net Position as either an asset or liability measured at fair value. Related gains and/or losses are deferred and recognized in the specific period in which the derivative is settled and included as part of Fuel and Purchased Power costs in the Statement of Revenues, Expenses and Changes in Net Position. The premiums associated with the purchase of options are expensed upon expiration of the option. Premiums associated with unexpired options are embedded in the valuation table displayed later in this note. The valuation of market changes for contracts entered into within Lakeland Electric's Risk Management Program resulted in a net increase of $1,967,220 and $5,886,576 to the cost of fuel during the fiscal year ended September 30, 2017 and 2016, which was approximately 2 percent and 5 percent of the total fuel cost, respectively.
Lakeland Electric's natural gas swaps and options have been evaluated using the regression analysis method cited above. According to this method, all of Lakeland Electric's derivatives were considered to be effective. Consequently, the R-Squared relationship between the derivative based on the NYMEX index as related to physical natural gas prices based on purchased gas from Florida Gas Transmission Zones 1, 2 and 3 was 0.8 or higher with a slope between -0.8 and -1.25 with a 95 percent confidence. In addition, the effectiveness of options was assessed consistent with the objective of the derivative instrument as mentioned in the goals of hedging above. With GASB compliance, the open swaps and options valuation of $929,482 includes mark-to-market of the swaps and both intrinsic and extrinsic mark-to-market of the options.
Natural Gas Derivate Instruments: Lakeland Electric uses Over-the-Counter (OTC) swaps, put options, swing-swaps and fixed price firm physical purchases of natural gas as tools to stabilize the cost of natural gas that will be needed by the utility in the future. Any gain or loss of the value of these derivatives are ultimately rolled into the price of natural gas burned, offsetting the volatility in the price of that fuel. These derivative instruments are classified in level 2 of the fair value hierarchy using the market approach of valuation. Derivative instruments classified as level 2 receive clearing house prices, which are based on models that reflect the contractual terms of the deivatives. As of September 2017, Lakeland Electric had options, swaps, and physical contracts outstanding in the following amounts, covered fiscal year 2017 and beyond:
Market Value Fiscal Year Options Swaps (Gain) / Loss 2018 $ 10,660,000 $ 4,730,000 $ (818,540) 2019 2,800,000 2,200,000 (89,237) 2020 1,400,000 1,400,000 (21,705) $ 14,860,000 $ 8,330,000 $ (929,482)
2017 Audited Financial Statements - 50 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R – DERIVATIVE AND HEDGING ACTIVITIES (CONTINUED)
Interest Rate Swaps: An interest rate swap is a derivative whose value and terms are derived from a specified financial index (SIFMA). In the case of the interest rate swaps employed by the City of Lakeland, the intent is two-fold. First to achieve an all-in financing cost (representing interest payments to bondholders combined with net interest payments and receipts on the derivatives) that is less than the financing cost associated with traditional fixed rate bonds based on market conditions at the time of each bond issue. The second objective is to minimize the interest rate risk associated with the inherent volatility associated with "naked" variable rate debt. Under the terms of these interest rate swaps, the City of Lakeland pays an amount to a counterparty that is based on a specified notional amount (which closely approximates the outstanding principal amount of the related bonds) times a specified fixed interest rate. In exchange, the counterparty makes a payment to the City that is based on the same notional amount times a variable rate of interest. When the variable and fixed components of the interest rate swaps are combined with the variable cash payments made by the City to the actual bondholders, the end result is a net fixed rate of interest.
In the case of Lakeland's interest rate swaps, effectiveness testing measures the extent to which the terms of the interest rate swaps insulated the City from changes in the market rate of interest payable on the bonds. The City of Lakeland's interest rate swaps have been evaluated using all of the methods cited above except the dollar-offset method. All of the interest rate swaps employed by the City have passed at least one of the effectiveness tests prescribed by GASB Statement No. 53. Accordingly, the market values of the derivatives are recorded as offsetting items on the Statements of Net Position, and therefore the recognition of changes in fair market value are deferred. The first item on the table below is a $134,580,000 basis swap entered in 2004 as a means to reduce borrowing costs of a portion of the Electric and Water Refunding Revenue Bonds Series 1999A. Settlement payments to the City have been positive in each fiscal year since inception. The remaining items on the table below are related to certain prior variable rate debt, which has been refunded. The City has elected to apply the existing swap agreements to hedge the new variable rate refunding debt as a means to hedge the variable rate risk exposure related to variable rate bonds.
Lakeland Electric had interest rate swaps with the following mid-market value as of the close of the final business day of the fiscal year ending September 30, 2017:
Description Maturity Net Value $134.580M Basis Swap 10/01/2036 $ 2,383,945 $24.772M SIFMA Swap 10/01/2035 (8,026,695) $47.86M 67% LIBOR Swap 10/01/2037 (15,632,105) $14.053M SIFMA Swap 10/01/2035 (4,393,847) $1.520M 67% of LIBOR Swap 10/01/2037 (309,361) $90M 74.12% of LIBOR Swap 05/01/2021 (95,112) $ (26,073,175)
51 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R – DERIVATIVE AND HEDGING ACTIVITIES (CONTINUED)
Interest Rate Swaps (continued): Note L, Revenue Bonds, refers to the fair value of interest swap derivatives, which are evaluated for effectiveness using the same criteria required for fuel hedge derivatives under GASB Statement No. 53. The interest rate swaps are classified in level 2 of the fair value hierarchy using the market approach to valuation. Derivative instruments classified as level 2 receive clearing house prices, which are based on models that reflect the contractual terms of the deivatives.
The fair value of all of Lakeland Electric's derivatives as of September 30, 2017 was as follows:
Interest rate swaps $ (26,073,175) Prepaid fuel 3,257,517 Fuel hedges (deferred inflows) 929,482 $ (21,886,176)
The fair value of all of Lakeland Electric's derivatives as of September 30, 2016 was as follows:
Interest rate swaps $ (36,695,648) Prepaid fuel 3,638,469 Fuel hedges (deferred outflows) (348,521) $ (33,405,700)
NOTE S – DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources represent acquisitions applicable to future accounting periods and typically have a credit balance similar to liabilities.
Contributions in Aid of Construction Through the use of regulatory accounting, Lakeland Electric records contributions in aid of construction (CIAC) as a deferred inflow of resources, which is amortized over the estimated useful life of the corresponding assets as a reduction of depreciation expense.
September 30, 2017 2016 Contributions in aid of construction, beginning balance $ 45,591,950 $ 46,112,503 Additions 2,441,818 2,454,232 Amortization as depreciation expense (3,053,926) (2,974,785) $ 44,979,842 $ 45,591,950
2017 Audited Financial Statements - 52 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE S – DEFERRED INFLOWS OF RESOURCES (CONTINUED)
Fuel Reserve The fuel reserve represents the cumulative recovery of fuel revenues over fuel expenses up to a maximum of 15 percent of annual budgeted fuel expenses. A regulatory liability (see Note E) exists to the extent that the cumulative over-recovery of fuel charges exceeds the fuel reserve. The fuel reserve balance is as follows:
September 30, 2017 2016 Beginning balance $ 20,301,603 $ 13,057,442 Fuel revenues 122,163,443 123,071,900 Less fuel expenses (120,510,181) (109,465,694) Less regulatory liability related to fuel charges (3,953,698) (6,362,045) $ 18,001,167 $ 20,301,603
Unearned Revenue During August 2009, Lakeland Electric received a $3,823,875 termination fee in a natural gas discount settlement with Florida Gas Utility. Lakeland Electric has been amortizing the lump sum settlement as fuel revenue over a period of eight years, which is the approximate length of time that the natural gas discount would have otherwise been maintained. The unamortized portion of the unearned revenue classified as a deferred inflow of resources was $398,321 in fiscal year ending September 30, 2016 and was fully amortized during fiscal year 2017.
Below is a summary of all deferred inflows of resources contained in the Statements of Net Position:
September 30, 2017 2016 Contributions in aid of construction $ 44,979,842 $ 45,591,950 Fuel reserve balance 18,001,167 20,301,603 Unearned revenue - 398,321 Deferred outflows - actuarial (see Note R) 929,482 - Deferred inflows - actuarial (see Note N) 624,849 753,373 $ 64,535,340 $ 67,045,247
NOTE T – LITIGATION
Various suits and claims arising in the ordinary course of operations are pending against Lakeland Electric. While the ultimate effect of such litigation cannot be ascertained at this time, in the opinion of counsel for Lakeland Electric, the liabilities which may arise from such actions would not result in losses which would materially affect the financial position of Lakeland Electric or the results of their operations.
53 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE U - COMMITMENTS AND CONTINGENCIES
Self-Insurance Program: The City of Lakeland has established a self-insurance fund for worker's compensation, general liability, public official’s liability, airport liability, automobile liability, and health insurance. The purpose of this fund is to account for the cost of claims and management fees incurred in conjunction with self-insurance programs. The City makes contributions to the fund based on actuarially computed funding levels. The funding level for Lakeland Electric is determined actuarially based on Lakeland Electric’s share of the total City budget, number of vehicles owned and rented, number of employees and payroll. Contributions in excess of these funding levels are accounted for as residual equity transfers in the paying fund. All claims pending at September 30, 2017, have been accrued in the financial statements of the Self-Insurance Fund. An estimated liability for incurred-but-not-reported claims also has been accrued in the financial statements of the Self-Insurance Fund. This program provides coverage up to a maximum of $400,000 per employee for worker’s compensation claims. The City purchases commercial insurance for claims in excess of this amount up to $1,000,000 per employee. The program provides coverage of up to a maximum of $150,000 per employee for health insurance claims. The City purchases commercial insurance for claims in excess of this amount up to $1,000,000 per employee. Refer to the City of Lakeland’s CAFR for additional disclosures.
Contractual Commitments: Lakeland Electric has contracts for the purchase and delivery of coal requiring the purchase of a minimum number of tons per year.
Lakeland Electric also has contracts for the supply and transportation of natural gas requiring the purchase and transportation of a minimum and a maximum number of cubic feet of natural gas per year.
Lakeland Electric has contracts for the purchase/sale and delivery of electric energy setting a maximum number of megawatts available for purchase.
Lakeland Electric has a long-term service agreement with Siemens/Westinghouse to provide labor, parts, and materials to cover all planned annual outages for McIntosh Unit 5, a 354 MW combined cycle gas turbine unit. In December 2012, the Lakeland City Commission approved changes to the contract, which included a revised payment schedule. During fiscal year 2017, milestone payments of $7,874,013 were made under the contract. The agreement, which is scheduled to run through 2025, includes annual milestone payments, and an economic index escalation factor. Future base payments per the schedule, excluding escalation, are as follows:
Fiscal Year Operating Capital Total 2018 $ 367,320 $ 7,267,796 $ 7,635,116 2019 367,320 6,238,946 6,606,266 2020 367,320 7,267,796 7,635,116 2021 367,320 7,267,796 7,635,116 2022 367,320 7,267,796 7,635,116 2023-2025 1,101,960 38,785,927 39,887,887 $ 2,938,560 $ 74,096,057 $ 77,034,617
2017 Audited Financial Statements - 54 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE U - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lakeland Electric entered into a total of five Solar Energy Participation Agreements (SEPAs) with Sun Edison, LLC from 2009 through 2016. As of September 30, 2017, Sun Edison's former ownership interests were assigned as follows:
Generation Capacity Location (MW) Owner/Operator RP Funding Center 0.25 Longroad Energy Holdings, LLC Airport Phase I 2.25 Longroad Energy Holdings, LLC Airport Phase II 2.75 SE Solar Trust VII West Bella Vista 6.00 Terra Form Utility Solar XIX, LLC Airport Phase III 3.15 NRG DG Lakeland, LLC 14.40
Lakeland Electric has no equity interest in and assumes no financial responsibility for the solar generation systems which are all located on properties owned by the City of Lakeland. Solar energy system installations are as follows: the roof of the RP Funding Center, the runway protection zones of the Lakeland Linder Regional Airport, and 70 acres adjacent to the Sutton Electric Substation. The latest SEPA, Airport Phase III (3.15MWs), became available to purchase power on December 21, 2016. Each SEPA is in effect for twenty-five years at a fixed price per MWh with no price escalation clauses. Lakeland Electric’s purchases under the SEPAs totaled $3,512,157 and $3,242,903 in 2017 and 2016, respectively.
Lakeland Electric participates in federal and state programs that are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies. In the opinion of management, no significant contingent liabilities exist related to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying financial statements for such contingencies. Lakeland Electric had active construction projects as of September 30, 2017. Commitments for construction contracts and other capital outlay as of September 30, 2017 are as follows:
McIntosh unit 5 renewal and replacement projects $ 3,580,574 Other power production plant improvements 393,769 Energy delivery capital projects 1,109,833 Building improvement projects 469,745 Equipment 21,367 $ 5,575,288
55 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE U - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Encumbrances: In addition to the commitments for capital projects, Lakeland Electric had other outstanding purchase orders in the amount of $195,774,570 as of September 30, 2017, of which $190,550,469 represents contracts for the procurement and transportation of fuel and purchased power.
It is management’s opinion that Lakeland Electric is in compliance with the requirements of all the aforementioned contractual commitments.
Contingency: On September 10, 2017, Hurricane Irma inflicted widespread damage to the City of Lakeland's electric system. The total $11.2 million cost of restoration was funded from the Emergency Repair Reserve of Lakeland Electric, including cash paid in 2017 in the amount of $4.4 million, with the remainder paid in the subsequent fiscal year.
As of the date of this report, the City of Lakeland has not entered into an agreement with the Federal Emergency Management Agency or any other agency. Any future financial assistance to Lakeland Electric related to Hurricane Irma storm recovery efforts will be used to replenish the Emergency Repair Reserve. The amount of any possible financial assistance that may be received cannot be determined at this time.
NOTE V – SUBSEQUENT EVENTS
New Accounting Pronouncements:
In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. Split-interest agreements can be created through trusts—or other legally enforceable agreements with characteristics that are equivalent to split-interest agreements—in which a donor transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other beneficiary. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. The provisions of this Statement are effective for the City's fiscal year ending September 30, 2018. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
In November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred and reasonably estimable. The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. This Statement establishes standards of accounting and financial reporting for fiduciary activities. The principal objective of this Statement is to enhance the consistency and comparability of fiduciary activity reporting by state and local governments. This Statement also is intended to improve the usefulness of fiduciary activity information primarily for assessing the accountability of governments in their roles as fiduciaries. The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
In March, 2017, the GASB issued Statement No. 85, Omnibus 2017. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits (OPES). The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. Management has not determined what impact, if any, this GASB statement might have on its financial statements. 2017 Audited Financial Statements - 56 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE V – SUBSEQUENT EVENTS (CONTINUED)
New Accounting Pronouncements (continued):
In March, 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The objective of this statement is to improve consistency in the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements, and to provide financial statement users with additional essential information about debt. The requirements of this statement are effective for reporting periods beginning after June 15, 2018. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
In May, 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues. The primary objective of this Statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources - resources other than the proceeds of refunding debt - are placed in an irrevocable trust for the sole purpose of extinguishing debt prior to its maturity. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for defeased debt. The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Management has not determined what impact, if any, this GASB statement might have on its financial statements.
Approval for Purchase of Gas Turbine Unit and Issuance of Bonds
On April 2, 2018, the Lakeland City Commission approved the purchase of a 125-megawatt hour Calpine combustion turbine unit. The dual-fuel (natural gas and oil) capable unit was originally installed in 2002 in Auburndale, Florida, and has experienced a low number of starts and hours of operation. The contract for purchase has not been fully executed as of the date of this report and Lakeland Electric reserves the right to terminate the agreement if the unit fails to meet testing parameters. The newer unit is expected to replace the 106-megawatt hour McIntosh Unit 2, which was placed in service in 1976. Project completion is anticipated in fiscal year 2020, with a total cost including testing, delivery, and installation of $36.1 million. The cost is expected to be financed by a bond issuance of up to $60 million during fiscal year 2018, with the remaining bond proceeds used to fund other energy supply and delivery projects of Lakeland Electric.
57 - Affordable, Dependable, Sustainable CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEE PENSION FUND SEPTEMPER 30, 2017
SCHEDULE OF LAKELAND ELECTRIC’S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY
Employees' Pension & Retirement System 30-Sep Measurement date: 2016 2015 2014
Lakeland Electric's proportion of the net pension liability 39.6375% 39.7567% 39.7567%
Lakeland Electric's portion of the net pension liability $ 53,534,111 $ 58,777,353 $ 48,261,275
Lakeland Electrics covered payroll $ 31,951,564 $ 31,696,314 $ 31,094,405
Lakeland Electric's proportionate share as a % of covered payroll 167.55% 185.44% 155.21%
Plan fiduciary net position as a % total pension liability 79.69% 77.14% 80.60%
This schedule is intended to show information for 10 years. Additional years will be displayed as they become available.
SCHEDULE OF LAKELAND ELECTRIC’S CONTRIBUTIONS
Employees' Pension & Retirement System
Actuarily Annual Contribution Contributions Year Ended Determined Actual Deficiency Covered as a % of Sep 30th Contribution Contribution (Excess) Payroll Covered Payroll 2017 $ 7,094,755 $ 5,590,678 $ 1,504,077 $ 31,867,657 17.54% 2016 6,035,644 11,436,475 (5,400,831) 31,951,564 35.79% 2015 5,876,490 6,240,823 (364,333) 31,696,314 19.69% 2014 5,596,993 6,120,777 (523,784) 31,094,405 19.68%
This schedule is intended to show information for 10 years. Additional years will be displayed as they become available.
Actuarially determined contribution rates are calculated as of October 1, 2015, two years prior to the end of the fiscal year in which contributions are reported.
The City of Lakeland contributed $15 million to the Employee Pension Fund in fiscal year 2016 as an advance payment against the employer’s share of the unfunded pension liability. In return for this advance payment, the City (as the employer) will receive an annual credit against its regular payment into the fund. As a result of the $15 million advance payment, a contribution deficiency will be reflected in future years.
2017 Audited Financial Statements - 58 CITY OF LAKELAND, FLORIDA DEPARTMENT OF ELECTRIC UTILITIES REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEE PENSION FUND (CONTINUED) SEPTEMPER 30, 2017
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
For more information pertaining to the aforementioned plan refer to the City of Lakeland, Florida stand-alone financial statements for each plan, which can be obtained by contacting the City of Lakeland, Finance Department, City Hall, 228 S. Massachusetts Ave., Lakeland, FL 33801- 5086.
Budgets of the City are adopted on a modified accrual basis of accounting, which is consistent with Generally Accepted Accounting Principles (GAAP). In cases where appropriations and estimated revenues have been revised during the year, budget data represents final authorized amounts. As of September 30, 2017 there were no material violations of budgetary requirements.
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59 - Affordable, Dependable, Sustainable Audited Financial Statements September 30, 2017 and September 30, 2016 Department of Electric Utilities An Enterprise Fund of the City of Lakeland, Florida WWW.LAKELANDELECTRIC.COM
APPENDIX D
FORM OF BOND COUNSEL OPINION
[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D
[FORM OF BOND COUNSEL OPINION]
[Date of Delivery]
City of Lakeland, Florida 228 South Massachusetts Avenue Lakeland, Florida 33801
Re: $______City of Lakeland, Florida Energy System Revenue Bonds, Series 2018
Ladies and Gentlemen:
We have acted as Bond Counsel to the City of Lakeland, Florida (the "Issuer") in connection with the issuance and sale by the Issuer of its $______City of Lakeland, Florida Energy System Revenue Bonds, Series 2018 (the "2018 Bonds").
All terms used herein in capitalized form and not otherwise defined herein shall have the same meanings as ascribed to them under Ordinance No. 4034 enacted by the Issuer on April 7, 1999, as supplemented and amended, including, without limitation, as amended and supplemented by Ordinance No. ____ enacted by the Issuer on September 4, 2018 (collectively, the "Bond Ordinance").
The 2018 Bonds are dated the date of their issuance and delivery thereof, have been issued in fully registered form and bear interest from the date thereof at such rates and are subject to mandatory and optional redemption prior to maturity in the manner and upon the terms and conditions set forth therein and in the Bond Ordinance. The 2018 Bonds finally mature on October 1, 20__.
The 2018 Bonds have been issued for the purpose of (i) acquiring a combustion turbine and financing the costs of installation, improvements and equipping thereof and to make certain capital improvements to the System (as defined below), and (ii) paying costs of issuance related to the 2018 Bonds.
Pursuant to the Bond Ordinance, the principal of, premium, if any, and interest on the 2018 Bonds shall be payable from and secured by a lien upon and pledge of the Revenues of the Issuer's electric utility system (the "System") to the extent and in the manner described in the Bond Ordinance, and by the other items making up the Trust Estate, on a parity with the Issuer's Energy System Revenue and Refunding Bonds, Series 2010, Energy System Revenue and Refunding Bonds, Series 2016 and Variable Rate Energy System Refunding Bond, Series 2017 (collectively, the "Outstanding Bonds") and any other Obligations or Parity Debt hereafter issued or incurred under the Bond Ordinance.
D-1
City of Lakeland, Florida [Date of Delivery] Page 2 ______
In no event shall the 2018 Bonds or any interest or premium thereon be payable from the ad valorem tax revenues of the Issuer. The 2018 Bonds and the obligations evidenced thereby do not constitute a general liability or obligation of the Issuer or the State of Florida or any political subdivision or agency thereof, or a pledge of the faith and credit or taxing power of the Issuer, the State of Florida or any political subdivision or agency thereof. In no event shall the 2018 Bonds or the interest or premium thereon be payable out of any funds or property other than those of the Issuer and then only to the extent of the Trust Estate in the manner and to the extent expressly provided in the Bond Ordinance.
The description of the 2018 Bonds in this opinion and other statements concerning the terms and conditions of the issuance of the 2018 Bonds do not purport to set forth all of the terms and conditions of the 2018 Bonds or of any other document relating to the issuance of the 2018 Bonds, but are intended only to identify the 2018 Bonds and to describe briefly certain features thereof. This opinion shall not be deemed or treated as an offering circular, prospectus or official statement, and is not intended in any way to be a disclosure document used in connection with the sale or delivery of the 2018 Bonds.
In rendering the opinions set forth below, we have examined certified copies of the Bond Ordinance and various other agreements, certificates and opinions delivered in connection therewith, and are relying on the covenants, certifications and agreements of the Issuer contained therein, including, without limitation, the covenant of the Issuer to comply with the applicable requirements contained in Section 103 and Part IV of Subchapter B of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable regulations thereunder, to the extent necessary to preserve the exclusion of interest on the 2018 Bonds from gross income for federal income tax purposes.
We have also examined certified copies of the proceedings of the Issuer, and other information submitted to us relative to the issuance and sale by the Issuer of the 2018 Bonds. In addition, we have examined and relied upon the opinion of Timothy J. McCausland, City Attorney to the Issuer, and such other agreements, certificates, documents and opinions, including certificates and representations of public officials and other officers and representatives of the various parties participating in this transaction, as we have deemed relevant and necessary in connection with the opinions expressed below. We have not undertaken an independent audit, examination, investigation or inspection of the matters described or contained in such agreements, documents, certificates, representations
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City of Lakeland, Florida [Date of Delivery] Page 3 ______
and opinions, and have relied solely on the facts, estimates and circumstances described and set forth therein.
In our examination of the foregoing, we have assumed the genuineness of signatures on all documents and instruments, the authenticity of documents submitted as originals and the conformity to originals of documents submitted as copies.
The opinions set forth below are expressly limited to, and we opine only with respect to, the laws of the State of Florida and the federal income tax laws of the United States of America.
Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof and under existing law:
(i) The Issuer is a municipal corporation of the State of Florida, duly organized and validly existing under the laws of the State of Florida.
(ii) The Bond Ordinance constitutes a valid and legally binding obligation of the Issuer, enforceable in accordance with the laws of the State of Florida.
(iii) The 2018 Bonds are valid and legally binding special obligations of the Issuer, enforceable in accordance with the laws of the State of Florida and the terms of the Bond Ordinance, and are payable solely from and secured by a valid lien upon and pledge of the Trust Estate, in the manner and to the extent provided in the Bond Ordinance, on a parity with the Outstanding Bonds and any other Obligations and Parity Debt issued or incurred under the Bond Ordinance.
(iv) The interest on the 2018 Bonds (which is defined to include any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal income tax purposes. Moreover, such interest will not be treated as an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals or, for taxable years beginning prior to January 1, 2018, on corporations (as defined for federal income tax purposes); however, solely for taxable years beginning prior to January 1, 2018, such interest is taken into account in determining adjusted current
D-3
City of Lakeland, Florida [Date of Delivery] Page 4 ______
earnings for the purpose of computing the alternative minimum tax imposed on certain corporations (as defined for federal income tax purposes).
The opinions expressed in the preceding paragraph are conditioned upon compliance by the Issuer with its covenants relating to certain arbitrage rebate and other tax requirements contained in Section 103 and Part IV of Subchapter B of Chapter 1 of Subtitle A of the Code (including, without limitation, its covenants not to use any proceeds of the 2018 Bonds in a manner that would cause the 2018 Bonds to be classified as private activity bonds under Sections 141(a) and 141(d) of the Code and to comply with the requirements contained in Section 148 of the Code), to the extent necessary to preserve the exclusion of interest on the 2018 Bonds from gross income for federal income tax purposes. Failure of the Issuer to comply with such requirements could cause the interest on the 2018 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2018 Bonds. Other provisions of the Code may give rise to adverse federal income tax consequences to particular bondholders. The scope of this opinion is limited to matters addressed above and no opinion is expressed hereby regarding other federal income tax consequences that may arise due to ownership of the 2018 Bonds. We express no opinion regarding any state tax consequences of acquiring, carrying, owning or disposing of the 2018 Bonds. Owners of the 2018 Bonds should consult their tax advisors regarding any state tax consequences of owning the 2018 Bonds.
Our opinions expressed herein are predicated upon current facts and circumstances, and upon present laws and interpretations thereof, and we assume no affirmative obligation to update the opinions expressed herein if such facts or circumstances, or laws or interpretations thereof, change after the date hereof, even if such changes come to our attention. All opinions as to legal obligations of the Issuer set forth above are subject to and limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws, in each case relating to or affecting the enforcement of creditors' rights, (b) applicable laws or equitable principles that may affect remedies or injunctive or other equitable relief, and (c) judicial discretion which may be exercised in applicable cases to adversely affect the enforcement of certain rights or remedies.
D-4
City of Lakeland, Florida [Date of Delivery] Page 5 ______
The scope of our engagement in relation to the issuance of the 2018 Bonds has been limited solely to the examination of facts and law incident to rendering the opinions expressed herein. We have not been engaged nor have we undertaken to confirm or verify and therefore express no opinion as to the accuracy, completeness, fairness or sufficiency of the Official Statement or any exhibits or appendices thereto or any other offering material relating to the 2018 Bonds and therefore express no opinion herein in regard thereto, except as otherwise set forth in our separate opinion to the underwriter dated as of the date hereof. In addition, we have not been engaged to and therefore express no opinion herein regarding the perfection or priority of the lien on the Trust Estate created by the Bond Ordinance or the compliance by the Issuer or the underwriter with any federal or state registration requirements or securities statutes, regulations or rulings with respect to the offer, sale or distribution of the 2018 Bonds.
Our opinion is limited solely to the matters stated herein, and no opinion is to be implied or is intended beyond the opinions expressly stated herein.
Sincerely yours,
HOLLAND & KNIGHT LLP
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APPENDIX E
FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT
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DISCLOSURE DISSEMINATION AGENT AGREEMENT
This Disclosure Dissemination Agent Agreement (the "Disclosure Agreement"), dated as of September __, 2018, is executed and delivered by the City of Lakeland, Florida (the "Issuer") and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the "Disclosure Dissemination Agent" or "DAC") for the benefit of the Holders (hereinafter defined) of the Bonds (hereinafter defined).
SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings:
"Annual Filing Date" means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the Repositories.
"Annual Financial Information" means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement.
"Annual Report" means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement.
"Audited Financial Statements" means the financial statements (if any) of the Issuer for the prior Fiscal Year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement.
"Bonds" means the Issuer's City of Lakeland, Florida Energy System Revenue Bonds, Series 2018, as described on the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto.
"Certification" means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice required to be submitted to the Repositories under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Issuer and include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies.
"Disclosure Dissemination Agent" means Digital Assurance Certification, L.L.C, acting in its capacity as Disclosure Dissemination Agent hereunder, or any
E-1 successor Disclosure Dissemination Agent designated in writing by the Issuer pursuant to Section 9 hereof.
"Disclosure Representative" means the Issuer's Finance Director, or his or her designee, or such other person as the Issuer shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent.
"EMMA" means the MSRB's Electronic Municipal Market Access System authorized by the SEC in accordance with the Rule. Further information regarding EMMA can be retrieved by visiting the website "http://emma.msrb.org."
"Fiscal Year" means the Issuer's fiscal year, an annual period commencing on October 1 and ending on the immediately succeeding September 30.
"Holder" means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes.
"Information" means the Annual Financial Information, the Audited Financial Statements, the Notice Event notices, and the Voluntary Reports.
"Notice Event" means an event listed in Sections 4(a) of this Disclosure Agreement.
"MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934.
"Official Statement" means that Official Statement prepared by the Issuer in connection with the issuance of the Bonds.
"Repository" means the MSRB, through EMMA.
"Voluntary Report" means the information provided to the Disclosure Dissemination Agent by the Issuer pursuant to Section 7.
SECTION 2. Provision of Annual Reports.
(a) The Issuer shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent not later than 14 days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB, through EMMA, not later than April 30 of each year, commencing with April 30, 2019. Such date and each anniversary thereof is the Annual Filing Date.
E-2 The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 3 of this Disclosure Agreement.
(b) If on the fourteenth (14th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the Issuer of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Issuer will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Notice Event as described in Section 4(a)(xii) has occurred and to immediately send a notice to the MSRB, through EMMA, in substantially the form attached as Exhibit B.
(c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the Annual Filing Date for the Annual Report, a Notice Event described in Section 4(a)(xii) shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB, through EMMA, in substantially the form attached as Exhibit B.
(d) If Audited Financial Statements of the Issuer are prepared but not available prior to the Annual Filing Date, the Issuer shall provide unaudited annual financial statements for such Fiscal Year on or before the Annual Filing Date and, when the Audited Financial Statements are available, the Issuer shall provide an electronic copy of such Audited Financial Statements in a timely manner to the Disclosure Dissemination Agent, accompanied by a Certificate, together with a copy for the Trustee, for filing with the MSRB, through EMMA.
(e) The Disclosure Dissemination Agent shall:
(i) determine the name and address of each Repository each year prior to the Annual Filing Date;
(ii) upon receipt, promptly file each Annual Report received under Section 2(a) with the MSRB, through EMMA;
E-3 (iii) upon receipt, promptly file the unaudited annual financial statements, if any, and each Audited Financial Statement received under Section 2(d) with the MSRB, through EMMA;
(iv) upon receipt, promptly file the text of each disclosure to be made with the MSRB, through EMMA, together with a completed copy of the Material Event Notice Cover Sheet in the form attached as Exhibit C, describing one or more of the following events by checking the appropriate box indicated in such Material Event Notice Cover Sheet:
1. "Principal and interest payment delinquencies," pursuant to Sections 4(c) and 4(a)(i);
2. "Non-Payment related defaults," pursuant to Sections 4(c) and 4(a)(ii);
3. "Unscheduled draws on debt service reserves reflecting financial difficulties," pursuant to Sections 4(c) and 4(a)(iii);
4. "Unscheduled draws on credit enhancements reflecting financial difficulties," pursuant to Sections 4(c) and 4(a)(iv);
5. "Substitution of credit or liquidity providers, or their failure to perform," pursuant to Sections 4(c) and 4(a)(v);
6. "Adverse tax opinions or events affecting the tax-exempt status of the Bonds," pursuant to Sections 4(c) and 4(a)(vi);
7. "Modifications to rights of Bondholders," pursuant to Sections 4(c) and 4(a)(vii);
8. "Bond calls (excluding mandatory sinking fund redemptions)," pursuant to Sections 4(c) and 4(a)(viii);
9. "Defeasances of the Bonds," pursuant to Sections 4(c) and 4(a)(ix);
10. "Release, substitution, or sale of property securing repayment of the Bonds," pursuant to Sections 4(c) and 4(a)(x);
11. "Ratings changes on the Bonds," pursuant to Sections 4(c) and 4(a)(xi);
E-4 12. "Failure to provide annual financial information as required," pursuant to Section 2(b)(ii) or Section 2(c), together with a completed copy of Exhibit B to this Disclosure Agreement;
13. "Other material event notice (specify)," pursuant to Section 7 of this Agreement, together with the summary description provided by the Disclosure Representative.
(v) provide the Issuer evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement.
(f) The Issuer may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Trustee (if any) and the Repositories, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year.
SECTION 3. Content of Annual Reports.
(a) Each Annual Report shall contain Annual Financial Information with respect to the Issuer, that includes only the financial information and operating data of the type included in the tables below which are set forth under "THE SYSTEM" in the Official Statement:
(i) Unit Specific Gross Generation % by Fiscal Year
(ii) Capacity Factors of Lakeland Electric Generating Resources by Fiscal Year
(iii) Existing Generation Facilities
(iv) Historical System Demand and Energy Load
(v) Historical Fuel Utilization As a Percent of Total Generation (MWh)
(vi) Ten Largest Electric Customers as of September 30, 2017
(vii) Historical Fuel Charge and Fuel Reserve Balances
(viii) Rate Comparison as of June 30, 2018
(ix) Rate Comparison Breakdown by Energy and Fuel Components
(x) Historical Rate Changes - Last Ten Years
E-5 (xi) Historical Dividend Payments
(xii) Historical Operating Statistics - Past Five Fiscal Years
(xiii) Historical and Projected Cash Balances (Historical Only)
(xiv) Lakeland Electric Summary of Results of Operations (in thousands)
(b) Audited Financial Statements prepared in accordance with Generally Accepted Accounting Principles (GAAP), as applied to municipal governmental entities, as described in the Official Statement will be included in the Annual Report. Unaudited annual financial statements, prepared in accordance with GAAP, as applied to municipal governmental entities, will be included in the Annual Report to the extent required pursuant to Section 2(d) hereof. Audited Financial Statements (if any) will be provided pursuant to Section 2(d) hereof.
Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the Issuer is an "obligated person" (as defined by the Rule), which have been previously filed with the MSRB or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer will clearly identify each such document so incorporated by reference.
SECTION 4. Reporting of Notice Events.
(a) The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event:
(i) Principal and interest payment delinquencies;
(ii) Non-payment related defaults, if material;
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;
(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;
(v) Substitution of credit or liquidity providers, or their failure to perform;
(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, notices of proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the
E-6 tax status of the Bonds, or other material events affecting the tax status of the Bonds;
(vii) Modifications to rights of Bondholders, if material;
(viii) Bond calls, if material and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the Bonds, if material;
(xi) Rating changes;
(xii) Bankruptcy, insolvency, receivership or similar event of the Issuer or any other obligated person;
(xiii) The consummation of a merger, consolidation, or acquisition involving the Issuer or any other obligated person or the sale of all or substantially all of the assets of the Issuer or any other obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;
(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material; and
(xv) Failure to provide annual financial information as required.
The Issuer shall notify the Disclosure Dissemination Agent in writing upon the occurrence of a Notice Event in a timely manner that allows the Disclosure Dissemination Agent to report the occurrence of the Notice Event with the State Depository (if any) and the MSRB, through EMMA, within ten business days after the occurrence of the Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c) Such notice shall be accompanied with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information.
(b) The Disclosure Dissemination Agent is under no obligation to notify the Issuer or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within five (5) business days of receipt of such notice, instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and
E-7 no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c), together with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information.
(c) If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence, together with a completed Material Event Notice Cover Sheet, with the State Depository (if any) and the MSRB, through EMMA. The Disclosure Dissemination Agent shall make its best efforts to file such information within ten business days after the occurrence of the Notice Event.
SECTION 5. CUSIP Numbers. The Issuer will provide the Dissemination Agent with the CUSIP numbers for (i) new bonds at such time as they are issued or become subject to the Rule and (ii) any Bonds to which new CUSIP numbers are assigned in substitution for the CUSIP numbers previously assigned to such Bonds.
SECTION 6. Additional Disclosure Obligations. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that the failure of the Disclosure Dissemination Agent to so advise the Issuer shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Agreement. The Issuer acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement.
SECTION 7. Voluntary Reports.
(a) The Issuer may instruct the Disclosure Dissemination Agent to file information with the Repositories, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a "Voluntary Report"); provided, however, the Issuer is not obligated to do so.
(b) Nothing in this Disclosure Agreement shall be deemed to prevent or require the Issuer from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice, in addition to that required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice in addition
E-8 to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice.
SECTION 8. Termination of Reporting Obligation. The obligations of the Issuer and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required.
SECTION 9. Disclosure Dissemination Agent. The Issuer has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Issuer may, upon thirty days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC's services as Disclosure Dissemination Agent, whether by notice of the Issuer or DAC, the Issuer agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the Issuer shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent accrued prior to such replacement. The Disclosure Dissemination Agent may resign at any time by providing thirty days' prior written notice to the Issuer and shall reimburse to the Issuer any unearned fees previously paid by the Issuer.
SECTION 10. Submission of Information to the MSRB. The information required to be disclosed pursuant to this Disclosure Agreement shall be submitted to the MSRB through EMMA. Subject to future changes in submission rules and regulations, such submissions shall be provided to the MSRB, through EMMA, in portable document format ("PDF") files configured to permit documents to be saved, viewed, printed and retransmitted by electronic means. Such PDF files shall be word-searchable (allowing the user to search for specific terms used within the document through a search or find function available in a software package).
Subject to future changes in submission rules and regulations, at the time that such information is submitted through EMMA, the Issuer, or any dissemination agent engaged by the Issuer pursuant to Section 9 hereof, shall also provide to the MSRB information necessary to accurately identify:
(A) the category of information being provided;
E-9 (B) the period covered by the Audited Financial Statements and any additional financial information and operating data being provided;
(C) the issues or specific securities to which such submission is related or otherwise material (including CUSIP number, issuer name, state, issue description/securities name, dated date, maturity date, and/or coupon rate);
(D) the name of any Obligated Person other than the Issuer;
(E) the name and date of the document being submitted; and
(F) contact information for the submitter.
SECTION 11. Remedies in Event of Default. In the event of a failure of the Issuer or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders' rights to enforce the provisions of this Agreement shall, to the extent allowed by applicable law, be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties' obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein.
SECTION 12. Duties, Immunities and Liabilities of Disclosure Dissemination Agent.
(a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent's obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Issuer has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the Issuer and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Issuer's failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Issuer has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the Issuer at all times.
E-10 (b) The Disclosure Dissemination Agent may, from time to time, after providing written notice thereof to the Issuer, consult with legal counsel (either in-house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and the Disclosure Dissemination Agent shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Issuer.
SECTION 13. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the Issuer and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds; provided neither the Issuer or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto.
SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Disclosure Dissemination Agent and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity.
SECTION 15. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of Florida (other than with respect to conflicts of laws).
SECTION 16. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
E-11 The Disclosure Dissemination Agent and the Issuer have caused this Disclosure Dissemination Agent Agreement to be executed, on the date first written above, by their respective officers duly authorized.
DIGITAL ASSURANCE CERTIFICATION L.L.C., as Disclosure Dissemination Agent
By:______Name:______Title: Authorized Signatory
CITY OF LAKELAND, FLORIDA, as Issuer
______By:______Attest: City Clerk Name: William Mutz Title: Mayor
Approved as to form and correctness
______City Attorney
E-12 EXHIBIT A
NAME AND CUSIP NUMBERS OF BONDS
Name of Issuer: City of Lakeland, Florida
Obligated Person(s): City of Lakeland, Florida
Name of Bond Issue: $______City of Lakeland, Florida Energy System Revenue Bonds, Series 2018
Date of Issuance: September __, 2018
Date of Official Statement: September __, 2018
CUSIP Numbers:
E-13 EXHIBIT B
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Issuer: City of Lakeland, Florida
Obligated Person: City of Lakeland, Florida
Name of Bond Issue: $______City of Lakeland, Florida Energy System Revenue Bonds, Series 2018
Date of Issuance: September __, 2018
NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Bonds as required by the Disclosure Agreement, dated as of September __, 2018, between the Issuer and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Issuer has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by ______.
Dated: ______
Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Issuer
______cc: Issuer Obligated Person
E-14 EXHIBIT C MATERIAL EVENT NOTICE COVER SHEET
This cover sheet and material event notice should be sent to the Municipal Securities Rulemaking Board, through the Electronic Municipal Market Access System, and the State Information Depository, if applicable, pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D). Issuer's and/or Other Obligated Person's Name: City of Lakeland, Florida Issuer's Six-Digit CUSIP Number: ______or Nine-Digit CUSIP Number(s) of the bonds to which this material event notice relates: ______Number of pages of attached material event notice:_____ Description of Material Events Notice (Check One): 1. ___Principal and interest payment delinquencies 2. ___Non-Payment related defaults 3. ___Unscheduled draws on debt service reserves reflecting financial difficulties 4. ___Unscheduled draws on credit enhancements reflecting financial difficulties 5. ___Substitution of credit or liquidity providers, or their failure to perform 6. ___Adverse tax opinions or events affecting the tax-exempt status of the security 7. ___Modifications to rights of securities holders 8. ___Bond calls 9. ___Defeasances 10. ___Release, substitution, or sale of property securing repayment of the securities 11. ___Rating changes 12. ___Bankruptcy, insolvency, receivership or similar event of the Issuer or any other obligated person 13. ___The consummation of a merger, consolidation, or acquisition involving the Issuer or any other obligated person or the sale of all or substantially all of the assets of the Issuer or any other obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms 14. ___Appointment of a successor or additional trustee or the change of name of a trustee 15. ___Failure to provide annual financial information as required 16. __Other material event notice (specify) ______I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Signature: ______Name:______Title: ______Employer: Digital Assurance Certification, L.L.C. Address:______City, State, Zip Code:______Voice Telephone Number: ______Please print the material event notice attached to this cover sheet in 10-point type or larger, The cover sheet and notice may be submitted electronically to the MSRB through its Electronic Municipal Market Access System, which can be accessed by visiting the website "http://emma.msrb.org." Contact the MSRB at (703) 797-6600 with questions regarding this form or the dissemination of this notice.
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CITY OF LAKELAND, FLORIDA • Energy System Revenue Bonds, Series 2018