Ratings: S&P: "A (stable)" Fitch: "A (stable)" Refunding Issue, Book‑Entry Only See RATINGS In the opinion of Ice Miller LLP, Indianapolis, Indiana, bond counsel, under existing federal statutes, decisions, regulations and rulings, interest on the Series 2014A Bonds (as defined herein) is excludable from gross income for federal income tax purposes under Section 103 of the Code (as defined herein), is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. This opinion is conditioned on the continuing compliance of Citizens (as defined herein) with the Tax Covenants (as defined herein). In the opinion of Ice Miller LLP, Indianapolis, Indiana, bond counsel, under existing statutes, decisions, regulations and rulings, interest on the Series 2014A Bonds is exempt from income taxation in the State of Indiana. See "TAX MATTERS" herein and Appendix E hereto. $35,265,000 City of Indianapolis, Indiana Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A Dated: Date of Delivery The City of Indianapolis, Indiana, acting by and through its Board of Directors for Utilities of its Department of Public Utilities ("Citizens Energy Group" or "Citizens") is issuing its Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A ("Series 2014A Bonds") as described in this Official Statement, for the purpose of (i) currently refunding its Thermal Energy System First Lien Revenue Bonds, Series 2013B (the "Refunded Bonds"), and (ii) funding costs of the refunding and the issuance of the Series 2014 Bonds. The Refunded Bonds were issued for the purpose of (i) funding the costs of necessary betterments, improvements, extensions and additions to the Thermal Energy System operated by Citizens, (ii) funding the 2013/2014 Reserve Account of the Thermal Energy Reserve Fund, and (iii) funding costs of the issuance of the Series 2013B Bonds. The Thermal Energy System is comprised of a regulated Steam Division and an unregulated Chilled Water Division. The Series 2014A Bonds are secured solely by a pledge of the Income and Revenues of Thermal Energy System and certain Funds and Accounts (as hereinafter described, the "Pledged Funds"), subject to the application of such Income and Revenues and Funds and Accounts in accordance with the Indenture (hereinafter defined) securing the Series 2014A Bonds. No other income or revenues of Citizens are available to pay the Series 2014A Bonds, including the income and revenues of Citizens' Gas Utility Distribution System, its Unregulated System, which includes but is not limited to the gas, water and wastewater assets indirectly held by Citizens Resources serving the City of Westfield, Indiana, the Water System, or CWA Authority Inc.'s Wastewater System. Upon the issuance of the Series 2014A Bonds, Citizens' Thermal Energy System First Lien Multi-Mode Revenue Refunding Bonds, Series 2008 Bonds (the "Series 2008 Bonds"), Citizens' Thermal Energy System First Lien Revenue Refunding Bonds, Series 2010A (the "Series 2010A Bonds"), Citizens' Thermal Energy System First Lien Revenue Refunding Bonds, Series 2010B (the "Series 2010B Bonds"), Citizens Thermal Energy System First Lien Revenue Bonds, Series 2013A and the Series 2014A Bonds will be the only First Lien Bonds outstanding under the Indenture. There are no Second Lien Bonds (hereinafter defined) outstanding under the Master Indenture (hereinafter defined). Terms used on this cover page are used with the meanings set forth inside this Official Statement. The Series 2014A Bonds do not constitute a charge against the general credit or taxing power of the City of Indianapolis, Indiana, its utility district as a special taxing district or the State of Indiana or any political subdivision thereof. The Series 2014A Bonds will be fully registered and issued in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), the securities depository for the Series 2014A Bonds. Purchases of the Series 2014A Bonds will be made in book‑entry form only, in the principal amount of $5,000 and any integral multiple of $5,000. Interest on the Series 2014A Bonds will accrue from the date of issuance and will be payable on the Interest Payment Dates described herein. So long as DTC or its nominee is the registered owner of the Series 2014A Bonds, references to Bondholders or registered owners shall mean Cede & Co., and payments of principal of and interest on the Series 2014A Bonds will be made directly to DTC by The Bank of New York Mellon Trust Company, N.A., the Trustee under the Indenture. The Bank of New York Mellon Trust Company, N.A., is also the Registrar and Paying Agent under the Indenture. The Series 2014A Bonds are subject to optional redemption prior to maturity. See THE SERIES 2014A BONDS, Redemption of Series 2014A Bonds. This cover page and inside cover page contain certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Series 2014A Bonds are offered when, as and if issued by Citizens and received by the underwriters subject to certain conditions, including the approval of legality by Ice Miller LLP, Indianapolis, Indiana, bond counsel and special counsel to Citizens, and Gonzalez Saggio & Harlan LLP, Indianapolis, Indiana, special counsel to Citizens. Certain matters will be passed upon for the underwriters by Barnes & Thornburg LLP, Indianapolis, Indiana. It is expected that the Series 2014A Bonds will be ready for delivery to DTC on or about July 23, 2014. J.P. MORGAN CITY SECURITIES CORPORATION LOOP CAPITAL MARKETS MORGAN STANLEY
Dated: July 16, 2014
Selected Information about $35,265,000 City of Indianapolis, Indiana Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A
Term Bonds
CUSIP Maturity Principal Interest Number† (10/1) Amount Rate Yield (Base: 455393)
2015 $ 840,000 2.000 0.300 % EC8 2016 1,170,000 3.000 0.580 ED6 2017 1,205,000 4.000 0.980 EE4 2018 1,255,000 4.000 1.390 EF1 2019 1,300,000 5.000 1.780 EG9 2020 1,365,000 5.000 2.110 EH7 2021 1,435,000 5.000 2.400 EJ3 2022 1,505,000 5.000 2.670 EK0 2023 1,585,000 5.000 2.880 EL8 2024 1,660,000 5.000 3.040 EM6 2025 1,745,000 5.000 3.180* EN4 2026 1,830,000 5.000 3.330* EP9 2027 1,925,000 5.000 3.410* EQ7 2028 2,020,000 5.000 3.490* ER5 2029 2,120,000 5.000 3.550* ES3 2030 2,225,000 5.000 3.630* ET1 2031 2,340,000 5.000 3.700* EU8 2032 2,455,000 5.000 3.780* EV6 2033 2,580,000 5.000 3.840* EW4 2034 2,705,000 4.000 4.060 EX2
The Series 2014A Bonds maturing on or after October 1, 2025, are subject to optional redemption prior to maturity on any date on or after October 1, 2024, at the option of Citizens, in whole or in part at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.
* Yield to first call date of October 1, 2024. † Copyright© 2014; American Bankers Association. CUSIP data herein is provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers are provided for convenience and reference only. Citizens and the Underwriters are not responsible for the selection or use of the CUSIP numbers, nor is any representation made as to their correctness on the Series 2014A Bonds or as indicated above.
No dealer, broker, salesman or other person has been authorized by Citizens or the underwriters to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2014A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.
The information set forth in this Official Statement has been obtained from Citizens and other sources which are believed to be reliable, but it is not to be construed as a representation by the underwriters.
The underwriters have provided the following sentence for inclusion in this Official Statement. The underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the underwriters do not guarantee the accuracy or completeness of such information.
The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale made under this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of Citizens since the date hereof.
IN CONNECTION WITH THE OFFERING OF THE SERIES 2014A BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2014A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE SERIES 2014A BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION OF CITIZENS AND THE THERMAL ENERGY SYSTEM, HEREINAFTER DESCRIBED, AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SERIES 2014A BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, NO ONE OTHER THAN CITIZENS HAS CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in Securities and Exchange Commission Rule 15c2-12, as amended, Citizens will enter into a continuing disclosure undertaking agreement with The Bank of New York Mellon Trust Company, N.A., as counterparty. For a description of such continuing disclosure undertaking agreement, see APPENDIX D, CONTINUING DISCLOSURE UNDERTAKING AGREEMENT.
Forward Looking Information
Some information discussed in this Official Statement (except historical information) is forward looking. For a discussion of factors which might affect such information and which pertain to this entire Official Statement, see CERTAIN MATTERS POTENTIALLY AFFECTING THE THERMAL ENERGY SYSTEM – Forward- Looking Statements.
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TABLE OF CONTENTS
INTRODUCTION ...... 1 Purpose ...... 1 Bonds, Proceeds ...... 1 Terms...... 2 Authority, Indenture ...... 2 Parity First Lien Bonds; No Second Lien Bonds ...... 2 Security for Bonds – Pledged Funds ...... 2 No Mortgage ...... 3 Limited Obligations ...... 3 Primary Focus ...... 3 Summaries ...... 3 Definitions ...... 3 Control ...... 3 PLAN OF FINANCE ...... 4 ESTIMATED SOURCES AND USES OF FUNDS ...... 4 SECURITY FOR BONDS ...... 5 Limited Obligations ...... 5 Pledged Funds ...... 5 Application of Pledged Funds ...... 5 Income and Revenues of Thermal Energy System - Covenant ...... 6 Thermal Energy System Reserve Fund ...... 7 ADDITIONAL BONDS ...... 8 First Lien Bonds ...... 8 Second Lien Bonds ...... 9 Conditions – Exceptions ...... 9 Special First Lien Bonds ...... 9 Refunding Bonds ...... 10 Bonds for Emergencies ...... 10 Forms...... 10 Financing Contracts ...... 11 OUTSTANDING BONDS ...... 11 REVENUE AVAILABLE TO PAY OUTSTANDING BONDS ...... 12 TOTAL CAPITALIZATION ...... 13 DEBT SERVICE ...... 14 THE SERIES 2014A BONDS ...... 15 General ...... 15 Authorized Denominations ...... 15 Book-Entry Only ...... 15 Redemption of Series 2014A Bonds ...... 17 CITIZENS ENERGY GROUP ...... 18 Organization Structure ...... 18 Powers ...... 21 History ...... 21 Management ...... 22 Taxes ...... 24 Insurance ...... 24 Operation ...... 24
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THERMAL ENERGY SYSTEM ...... 25 Organization, Operation ...... 25 Steam Division ...... 25 Chilled Water Division ...... 34 Steam Division and Chilled Water Division ...... 40 CERTAIN MATTERS POTENTIALLY AFFECTING THE THERMAL ENERGY SYSTEM ...... 43 Series 2014A Bonds are Limited Obligations ...... 43 Environmental Regulation ...... 43 Catastrophic Loss and Terrorist Attacks ...... 43 Insurance ...... 44 IURC Regulation ...... 44 Additional Factors ...... 44 Forward-Looking Statements ...... 45 FINANCIAL INFORMATION ...... 45 LITIGATION ...... 45 LEGALITY FOR INVESTMENT ...... 46 TAX MATTERS ...... 46 ORIGINAL ISSUE DISCOUNT ...... 47 AMORTIZABLE BOND PREMIUM ...... 48 LEGAL OPINIONS, ENFORCEABILITY OF REMEDIES ...... 48 RATINGS ...... 48 UNDERWRITING ...... 49 CONTINUING DISCLOSURE ...... 49 CERTIFICATION OF INFORMATION ...... 50 CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS ...... 50 MISCELLANEOUS ...... 51
APPENDIX A SELECTED FINANCIAL DATA APPENDIX B OTHER CITIZENS OPERATIONS APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE APPENDIX D FORM OF CONTINUING DISCLOSURE UNDERTAKING AGREEMENT APPENDIX E FORM OF OPINION OF BOND COUNSEL APPENDIX F DEFINITIONS
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OFFICIAL STATEMENT
$35,265,000 CITY OF INDIANAPOLIS, INDIANA Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A
INTRODUCTION
Purpose
The purpose of this Official Statement, which includes the cover page and all the appendices, is to provide information about the:
(a) City of Indianapolis, Indiana Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A ("Series 2014A Bonds");
(b) security for and sources of payment of the Series 2014A Bonds, including the Thermal Energy System Trust Indenture dated as of January 1, 2001, as amended by the First Amendment to Thermal Energy System Trust Indenture dated as of October 1, 2010 (the "Master Indenture"), as previously supplemented and amended, including by the Series 2013 Thermal Energy System Supplemental Indenture dated as of July 1, 2013 (the Series 2013 Supplemental Indenture"), as supplemented by the Series 2014A Thermal Energy System Supplemental Indenture dated as of July 1, 2014 (the "Series 2014A Supplemental Indenture"), each between the City of Indianapolis, acting by and through its Board of Directors for Utilities (the "Board") of its Department of Public Utilities d/b/a Citizens Energy Group ("Citizens" or "Citizens Energy Group"), and The Bank of New York Mellon Trust Company, N.A. (as successor in interest to Fifth Third Bank, Indiana), as trustee (the "Trustee"); and
(c) the steam assets and the chilled water assets owned and operated by Citizens as a combined thermal energy system (the "Thermal Energy System"), comprised of a Steam Division (the district heating system) and a Chilled Water Division.
Operating Expenses of the Thermal Energy System will be paid before the Series 2014A Bonds are paid.
This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and all the appendices, as well as the laws and agreements, documents, instruments and other papers described, referred to, or summarized in this Official Statement. A full review should be made of the entire Official Statement. The offering of the Series 2014A Bonds to potential investors is made only by means of the entire Official Statement.
Bonds, Proceeds
The Series 2014A Bonds are the seventh series of obligations issued by Citizens under the Master Indenture. The proceeds of the Series 2014A Bonds will be used to: (i) currently refund the City of Indianapolis, Indiana Thermal Energy System First Lien Revenue Bonds, Series 2013B (the "Refunded Bonds"), and (ii) fund the costs of the refunding and the issue of the Series 2014A Bonds. The Refunded Bonds were issued to: (i) fund the costs of necessary betterments, improvements, extensions and additions to the Thermal Energy System held in trust and operated by Citizens, (ii) fund the Series 2013/2014 Reserve Account of the Thermal Energy Reserve Fund (the "2013/2014 Reserve Fund") and (iii) fund costs of issuance of the Refunded Bonds. The Series 2014A Bonds are First Lien Bonds under the Master Indenture and will be paid on a parity basis with all First Lien Bonds issued under the Master Indenture with respect to the Income and Revenues of the Thermal Energy System.
Parity additional bonds, certificates, commercial paper, notes, obligations, and other evidences of indebtedness may be issued under the Master Indenture. Such indebtedness may be issued as First Lien Bonds or Second Lien Bonds, and all are Bonds under the Master Indenture. See ADDITIONAL BONDS.
Terms
In addition to the terms defined above, many other terms are used in this Official Statement, including those defined in APPENDIX F, DEFINITIONS.
Authority, Indenture
The Series 2014A Bonds are being issued pursuant to (a) applicable law, including Indiana Code 8-1-11.1 and Indiana Code 5-1-5 and 5-1-6 (collectively, the "Act"), (b) resolutions adopted by the Board on October 18, 2000, and May 14, 2014, and (c) the Master Indenture, as supplemented by the Series 2014A Supplemental Indenture and with the Master Indenture, as supplemented, the "Indenture"), authorizing the issuance of the Series 2014A Bonds.
Parity First Lien Bonds; No Second Lien Bonds
Upon the issuance of the Series 2014A Bonds, the Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds and the Series 2013A Bonds, will remain outstanding under the Master Indenture as the only First Lien Bonds outstanding under the Indenture. There are no Second Lien Bonds currently outstanding under the Indenture. The Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds and the Series 2013A Bonds were issued as First Lien Bonds and, as of June 1, 2014, were outstanding in the principal amount of $166,395,000. Additional First Lien Bonds and Second Lien Bonds may be issued under the Master Indenture.
Security for Bonds – Pledged Funds
Citizens created the Master Indenture to authorize revenue bonds and other obligations secured only by the Income and Revenues of Thermal Energy System (hereinafter defined) to (a) finance and refinance the acquisition of the steam assets and the chilled water assets, and (b) finance and refinance property comprising the Thermal Energy System, including enlargements, extensions and additions to such property, and working capital for the Thermal Energy System. See SECURITY FOR BONDS.
Citizens determines the Income and Revenues and Operating Expenses of Thermal Energy System in accordance with GAAP, except as provided in the respective definitions.
The Series 2014A Bonds are secured by a pledge of the Income and Revenues of Thermal Energy System and Funds and Accounts under the Master Indenture (as further described herein, the "Pledged Funds"). Payment of the Series 2014A Bonds is subject to payment of Operating Expenses of Thermal Energy System, including Costs of Credit Facilities.
Pursuant to the Series 2013 Supplemental Indenture, a Series 2013 Account of the Thermal Energy System Reserve Fund (the "2013/2014 Reserve Account") was formed for the Series 2013 Bonds and any other Covered Bonds selected by Citizens. Citizens will elect to secure the Series 2014A Bonds with the 2013/2014 Reserve Account and the Series 2014A Bonds will be Covered Bonds. Citizens has previously deposited into the 2013/2014 Reserve Account in connection with the issuance of the Series 2013A Bonds and the Refunded Bonds an amount ($3,845,909) sufficient to equal the Reserve Requirement for the Series 2013A Bonds and the Series 2014A Bonds, which is the least of (i) 10% of the principal amount of the Series 2013A Bonds and the Series 2014A Bonds; (ii) the maximum annual Aggregate Adjusted Bond Service Requirement on the Series 2013A Bonds and the Series 2014A Bonds; and (iii) 125% of the average annual Aggregate Adjusted Bond Service Requirement on the Series 2013A Bonds and the Series 2014A Bonds. Upon the issuance of the Series 2014A Bonds, the 2013/2014 Reserve Requirement (the "Series 2013/2014 Reserve Requirement") will be $3,491,125. As a result, $354,784 of the amount in the Series 2013/2014 Reserve Account will be used to currently refund the Refunded Bonds. With respect to any additional Covered Bonds which Citizens may elect to secure with the Series 2013/2014 Reserve
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Account, Citizens shall deposit an amount sufficient, together with the amounts then on deposit therein to equal the Reserve Requirement for the Series 2013A Bonds, the Series 2014A Bonds and such Covered Bonds. The Series 2013A Bonds and the Series 2014A Bonds are only secured by the Series 2013/2014 Account with respect to the Thermal Energy System Reserve Fund. No other First Lien Bonds, other than the Covered Bonds, will be secured by the Series 2013/2014 Account.
The Series 2014A Bonds do not constitute a charge against the general credit or taxing power of the City of Indianapolis, its utility district as a special taxing district, the State of Indiana or any political subdivision thereof or Citizens' Gas Utility System, including its Gas Utility Distribution System, the Unregulated System, the Water System, CWA Authority Inc.'s Wastewater System or the water and wastewater assets indirectly held by Citizens Resources (hereinafter defined) serving the City of Westfield, Indiana, as further described herein.
No Mortgage
Owners of the Series 2014A Bonds will not receive any mortgage or lien on, or security interest in, the Thermal Energy System.
Limited Obligations
The Series 2014A Bonds are limited obligations of Citizens. The Series 2014A Bonds do not constitute a charge against the general credit or taxing power of the City of Indianapolis, Indiana (the "City") its utility district as a special taxing district, the State of Indiana or any political subdivision thereof or Citizens' Gas Utility System, including its Gas Utility Distribution System, the Unregulated System (which includes but is not limited to the gas, water and wastewater assets indirectly held by Citizens Resources serving the City of Westfield, Indiana, as further described herein), the Water System, or CWA Authority Inc.'s Wastewater System.
Primary Focus
This Official Statement's focus is the Thermal Energy System and the Income and Revenues of the Thermal Energy System, which are the primary security for the Series 2014A Bonds. The appendices to this Official Statement provide additional information about Citizens' other operations. Investors should not expect any non- Thermal Energy System revenues to be available to pay the Series 2014A Bonds.
Summaries
The summaries of and references to the laws and the documents, instruments and other papers referred to in this Official Statement do not purport to be complete and are qualified in their entirety by reference to the full text of each such law or document, instrument or other paper. See, for example, APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, APPENDIX D, FORM OF CONTINUING DISCLOSURE UNDERTAKING AGREEMENT and APPENDIX F, DEFINITIONS.
Definitions
The Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds, the Series 2013A Bonds, the Series 2014A Bonds and any Additional First Lien Bonds issued under the Master Indenture are referred to as the "First Lien Bonds." Certain terms used in this Official Statement are defined in Appendices C and F.
Control
The Board organized the Thermal Energy System, including a regulated Steam Division and an unregulated Chilled Water Division, to control and operate the steam assets and the chilled water assets acquired by the City on November 20, 2000. The Board has the exclusive government, management, regulation and control of the Thermal Energy System.
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Substantial information about the Thermal Energy System is set forth under the heading "THERMAL ENERGY SYSTEM." Citizens' most recent annual financial information is located at http://www.citizensenergygroup.com/pdf/2013AnnualReport_Financials.pdf and the interim financial information is located at http://www.citizensenergygroup.com/pdf/Q22014Report.pdf. In addition, Citizens' most recent annual financial information and interim financial information are available to the public on the Municipal Securities Rulemaking Board's Internet Web site found at www.emma.msrb.org. See FINANCIAL INFORMATION.
The information contained under this INTRODUCTION caption is not a summary of the Appendices hereto. The information is only a brief description of and guide to, and is qualified by, the more complete and detailed information contained in such Appendices and the laws and agreements, documents, instruments and other papers described, referred to, or summarized in such Appendices. The offering of the Series 2014A Bonds is made only by means of this entire Official Statement, including all Appendices.
The assets and properties of Citizens' Gas Utility System, including its Gas Utility Distribution System, its Unregulated System, the Water System, and CWA Authority Inc.'s Wastewater System are not part of the Thermal Energy System, and the Income and Revenues of the Gas Utility System, including the Income and Revenues of the Gas Utility Distribution System, the gross revenues of the Unregulated System, the gross revenues of the Water System, the gross revenues of the Wastewater System and the gross revenues of the assets held directly or indirectly by Citizens Resource are not pledged to the payment of the Series 2014A Bonds.
PLAN OF FINANCE
A portion of the proceeds of the Series 2014A Bonds (the "Refunding Proceeds") will be used to refund the Refunded Bonds. In addition, other Series 2014A Bond proceeds will be used to pay costs of issuance and other expenses in connection with the issuance and sale of the Series 2014A Bonds and the refunding of the Refunded Bonds.
The Refunding Proceeds will be deposited with Citizens pursuant to the Indenture in the "Series 2013B Redemption Account of the First Lien Bond Fund" and set apart from all other moneys therein to be used to redeem the Refunded Bonds on August 1, 2014. The refunding of the Refunded Bonds is a current refunding for federal tax purposes.
ESTIMATED SOURCES AND USES OF FUNDS
The following is a summary of the estimated sources and uses of funds, including proceeds of the Series 2014A Bonds (there is no accrued interest):
Sources of Funds Series 2014A Bond Proceeds: Par Amount $35,265,000.00 Net Original Issue Premium 4,124,519.05 Release from Series 2013/2014 Reserve Account 354,784.00 TOTAL $39,744,303.05
Uses of Funds Current Refunding of Refunded Bonds $39,335,484.00 Additional Delivery Date Expenses: Costs of Issuance (including Underwriters' Discount) 408,819.05 TOTAL $39,744,303.05
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SECURITY FOR BONDS
Limited Obligations
The Series 2014A Bonds are limited obligations of Citizens, payable solely from the sources and subject to the terms described in this Official Statement. The Series 2014A Bonds are First Lien Bonds under the Indenture on parity with the Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds and the Series 2013A Bonds.
The Series 2014A Bonds are not, and shall never constitute, a charge against the general credit or taxing power of the City, its utility district as a special taxing district, the State of Indiana or any political subdivision thereof or Citizens Gas Utility System, including its Gas Utility Distribution System, the Unregulated System, or the Water System, CWA Authority Inc.'s Wastewater System or the water and wastewater assets indirectly held by Citizens Resources serving the City of Westfield, Indiana.
Pledged Funds
"Income and Revenues of Thermal Energy System" means all revenues and other income of Citizens from the ownership or operation of the Thermal Energy System entered on Citizens' books of account for the Thermal Energy System in accordance with GAAP, including revenues from Thermal Contracts (unless designated as contributions in aid of construction); but excluding (a) extraordinary items; (b) income on moneys or securities in the Thermal Energy System Construction Fund; and (c) income on Escrow Securities.
The Series 2014A Bonds are secured by a pledge of the Pledged Funds under the Master Indenture, subject to application as provided in the Master Indenture as described below and in APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, and APPENDIX F, DEFINITIONS. "Pledged Funds" means for the Series 2014A Bonds: (i) proceeds of the sale of the Series 2014A Bonds; (ii) the Income and Revenues of Thermal Energy System; and (iii) all moneys and securities in the Thermal Energy System General Fund, the First Lien Bond Fund, the Second Lien Bond Fund, the Thermal Energy System Derivative Obligations Fund, the Thermal Energy System Reserve Fund (which as to the Series 2014A Bonds, will constitute the 2013/2014 Reserve Account), the Thermal Energy System Capital Expenditures Fund, the Thermal Energy System Construction Fund and the Thermal Energy System Working Capital Fund, including in each instance (except the Thermal Energy System Construction Fund) the income from the investment thereof. "Pledged Funds" do not include contributions in aid of construction, including proceeds of such contributions and investment earnings from such contributions. See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Thermal Energy System Reserve Fund.
Application of Pledged Funds
Subject to the further provisions of the Master Indenture, the Income and Revenues of Thermal Energy System will be used, as follows in the order of priority specified:
1. Operating Expenses Operating Expenses of Thermal Energy System, including Costs of Credit Facilities
2. First Lien Bonds Interest, principal and Amortization Installments (sinking fund redemption payments) on the Series 2014A Bonds and other First Lien Bonds
3. Reimbursement Obligations Reimbursement Obligations related to First Lien Bonds
4. Second Lien Bonds Interest, principal and Amortization Installments on Second Lien Bonds
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5. Reimbursement Obligations Reimbursement Obligations related to Second Lien Bonds
6. Reserve Requirement Amounts necessary to establish and maintain the Reserve Requirement of one or more Series of Bonds for which an account of the Thermal Energy System Debt Service Reserve Fund has been created
7. Derivative Obligations Amounts necessary to pay Derivative Obligations
8. Capital Expenditures Amounts necessary to fund capital expenditures for the Thermal Energy Requirements System
9. Balance For other purposes, as permitted by the Master Indenture
See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Application of Income, Revenues.
"Reimbursement Obligations" means obligations owed to a Credit Provider and related to a Credit Facility for payment of principal and purchase or tender price of and interest on a series of Bonds, but Reimbursement Obligations are not "Costs of Credit Facilities."
"Derivative Obligations" means obligations of Citizens resulting from a Derivative Transaction related to a series of Bonds. "Derivative Transaction" means for, or relating to, a series of Bonds or a portion of such series of Bonds (a) a basis swap, a forward rate agreement, an interest rate hedge, an interest option or rate agreement, an interest rate cap agreement, an interest rate collar agreement, an interest rate floor agreement, an interest rate swap agreement or any other related or similar agreement, including an option to enter into any agreement described in this definition, (b) any combination of agreements described above, and (c) a master agreement for an agreement or a combination of agreements described above, together with all supplements and amendments to such master agreement. There are currently no Derivative Obligations outstanding in connection with any Thermal Energy System Bonds.
Income and Revenues of Thermal Energy System - Covenant
Income and Revenues of Thermal Energy System. Citizens covenants that the Income and Revenues of Thermal Energy System in each Fiscal Year will be not less than the sum of:
(i) Operating Expenses of Thermal Energy System during such Fiscal Year; and
(ii) an amount equal to the Aggregate Adjusted Bond Service Requirement on the Bonds for such Fiscal Year; and
(iii) the amount, if any, to be paid from the Thermal Energy System General Fund during such Fiscal Year into the Thermal Energy System Reserve Fund during such Fiscal Year, relating to all the Bonds.
If for any Fiscal Year the Income and Revenues of Thermal Energy System are less than the sum of items (i), (ii) and (iii) described above, and the Board has not deposited into the Thermal Energy System General Fund Income and Revenues of Thermal Energy System sufficient to meet such test, then the Board shall take any appropriate action, under the law and within its power, to generate for Fiscal Years thereafter Income and Revenues of Thermal Energy System in the amounts required for such Fiscal Years. Such actions may include, but shall not be limited to, (a) the filing of a proceeding before the Commission seeking additional Steam Division revenues or other relief and (b) the Board taking any other action which would (1) increase Income and Revenues of Thermal Energy System or (2) decrease Operating Expenses of Thermal Energy System. If any of such actions permits
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reasonable administrative or judicial review under the laws of the State of Indiana or the United States of America, such review shall be taken; provided, however, that additional filings seeking increased Steam Division revenues or other relief before the Commission shall not be required so long as al1 issues of law or fact similar to that which would be raised by such additional filing is then pending or on appeal or such an issue of law or fact was previously determined adversely on appeal.
If for any two consecutive Fiscal Years, the Income and Revenues of Thermal Energy System are less than the sum of items (i), (ii) and (iii) described above for each such Fiscal Year, then the Board shall (a) notify the Trustee in writing of the failure, and (b) retain a Consulting Engineer to conduct a study of the Thermal Energy System and prepare written recommendations to the Board about how Citizens might generate for Fiscal Years thereafter Income and Revenues of Thermal Energy System in the amounts required for such Fiscal Years. Upon receipt of such written recommendations from a Consulting Engineer the Board shall promptly file a copy of the same with the Trustee.
Failure by the Board to comply with the covenant relating to the Income and Revenues of the Thermal Energy System described above for any Fiscal Year or any two consecutive Fiscal Years, as applicable, shall not constitute an Event of Default so long as Citizens is acting in accordance with the Master Indenture, as described above.
Income and Revenues of Thermal Energy System in any Fiscal Year in an amount in excess of the amounts required for such Fiscal Year as described above, shall not be credited against the requirement for such aggregate amount for any subsequent Fiscal Year or Fiscal Years.
Statutory Covenant. Subject to approval of the Indiana Utility Regulatory Commission (the "IURC"), Citizens covenants and agrees to collect rates, fees and charges for the provision of steam service (not chilled water, which is not regulated). Under and pursuant to Indiana Code 8-1.5-3-8, Citizens' rates and charges for steam service must be nondiscriminatory, reasonable and just. Rates and charges for chilled water service are not subject to regulation by the IURC.
Thermal Energy System Reserve Fund
The Series 2013/2014 Reserve Account has been formed for the Series 2013A Bonds and by election of Citizens, pursuant to the provisions of the Indenture, the Series 2014A Bonds are also secured thereby. The Series 2014A Bonds constitute "Covered Bonds" under the Indenture. Citizens has previously deposited into the 2013/2014 Reserve Account in connection with the issuance of the Series 2013A Bonds and the Refunded Bonds an amount ($3,845,909) sufficient to equal the Series 2013/2014 Reserve Requirement. Upon the issuance of the Series 2014A Bonds, the 2013/2014 Reserve Requirement for the Series 2013A Bonds and the Series 2014A Bonds (the "Secured Bonds") will be $3,491,125. As a result, $354,784 of the amount in the Series 2013/2014 Reserve Account will be used to currently refund the Refunded Bonds. With respect to any additional Covered Bonds which Citizens may elect to secure with the Series 2013 Reserve Account, Citizens shall deposit an amount sufficient, together with the amounts then on deposit therein, to equal the Reserve Requirement for the Series 2013A Bonds, the Series 2014A Bonds and such Covered Bonds to the Series 2013/2014 Account of the Thermal Energy System Reserve Fund, in addition to the amounts deposited for the Reserve Requirement for the Secured Bonds. The Secured Bonds are currently only secured by the Series 2013 Account with respect to the Thermal Energy System Reserve Fund. No other First Lien Bonds, other than the Covered Bonds, will be secured by the Series 2013/2014 Account.
Citizens has covenanted in the Master Indenture, through the applicable Supplemental Indenture, to deposit and maintain in the respective account of the Thermal Energy System Reserve Fund for each Series of Bonds for which an account has been established, moneys (or a surety bond, insurance policy or letter of credit as permitted by the Master Indenture) in an amount equal to the Reserve Requirement for such series of Bonds. Such Supplemental Indenture may also specify that no account of the Thermal Energy System Reserve Fund will be created for such Bonds.
See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Thermal Energy System Reserve Fund.
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ADDITIONAL BONDS
First Lien Bonds
Subject to certain conditions, Citizens may issue additional First Lien Bonds payable from and secured by the Pledged Funds on a parity with the Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds, the Series 2013A Bonds, the Series 2014A Bonds and other First Lien Bonds as to the lien on the Income and Revenues of the Thermal Energy System. No series of First Lien Bonds may be issued if an Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture. Reimbursement Obligations related to a series of First Lien Bonds may be evidenced by a First Lien Bond, but whether or not so evidenced, Reimbursement Obligations are deemed to be one and the same obligation under the Master Indenture as the related series of First Lien Bonds, except as specifically provided in the Master Indenture. See, for example, SECURITY FOR BONDS - Application of Pledged Funds.
Notwithstanding anything in this Official Statement to the contrary, Citizens also may issue not to exceed $10.0 million of Special First Lien Bonds without complying with all the conditions precedent to the issuance of First Lien Bonds. See Special First Lien Bonds below.
The Trustee shall not authenticate or deliver a series of First Lien Bonds (other than the Special First Lien Bonds), unless for each such series, in addition to the other items required by the Master Indenture, Citizens delivers each of the following to the Trustee:
1. A report of the Chief Engineering Officer, the Senior Vice President, Operations, or a Consulting Engineer which shall (A) describe the Project financed or to be financed from the proceeds of the First Lien Bonds of such series, or from Second Lien Bonds or Subordinate Obligations to be refinanced from the proceeds of such First Lien Bonds, and (B) estimate the Date of Commercial Operation or projected completion date of such Project.
2. A certificate of the Chief Financial Officer certifying that the Account of the Thermal Energy System Reserve Fund created for such First Lien Bonds is Fully Funded or, upon issuance of the First Lien Bonds of such series, will be Fully Funded.
3. A certificate of the Chief Financial Officer certifying that:
(i) as determined from the latest audited or unaudited financial statements of Citizens, the accrued Income and Revenues of Thermal Energy System were not less than 100 percent of the sum of items (i), (ii) and (iii) described above under "SECURITY FOR BONDS - Income and Revenues of Thermal Energy System – Covenant" during the period of twelve consecutive months out of 18 consecutive months ending not more than 60 days prior to the month in which the Chief Financial Officer expects such series of First Lien Bonds to be issued, as if such twelve consecutive months were a Fiscal Year; and
(ii) the Income and Revenues of Thermal Energy System for the Projected Test Period, after payment of Operating Expenses of Thermal Energy System for the Projected Test Period, will not be less than the sum of (a) 100 percent of the Aggregate Adjusted Bond Service Requirement for all series of Bonds then outstanding and (b) 120 percent of the estimated maximum annual Adjusted Bond Service Requirement for the series of First Lien Bonds to be issued.
See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Additional Conditions for Issuance and Special First Lien Bonds.
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Second Lien Bonds
Subject to certain conditions, Citizens may issue Second Lien Bonds payable from and secured by the Pledged Funds on a parity with other Second Lien Bonds. No series of Second Lien Bonds may be issued if an Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture. Reimbursement Obligations related to a series of Second Lien Bonds may be evidenced by a Second Lien Bond, but whether or not so evidenced, Reimbursement Obligations are deemed to be one and the same obligation under the Master Indenture as the related series of Second Lien Bonds, except as specifically provided in the Master Indenture. See, for example, SECURITY FOR BONDS - Application of Pledged Funds.
The Trustee shall not authenticate or deliver a series of Second Lien Bonds, unless for each such series, in addition to the other items required by the Master Indenture, Citizens delivers each of the following to the Trustee:
1. A report of the Chief Engineering Officer, the Senior Vice President, Operations, or a Consulting Engineer which shall (A) describe the Project financed or to be financed from the proceeds of the Second Lien Bonds of such series, or from First Lien Bonds or Subordinate Obligations to be refinanced from the proceeds of such Second Lien Bonds and (B) estimate the Date of Commercial Operation or projected completion date of such Project;
2. A certificate of the Chief Financial Officer certifying that the Account of the Thermal Energy System Reserve Fund created for such Second Lien Bonds is Fully Funded or, upon issuance of the Second Lien Bonds of such series, will be Fully Funded; and
3. A certificate of the Chief Financial Officer certifying that:
(i) as determined from the latest audited or unaudited financial statements of Citizens, the accrued Income and Revenues of Thermal Energy System were not less than 100 percent of the sum of items (i), (ii) and (iii) described above under "SECURITY FOR BONDS - Income and Revenues of Thermal Energy System - Covenant" during the period of twelve consecutive months out of 18 consecutive months ending not more than 60 days prior to the month in which the Chief Financial Officer expects such series of Second Lien Bonds to be issued, as if such twelve consecutive months were a Fiscal Year; and
(ii) the Income and Revenues of Thermal Energy Systems after (1) payment of Operating Expenses of Thermal Energy System for the Projected Test Period and (2) payment or provision for payment of the Aggregate Adjusted Bond Service Requirement for all series of First Lien Bonds for the Projected Test Period, will not be less than (i) 100 percent of the Aggregate Adjusted Bond Service Requirement for all series of Second Lien Bonds then outstanding and (ii) unless a Supplemental Indenture provides for a lesser percentage (but in no event lower than 100 percent), 110 percent of the estimated maximum annual Adjusted Bond Service Requirement for the series of Second Lien Bonds to be issued.
Conditions – Exceptions
The above-described conditions to issuance are not applicable to the issuance of the Special First Lien Bonds, including any Reimbursement Obligations relating to such Special First Lien Bonds. See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Additional Conditions for Issuance and Special First Lien Bonds.
Special First Lien Bonds
Citizens may issue at any time, without complying with the above-described conditions to issuance, one or more series of Special First Lien Bonds and any Reimbursement Obligations relating to the Special First Lien Bonds and use the proceeds thereof for any purpose permitted by the Master Indenture, including funding capital
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expenditures and working capital. Special First Lien Bonds may be issued even if an Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture.
Refunding Bonds
Citizens may issue First Lien Bonds and Second Lien Bonds from time to time to provide for the refunding of First Lien Bonds and Second Lien Bonds, without complying with certain of the conditions described in this Official Statement, including all the above-described conditions, by complying with the following conditions:
1. Citizens may issue First Lien Bonds and Second Lien Bonds for the purpose of refunding (including by purchase, tender or exchange) at any time within one year prior to maturity any First Lien Bond or Second Lien Bond for the payment of which sufficient Income and Revenues of Thermal Energy System will not be available. Any Refunding Bonds described in this paragraph shall mature (or Amortization Installments shall commence) not earlier than the latest stated maturity of any such Bond that will not be refunded.
2. Citizens also may issue First Lien Bonds and Second Lien Bonds at any time for the purpose of refunding (including by purchase, tender or exchange) First Lien Bonds and Second Lien Bonds, including amounts to pay principal and redemption premium and interest to the redemption date (or purchase, tender or exchange date) and the expenses of issuing such Bonds and effecting such refunding; provided, that: (A) the Aggregate Bond Service Requirement after the issuance of the Refunding Bonds shall not be greater in any Fiscal Year than the Aggregate Bond Service Requirement in such Fiscal Year were such refunding not to occur, as certified by the Chief Financial Officer; or (B) the additional conditions generally applicable to First Lien Bonds or Second Lien Bonds, as applicable, are satisfied; provided, however that the Projected Test Period for Refunding Bonds shall begin on the first day of the first Fiscal Year occurring after the issuance of the Refunding Bonds and end on the last day of such Fiscal Year.
The foregoing refunding bond provisions do not apply to the remarketing or reoffering from time to time of any Variable Rate Bond or Put Bond pursuant to an ongoing program of Citizens contemplating the same. See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Refunding Bonds.
Bonds for Emergencies
Citizens may issue First Lien Bonds and Second Lien Bonds from time to time if:
(a) in the opinion of the Chief Engineering Officer or the Senior Vice President, Operations, as evidenced by a certificate filed with the Trustee, such series of Bonds is necessary to repair any damage or loss to the Thermal Energy System, if the Thermal Energy System or any portion thereof has been destroyed or damaged by disaster to such an extent that it cannot be efficiently operated; or
(b) in the opinion of the President of the Board, the Chief Executive Officer, the Chief Engineering Officer, the Senior Vice President, Operations, or the Chief Financial Officer, as evidenced by a certificate filed with the Trustee, it is necessary (i) as a matter of law in the case of the Steam Division, or (ii) for the proper conduct of the Thermal Energy System in the case of the Steam Division or the Chilled Water Division; provided, however, that in the case of item (a) above, such Bonds may be issued only to the extent that insurance proceeds from such damage or loss are not expected to be sufficient. See APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Bonds for Emergencies.
Forms
Bonds may be issued under the Master Indenture in the form of bonds, certificates, commercial paper, notes and other evidences of indebtedness.
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Financing Contracts
Finally, Citizens may enter into Financing Contracts, payments under which constitute Operating Expenses, under certain circumstances, as described in APPENDIX C, SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE, Financing Contracts.
OUTSTANDING BONDS
The outstanding Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds, the Series 2013A Bonds and the Series 2013B Bonds issued under and secured by the Master Indenture, as amended by the First Amendment to Thermal Energy System Trust Indenture dated as of October 1, 2010, and as supplemented by the Series 2008 Supplemental Trust Indenture dated as of March 1, 2008, the Series 2010A Thermal Energy System Supplemental Trust Indenture dated as of March 1, 2010, the Series 2010B Thermal Energy System Supplemental Trust Indenture dated as of October 1, 2010, and the Series 2013 Thermal Energy System Supplemental Indenture dated as of July 1, 2013, each between Citizens and the Trustee, are the only First Lien Bonds currently outstanding under the Indenture. As of June 1, 2014, $166,395,000 aggregate principal amount of First Lien Bonds are outstanding.
Table 1
First Lien Bonds Series 2008 Bonds $50,070,000 Series 2010A Bonds $9,440,000 Series 2010B Bonds $59,060,000 Series 2013A Bonds $8,585,000 Series 2013B Bonds $39,240,000 Total $166,395,000
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REVENUE AVAILABLE TO PAY OUTSTANDING BONDS
Table 2 describes the Income and Revenues of the Thermal Energy System that were available to pay the Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds and the Series 2013A and 2013B Bonds as of the dates shown, and the debt service coverage provided by such Income and Revenues of the Thermal Energy System:
TABLE 2
Summary of Net Income and Revenues of Thermal Energy System Available for Debt Service, Debt Service Coverage (in 000's) Fiscal Year Ended September 30, 2009 2010 2011 2012 2013
Income and Revenues: Thermal Energy System $105,650 $107,552 $107,302 $103,948 $108,870 Other, Net1 (303) (326) (62) 9 20 Total $105,336 $107,226 $107,240 $103,957 $108,890
Operating Expenses: Thermal Energy System2 88,091 86,038 84,850 84,144 86,732 Total 88,091 86,038 84,850 84,144 86,732
Net Income and Revenues Available for Debt Service $17,256 $21,188 $22,390 $19,815 $22,158
Annual Debt Service on Thermal Energy System $12,742 $13,352 $12,878 $12,838 $12,880
Coverage on Thermal Energy System Bonds 1.35 1.59 1.74 1.54 1.72
1 Includes interest income and miscellaneous other income and deductions. 2 Excludes depreciation.
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TOTAL CAPITALIZATION
Table 3 sets forth the unaudited total capitalization of Citizens' Thermal Energy System as of March 31, 2014, and as adjusted to reflect the issuance of the Series 2014A Bonds on such date:
Table 3
TOTAL CAPITALIZATION
Prior to Issuance Post Issuance of of Series Series 2014A 2014A Bonds Bonds
First Lien Bonds Thermal Energy System Bonds, Series 2008 $50,070,000 $50,070,000 Thermal Energy System Bonds, Series 2010A 9,440,000 9,440,000 Thermal Energy System Bonds, Series 2010B 59,060,000 59,060,000 Thermal Energy System Bonds, Series 2013A 8,585,000 8,585,000 Thermal Energy System Bonds, Series 2013B 39,240,000 0 Thermal Energy System Bonds, Series 2014A 35,265,000 Total Long Term Obligations 166,395,000 162,420,000 Liquidity Facilities1 -- -- Retained Earnings 91,087,260 91,087,260
Total Capitalization 257,482,260 253,507,260
1 Citizens has in place a revolving line of credit with JPMorgan Chase Bank, N.A., with an available principal amount of $20,000,000 for capital expenditures and working capital.
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Table 4
DEBT SERVICE
Table 4 shows debt service (unaudited) on the outstanding Series 2008 Bonds, the Series 2010A Bonds, the Series 2010B Bonds and Series 2013A Bonds as of June 1, 2014 and on the Series 2014A Bonds and assumes the refunding of the Refunded Bonds.
Outstanding Bonds Series 2014A Bonds Series 2008 Bonds, Series 2010A Period Bonds, Series 2010B Ending Bonds and the Series Total 30- 2013A Bonds Debt Service Sep* Principal Interest Total
2014 $ 13,556,196 $ 13,556,196 $ 2015 840,000 $ 1,977,122 $ 2,817,122 13,553,175 16,370,297 2016 1,170,000 1,646,200 2,816,200 13,556,525 16,372,725 2017 1,205,000 1,611,100 2,816,100 13,561,075 16,377,175 2018 1,255,000 1,562,900 2,817,900 13,516,925 16,334,825 2019 1,300,000 1,512,700 2,812,700 13,556,625 16,369,325 2020 1,365,000 1,447,700 2,812,700 13,558,125 16,370,825 2021 1,435,000 1,379,450 2,814,450 13,798,675 16,613,125 2022 1,505,000 1,307,700 2,812,700 14,501,625 17,314,325 2023 1,585,000 1,232,450 2,817,450 14,514,875 17,332,325 2024 1,660,000 1,153,200 2,813,200 14,538,375 17,351,575 2025 1,745,000 1,070,200 2,815,200 14,554,375 17,369,575 2026 1,830,000 982,950 2,812,950 1,532,269 4,345,219 2027 1,925,000 891,450 2,816,450 1,531,644 4,348,094 2028 2,020,000 795,200 2,815,200 1,537,794 4,352,994 2029 2,120,000 694,200 2,814,200 1,535,188 4,349,388 2030 2,225,000 588,200 2,813,200 669,000 3,482,200 2031 2,340,000 476,950 2,816,950 671,500 3,488,450 2032 2,455,000 359,950 2,814,950 672,500 3,487,450 2033 2,580,000 237,200 2,817,200 672,000 3,489,200 2034 2,705,000 108,200 2,813,200 - 2,813,200 $35,265,000 $21,035,022 $56,300,022 $175,588,466 $231,888,488
* Fiscal year debt service includes principal and interest payments due on October 1.
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THE SERIES 2014A BONDS
General
Interest on each Series 2014A Bond will be payable on each Interest Payment Date for each such Series 2014A Bond for the period commencing on the immediately preceding Interest Payment Date (or if no interest has been paid thereon, commencing on the date of issuance thereof) to, but not including, such Interest Payment Date. The first Interest Payment Date is April 1, 2015. The Series 2014A Bonds will accrue interest at the rates set forth on the inside cover page until their respective maturities. Interest on the Series 2014A Bonds will be computed on the basis of a 360-day year, consisting of twelve 30-day months.
The Bank of New York Mellon Trust Company, N.A., has been appointed as Bond Registrar and Paying Agent under the Indenture.
Authorized Denominations
The Series 2014A Bonds will be authorized in denominations of $5,000 and integral multiples thereof. The authorized denominations of the Series 2014A Bonds are hereinafter called "Authorized Denominations."
Book-Entry Only
The Series 2014A Bonds will be available in book-entry form only. Purchasers of the Series 2014A Bonds will not receive certificates from Citizens or the Trustee representing their interests in the Series 2014A Bonds purchased.
The information in this section concerning The Depository Trust Company ("DTC"), New York, New York, and DTC's Book-Entry System has been obtained from DTC. Citizens does not make any representations or warranty or take any responsibility for the accuracy or completeness of such information.
DTC will act as securities depository for the Series 2014A Bonds. The Series 2014A 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 Series 2014A Bond certificate will be issued in the aggregate principal amount of the Series 2014A Bonds, and will be deposited with DTC.
DTC, the world's largest securities 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 3.5 million issues of U.S. and non-U.S. equity issues, 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 ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and the Fixed Income Clearing Corporation, all of which are registered clearing agencies. 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"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Series 2014A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2014A Bonds on DTC's records. The ownership interest of each actual
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owner 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 Series 2014A 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 Series 2014A Bonds, except in the event that use of the book-entry system for the Series 2014A Bonds is discontinued.
To facilitate subsequent transfers, all Series 2014A 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 Series 2014A Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2014A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2014A 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 the Series 2014A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2014A Bonds, such as redemptions, defaults, and proposed amendments to the Series 2014A Bond documents. For example, Beneficial Owners of Series 2014A Bonds may wish to ascertain that the nominee holding the Series 2014A Bonds for their 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 Trustee and request that copies of notices be provided directly to them.
Redemption notices are to be sent to DTC. If less than all of the Series 2014A Bonds within a maturity are being redeemed, DTC's 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 Series 2014A Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Citizens 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 Series 2014A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Series 2014A 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 Citizens or the Trustee, on the payable 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 registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, or Citizens, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Citizens or the Trustee, 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 Series 2014A Bonds at any time by giving reasonable notice to Citizens or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.
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Citizens may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Once Citizens has requested that holders withdraw securities from DTC, DTC will notify its Participants of such request and such Participants may utilize DTC's withdrawal process to withdraw their Series 2014A Bonds from DTC. In the event a Participant utilizes DTC's withdrawal process, Series 2014A Bond certificates will be printed and delivered.
None of Citizens, the Trustee or the underwriters will have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Bond, (ii) the delivery to any Direct Participant or Indirect Participant or any other person, other than an owner, as shown in the Registration Books, of any notice with respect to any Bond including, without limitation, any notice of redemption, with respect to any Bond, (iii) the payment of any DTC Participant or Indirect Participant or any other person, other than an owner, as shown in the Registration Books, of any amount with respect to the principal of, premium, if any, or interest on any Bond or (iv) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Series 2014A Bonds.
Prior to any discontinuation of the book-entry only system described above, Citizens and the Trustee may, except as otherwise provided in the Continuing Disclosure Undertaking Agreement, treat DTC as, and deem DTC to be, the absolute owner of the Series 2014A Bonds for all purposes whatsoever, including, without limitation, (i) the payment of principal of, premium, if any, and interest on the Series 2014A Bonds, (ii) giving notices of redemption and other matters with respect to the Series 2014A Bonds, (iii) registering transfers with respect to the Series 2014A Bonds and (iv) the selection of Series 2014A Bonds for redemption.
In the event that the book entry system for the Series 2014A Bonds is discontinued, the Trustee will provide for the registration of the Series 2014A Bonds in the names of the Beneficial Owners thereof. Citizens and the Trustee would treat the person in whose name any Series 2014A Bond is registered as the absolute owner of such Series 2014A Bond for the purposes of making and receiving payment of the principal thereof and interest thereon, and for all other purposes, except as otherwise provided in the Continuing Disclosure Undertaking Agreement, and none of these parties would be bound by any notice or knowledge to the contrary.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources believed to be reliable, but Citizens and the underwriters take no responsibility for the accuracy thereof.
Redemption of Series 2014A Bonds
Optional Redemption of the Series 2014A Bonds. The Series 2014A Bonds maturing on or after October 1, 2025, are subject to optional redemption by Citizens prior to maturity on any date, on or after October 1, 2024, in whole or in part, at the redemption price of 100%, plus accrued interest, if any, to the redemption date as provided under the Series 2014A Supplemental Indenture.
Notice of Redemption. Notice of the call for any redemption of Series 2014A Bonds or any portion thereof (which shall be in Authorized Denominations) identifying the Series 2014A Bonds or portions thereof to be redeemed and specifying the redemption date, the redemption price, the place and manner of payment and that from the redemption date interest will cease to accrue, shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail to the Owner of each Series 2014A Bonds to be redeemed in whole or in part at the address shown on the registration books. Such notice shall be given at least 30 days prior to the date fixed for redemption; provided; however, that failure to duly give such notice, of any defect therein, shall not affect the validity of any proceedings for the redemption of Series 2014A Bonds with respect to which no such failure or defect occurred. Upon presentation and surrender of Series 2014A Bonds so called for redemption in whole or in part at the place or places of payment, except as otherwise provided, with respect to Book Entry Bonds, such Series 2014A Bonds, or portions thereof shall be redeemed. Any notice mailed as provided in the Indenture shall be conclusively presumed to have been duly given whether or not the Owner receives such notice. If a Series 2014A Bond is presented to the Trustee for transfer after notice of redemption of such Series 2014A Bonds has been mailed, the Trustee shall deliver a copy of such notice of redemption to the new Owner of such Series 2014A Bonds.
With respect to any notice of optional redemption of Series 2014A Bonds, unless upon the giving of such notice such Series 2014A Bonds shall be deemed to have been paid within the meaning of the Indenture, such notice
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may state (if so directed by Citizens) that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, and premium, if any, and interest on, such Series 2014A Bonds to be redeemed, and that if such money shall not have been so received said notice shall be of no force and effect and Citizens will not be required to redeem such Series 2014A Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.
If less than all of the Series 2014A Bonds of a series are called for redemption, the Trustee shall select the Series 2014A Bonds or portions thereof of such series to be redeemed by lot or in such other manner as in the Trustee's sole discretion it shall deem appropriate and fair, in either case in Authorized Denominations, provided that the aggregate principal amount of each Series 2014A Bond of such series remaining Outstanding following redemption is in an Authorized Denomination. The Trustee shall have no liability to any person in respect of any such selection. The Trustee shall promptly notify Citizens in writing of the Series 2014A Bonds or portions thereof of such series selected for redemption, provided, however, that in connection with any redemption of Series 2014A Bonds, the Trustee shall first select for redemption any Series 2014A Bonds held by the Trustee for the account of Citizens or held of record by Citizens and that if, as indicated in a certificate of an Authorized City Representative delivered to the Trustee, Citizens shall have offered to purchase all Series 2014A Bonds of such series then outstanding and less than all such Series 2014A Bonds of such series shall have been tendered to Citizens for such purchase, the Trustee, at the direction of Citizens, shall select for redemption all such Series 2014A Bonds of such series which have not been so tendered. If it is determined that one or more, but not all, of the units of principal amount represented by any such Series 2014A Bond is to be called for redemption, then, upon notice of intention to redeem such unit or units, the Owner of such Series 2014A Bond shall, except as provided in the Indenture hereof with respect to Book-Entry Bonds, forthwith surrender such Series 2014A Bond to the Trustee for (a) payment to such Owner of the redemption price of the unit or units of principal amount called for redemption, and (b) delivery to such Owner of a new Series 2014A Bond or Series 2014A Bonds of such series in the aggregate principal amount of the unredeemed balance of the principal amount of such Series 2014A Bond.
A new Series 2014A Bond representing the unredeemed balance of the principal amount of any Series 2014A Bonds shall be issued to the Owner thereof, without charge therefor. If surrender of Series 2014A Bonds is required and the Owner of any such Series 2014A Bonds shall fail to present such Series 2014A Bonds to the Trustee for payment and exchange as aforesaid, such Series 2014A Bonds shall, nevertheless, become due and payable, and interest shall cease to accrue, on the date fixed for redemption to the extent of the unit or units of principal amount called for redemption (and to that extent only).
CITIZENS ENERGY GROUP
Organization Structure
The chart below provides a diagram of the organization structure of Citizens Energy Group and CWA Authority, Inc. ("CWA"). The organization structure is further described and explained below the chart.
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Citizens Energy Group is the trade name in which the Department of Public Utilities of the City of Indianapolis, Indiana (the "Department") acting by and through its Board of Directors (the "Board") for Utilities functions. As described under History, the Department was formed in 1929 pursuant to a state statute (now IC 8-1- 11.1, the "Act") adopted by the Indiana legislature to provide the governance structure for the City of Indianapolis to act as a successor trustee of a public charitable trust (the "Energy Trust") providing natural gas utility services in the City of Indianapolis and to own and operate other utility systems serving areas within and outside the City of Indianapolis (the "City"). The Department is the governmental entity that owns the Energy Trust and Water Trust assets described below. Each trust is not an entity, but rather defines the nature in which the assets are held by the Department and the obligation imposed upon the Department to manage and operate those assets in accordance with the trust purposes which include the obligations to operate the facilities in public trust for the benefit of the inhabitants of Marion County, free from the influences of partisan political control or private interests. To preserve freedom from partisan political control, the Act creates the Board of Trustees (the Trustees) as a self-perpetuating body entrusted with the power to appoint the members of the Board annually. This two-board structure provides for oversight of the Board by the Trustees. Further, the Act intentionally insulates the Department from political control by isolating the two boards from the Mayor of Indianapolis or the City's legislative bodies.
The Gas Utility Distribution System, the Thermal Energy System, Citizens Resources and certain other properties are subject to the Energy Trust. The Water System is subject to a separate public charitable trust (the "Water Trust") that operates in substantially the same manner as the Energy Trust.
The Wastewater System is owned by CWA, a separate non-profit corporation, which, through an interlocal agreement entered into between Citizens and the City of Indianapolis pursuant to Indiana Code 36-1-7, has the power to exercise all rights and powers of the City, except the City’s taxing power, and Citizens in connection with the provision of wastewater utility services. CWA’s board of directors comprises the same individuals who serve on the Board. The Wastewater System is managed by employees of Citizens under an operating agreement between Citizens and CWA. CWA is subject to a separate public charitable trust (the "Wastewater Trust") that operates in substantially the same manner as the Energy Trust and the Water Trust.
Separate indentures exist to issue debt obligations for the Gas Utility Distribution System, the Thermal Energy System, the Water System and the Wastewater System. Each indenture captures only the revenues from the respective system, pays the operating expenses of that system and then pays debt service on revenue bonds of that system. This structure is designed to achieve the desired separation of each system from other systems or business segments owned or operated by Citizens and CWA. Each indenture permits Citizens or CWA, as applicable, authority to use residual revenues for other purposes permitted by the language of the respective indenture. Citizens' water indenture and CWA's wastewater indenture, however, permit only the use of the excess revenues for the water and wastewater systems, respectively.
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In addition as described above, each trust (i.e., the Energy Trust, the Water Trust and the Wastewater Trust) exists separately from the other trusts. Thus, there are three separate public charitable trusts, each with a governmental entity serving as the trustee (the Energy Trust and the Water Trust assets being owned by the Department and the Wastewater Trust assets being owned by CWA). These separate trusts are designed to insulate one trust from liability for obligations of another trust, based on basic trust principles that two separate trusts do not become jointly liable solely because the same entity is the trustee of both.
The result of the foregoing is that Citizens and CWA have five cash flow sources in which debt is isolated: (1) the Gas Utility Distribution System and the Gas Utility System1; (2) the Thermal Energy System; (3) the Water System; (4) the Wastewater System; (collectively, the four "Systems") and (5) Citizens Resources. The cash flow for the four Systems is governed by the respective indentures for each System, which restricts the use of income and revenues of a respective System to the payment of operating expenses and debt service of the respective System before allowing any other use of funds by the System. The fifth source, Citizens Resources is a separate corporation whose stock is owned by the Department in its capacity as trustee of the Energy Trust. The preservation of the corporate organization form of Citizens Resources and its ability to operate for-profit businesses in furtherance of the Energy Trust purposes was specifically authorized by the Act. The assets, liabilities and operations of Citizens Resources are by design isolated within the separate corporate structure of Citizens Resources, as a subsidiary corporation of Citizens, and each of the direct and indirect subsidiaries of Citizens Resources is a limited liability company or corporation designed to limit the liability of the immediate parent to its investment in the subsidiary2. Those structures do not insulate the parent from liability for an express assumed contractual liability or guaranty or for the parent’s own acts or omissions. In addition to the separate trusts for the Water System and the Wastewater System, those structures along with certain provisions of the Operating Agreements of such subsidiaries of Citizens Resources are the primary protection of Citizens’ cash flow from any financial losses in Citizens Resources or its subsidiaries and affiliates3. Profits of Citizens Resources may roll up to Citizens through dividends declared by the board of Citizens Resources, but Citizens’ exposure to liabilities of Citizens Resources should be limited by its corporate structure (and by that of its subsidiaries) and thus not imposed as a burden on the cash flows available in any System. See below for a diagram of Citizens Resources’ organizational structure.
On January 10, 2014, Citizens Westfield Utilities, LLC ("CWU") was formed to serve as an intermediate holding company for Westfield Gas (which was transferred to CWU in March, 2014) and for Citizens Water of Westfield, LLC ("Westfield Water") and Citizens Wastewater of Westfield, LLC ("Westfield Wastewater") upon their acquisition, which took place on March 21, 2014. See APPENDIX B, OTHER CITIZENS' OPERATIONS, CITIZENS RESOURCES AND AFFILIATES, Citizens Resources.
1 The 1986 Gas Utility System (GUS) bonds are debt of the Gas Utility Distribution System (GUDS). Debt service on the GUS bonds is included in the revenue requirements for determining the rates and charges of the GUDS by the IURC. The GUS Indenture is not used for issuance of new debt. The bonds issued under the GUS Indenture are senior to the bonds issued under the GUDS Indenture. Bondholder security for the GUS bonds includes the net revenues after payment of operating expenses of the GUDS, Oil and Discontinued Operations as well as any dividends paid by Citizens Resources for so long as bonds are outstanding under that Indenture. However, as explained below, the corporate structure of Citizens Resources should limit the GUS exposure to liabilities of Citizens Resources and its subsidiaries. The final principal payment on the 1986 GUS bonds will occur in 2018, at which point no Indenture of the four Systems will include Oil, Discontinued Operations or Citizens Resources. 2 Under public policy reflected in state law governing corporations and limited liability companies ("LLCs"), the parent stockholder of a subsidiary corporation or the parent member of a subsidiary LLC is given substantial protection against liability for the acts or debts of the subsidiary, subject to the established inherent limitations of these structures under such applicable state law. 3 Since Citizens includes the results of operations of Citizens Resources and its subsidiaries and affiliates in its combined financial statements, an accounting loss within Citizens Resources will be reflected in Citizens' combined financial statements. This accounting result, though, does not create the basis upon which the liabilities of Citizens Resources or its subsidiaries or affiliates can be imposed upon any System or the cash flows held under any Indentures.
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Powers
Under the Act, the Board is given "the exclusive government, management, regulation, and control of all public utilities" acquired by Citizens for the service of the public, and has the duty and the power to furnish and sell service and products of and "make all necessary construction, reconstruction, repairs, renewals, enlargements, extensions, or additions" to the plant or property of any such utility. Citizens has the power to set steam rates, subject to IURC approval. In addition, Citizens has the power to condemn property, to contract for and construct extensions or additions, to sell products or by-products and enter into contracts for such sale, to operate any such plant or plants, to receive moneys, and to employ necessary personnel. Citizens has the power to issue revenue obligations, including long-term revenue bonds and short-term certificates of indebtedness.
Citizens is authorized by the Act to do all things necessary to cause Citizens Resources, a wholly-owned subsidiary of Citizens ("Citizens Resources" or "Resources"), to carry on its operations efficiently and to conduct its business in the same manner as if Citizens Resources' stock were owned by private individuals. This authority includes organization of the Affiliates and Subsidiaries of Citizens Resources. See APPENDIX B, OTHER CITIZENS OPERATIONS, CITIZENS RESOURCES AND AFFILIATES, Citizens Resources.
History
In 1929, the Indiana General Assembly enacted the Act, creating the Board. In 1935, all the assets of Citizens Gas Company, including the 99-year lease of the competing gas company and the stock of the former Milburn By-Products Coal Company — now Citizens Resources — were conveyed to the City, as successor trustee. In 1942, the City "bought out" the 99-year lease.
The assets that were conveyed to the City in 1935 are subject to a public charitable trust for which the City is successor trustee. The purposes of the public charitable trust are:
• to establish and operate a gas utility that is not controlled by private ownership and
• to provide light, heat and power to the City and its inhabitants.
The City, as successor trustee, has two express duties:
• to engage in the gas business and
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• to supply the City and its inhabitants with light, heat and power.
The Gas Utility System, including the Gas Utility Distribution System, has been operated by Citizens since 1935 under Citizens Gas & Coke Utility trade name until 2008, when the Board renamed its operations Citizens Energy Group.
In 2000, Citizens acquired the Thermal Energy System to control and operate the steam assets and chilled water assets and commenced operation of the Thermal Energy System as a separate system from the Gas Utility Distribution System. The operating division for the Thermal Energy System is Citizens Thermal.
In 2007, Citizens discontinued operations of the Manufacturing Division consisting of the coke oven batteries and related facilities.
In 2008, Citizens renamed its operating divisions under its new trade name Citizens Energy Group as follows: Citizens Gas, Citizens Thermal and Citizens Resources.
In 2011, Citizens acquired the Water System and CWA Authority, Inc. acquired the Wastewater System and established the trade names of "Citizens Water" and "Citizens Wastewater." Also in 2011, Citizens expanded its board of directors to nine members.
In March 2014, Westfield Water and Westfield Wastewater, two indirect subsidiaries of Resources, acquired the water and wastewater assets, respectively, of the City of Westfield, Indiana. These subsidiaries and their parent, Citizens Westfield Utilities, LLC, a subsidiary of Citizens Energy Services Co. ("CESCO"), which is also a subsidiary of Citizens Resources, have separate governance structures from the other utilities held by Citizens or CWA. Westfield Water and Westfield Wastewater comprise only a part of the operations and activities of Resources and its Affiliates and Subsidiaries. See APPENDIX B, OTHER CITIZENS OPERATIONS, CITIZENS RESOURCES AND AFFILIATES, Citizens Resources.
Management
Members of the Board are selected by a self-perpetuating Board of Trustees for Utilities. The principal function of the Board of Trustees for Utilities is to appoint directors.
The Board or its statutory Executive Committee conducts regular monthly meetings at which policy decisions are made. The policy decisions are carried out by a professional management team employed by the Board.
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The following is a chart of members of the Board of Trustees for Utilities, Board of Directors for Utilities and Citizens Energy Group:
Board of Trustees for Utilities Daniel F. Evans, Jr. John L. Krauss President of the Board Vice President of the Board President and CEO Director Clarian Health Partners Indiana University Public Policy Institute Dennis E. Bland, Esq. Jackie Nytes Brian Williams Secretary of the Board Trustee Trustee President Chief Executive Officer Senior Pastor at Center for Leadership Development Indianapolis Public Library University United Methodist Church Board Of Directors For Utilities Daniel C. Appel Anne Nobles Jeffrey E. Good Chairman (President) of the Board Vice Chairwoman (Vice President) of Treasurer of the Board President, Gregory & Appel Insurance the Board Managing Director Retired Vice President, Eli Lilly & Co. Milestone Advisors, LLC Moira Carlstedt Phillip Terry Anita J. Harden Secretary of the Board Director Director President, Indianapolis Neighborhood CEO, Monarch Beverage Retired President, Community Housing Partnership Hospital East, Community Health Network Christia Hicks J.A. Lacy Joseph E. Whitsett Director Director Director Vice President, Human Resources, President and Chief Operating Officer, Director, The Whitsett Group Eskenazi Health Services LDI Ltd. Citizens Energy Group Management Carey B. Lykins, President and Chief Executive Officer Senior Vice Presidents William A. Tracy John R. Brehm M. Jean Richcreek Senior Vice President and Chief Senior Vice President and Senior Vice President and Operations Officer Chief Financial Officer Chief Administrative Officer Michael Strohl Jennett M. Hill Jeffrey Harrison Senior Vice President, Customer Senior Vice President and Chief Legal Senior Vice President, Engineering & Relationships and Corporate Affairs and Compliance Officer Sustainability Vice Presidents John Lucas Jodi Whitney Lindsay C. Lindgren Customer and Information Services Human Resources Water Operations Yvonne Perkins Community Relations LaTona Prentice Aaron D. Johnson Blaire Dougherty Regulatory Affairs Corporate Development Controller Curtis Popp Mark Jacob Christopher H. Braun Engineering and Shared Field Services Major Capital Energy Operations
Director of Treasury Sara Mamuska-Morris
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Taxes
Citizens pays payroll, Indiana property, Indiana utility receipts and other miscellaneous taxes, but does not pay federal income taxes.
Insurance
Citizens currently maintains general liability insurance coverage and property insurance, primarily on a replacement cost basis. Citizens believes the coverages and related deductibles are adequate and consistent with industry practices.
Operation
For a detailed description of the organization of Citizens Energy Group see "CITIZENS ENERGY GROUP – Organization Structure."
Gas Utility System. The Gas Utility System is a local distribution company (or "LDC"). The Gas Utility System includes:
• the Gas Utility Distribution System (historically referred to as Gas Operations) and
• the Unregulated System, including:
• the now discontinued Manufacturing Division (sometimes referred to as Discontinued Operations),
• Oil Operations, and
• its ownership of Citizens Resources, a wholly-owned subsidiary of the City and affiliates of Citizens Resources. See APPENDIX B, OTHER CITIZENS' OPERATIONS, CITIZENS RESOURCES AND AFFILIATES, Citizens Resources, for a more detailed discussion.
The Income and Revenues of the Gas Utility System are not pledged to the payment of the Series 2014A Bonds.
The Gas Utility Distribution System. The Gas Utility Distribution System is organized as a regulated utility providing local gas distribution services. The Gas Utility Distribution System buys, sells, distributes, stores and transports gas to more than 260,000 industrial, commercial and residential customers on average in the City and Marion County. The Gas Utility Distribution System operates independently of, but shares support functions with, the Citizen's Thermal Energy System, Water System and Oil Operations, CWA Authority, Inc.'s Wastewater System and Westfield Water and Westfield Wastewater. Among the shared functions are billing and collections, regulatory affairs, customer relations, customer service, finance and accounting, human resources, information technology and marketing. Some office facilities also are shared. The Income and Revenues of the Gas Utility Distribution System are not pledged to the payment of the Series 2014A Bonds.
The Thermal Energy System. For a detailed discussion of the Thermal Energy System see THERMAL ENERGY SYSTEM.
The Water System. The Water System is not part of the Thermal Energy System. No income, revenues or assets of the Water System are pledged to or available for the payment of the Series 2014A Bonds and the Income and Revenues of the Thermal Energy System are not available to pay the bonds issued for or other liabilities or obligations of the Water System. Citizens provides water service to customers located in the majority of the City and Marion County, and portions of the surrounding counties of Boone, Hamilton, Hancock, Hendricks, Johnson,
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Morgan and Shelby. Ingredion is the largest Water System customer. Other significant customers include Eli Lilly and Company ("Lilly"), Covanta Energy Systems of Indianapolis, Inc. ("Covanta") and the Thermal Energy System.
The Wastewater System. The Wastewater System is not part of the Thermal Energy System. No income, revenues or assets of the Wastewater System are pledged to or available for the payment of the Series 2014A Bonds and the Income and Revenues of the Thermal Energy System are not available to pay the bonds issued for the Wastewater System. The Wastewater System serves nearly all of the territory of the consolidated City and seven (7) wholesale customers in neighboring communities: the City of Beech Grove, the City of Lawrence, Ben Davis Conservancy District, South Whitestown Utilities, Tri-County Conservancy District, the City of Greenwood and Hamilton Southeastern Utilities.
Citizens Resources. For a detailed discussion of Citizens Resources, see APPENDIX B, OTHER CITIZENS OPERATIONS, CITIZENS RESOURCES AND AFFILIATES, Citizens Resources.
THERMAL ENERGY SYSTEM
Organization, Operation
The Thermal Energy System is organized as a regulated Steam Division providing district heating service and an unregulated Chilled Water Division providing district cooling service. These divisions operate independently of, but share support functions with, each other and Citizens' other operations. Among the shared functions are billing and collections, regulatory affairs, customer relations, customer service, finance and accounting, engineering, human resources, information technology and marketing.
Steam Division
The Steam Division of the Thermal Energy System operates a steam system comprised of (a) the Perry K plant and related property and equipment and the Chiller Boiler Plant ("CBP") and (b) a Steam Distribution System and related property and equipment.
Production Plant. Steam production occurs at three locations. The primary source of send-out steam is the Perry K plant, which is located on approximately eight acres at 366 Kentucky Avenue, in downtown Indianapolis. The Perry K plant houses eight boilers and related facilities with an aggregate capacity of 1.77 million lb./hr. of steam. Table 5 describes the boilers:
TABLE 5
PERRY K PLANT STEAM BOILER CAPACITIES
Boiler Pressure Number PSIG MLb/Hr. Fuels Temp °F Installed Manufacturer
11 650 300 NG 783 1938 Foster Wheeler 12 650 300 NG 783 1938 Foster Wheeler 13 250 300 NG 600 1946 Babcock & Wilcox 14 250 300 NG 600 1947 Babcock & Wilcox 15 Cold lay-up N/A N/A N/A 1953 Babcock & Wilcox 16 250 225 NG 600 1953 Babcock & Wilcox 17 250 170 NG or No. 2 500 1975 Combustion Engineering Fuel Oil 18 250 170 NG or No. 2 500 1973 Combustion Engineering Fuel Oil
Chiller Boiler Plant. The Chiller Boiler Plant ("CBP") is located on a one-acre site at 1420 West Michigan Street west of downtown Indianapolis. Owned, operated and maintained by Citizens, this plant was built to provide
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steam and chilled water services to The Health and Hospital Corporation of Marion County, Indiana ("HHC") in connection with the construction of its new Eskenazi Hospital. Commissioned in 2012, the CBP houses three 25,000 lb./hr. steam boilers; Table 5A describes the boilers:
TABLE 5A
CHILLER BOILER PLANT CAPACITIES
Boiler Pressure Number PSIG MLb/Hr. Fuels Temp °F Installed Manufacturer
1 150 25 NG/#2 Fuel Oil 370 2012 Hurst 2 150 25 NG/#2 Fuel Oil 370 2012 Hurst 3 150 25 NG/#2 Fuel Oil 370 2012 Hurst
In addition, Citizens purchases from Covanta steam produced in three boilers situated at Covanta's Indianapolis resource recovery facility ("IRRF"), which is a waste-to-energy facility. Citizens purchases the IRRF's steam pursuant to a contract originally entered into in 1986 and assigned to Citizens as part of its acquisition of the steam assets. A revised contract was approved by the IURC with an effective date of December 1, 2008 (the "2008 Contract"), and will continue until November 30, 2028, unless either party gives 30 months notification of termination. A first amendment to the 2008 contract was approved by the IURC on April 27, 2011. The first amendment was created to clarify how the annual cost per therm will be calculated on an annual basis. The 2008 Contract provides that in order to permit adequate time to develop a new agreement prior to the end of the contract term, notice of intent of the parties to continue such contract shall be given not less than 30 months prior to the end of the contract term. Under the contract, Citizens is obligated to purchase all the IRRF's available steam production, but may refuse to do so under limited circumstances relating primarily to the Steam Division's ability to distribute the steam or use it to produce electricity. The IRRF's available steam production has been approximately 450,000 lbs./hr. of 400 pounds per square inch gauge ("psig") at 700 degrees F. Covanta is obligated to provide to the Steam Division at least 29 million therms during the term of the existing contract. Steam purchased for send-out is priced at the Primary Rate, reflecting the cost of fuel used to produce steam at the Perry K plant. Steam purchased, but not used for send out, can be used to produce electricity. The contract also provides for a special Additional Summer Steam Rate and for the application of capacity charges under certain circumstances. All prices under the contract with Covanta are based on a "standard mlb" and are subject to adjustment to reflect actual heat content. During Fiscal Year 2013, the IRRF provided steam at a cost of $4.48 per million BTUs, which is comparable to the cost of energy to fuel the boilers at the Perry K plant. See THERMAL ENERGY SYSTEM, Steam Division-Fuels.
A second amendment to the 2008 Contract was approved by the IURC on December 18, 2013. The second amendment was created to change the annual cost per therm calculation and the adjustment to the winter incentive premium, and address the Covanta steam line maintenance. The cost per therm calculation language changed since coal indices are no longer appropriate with the plant conversion to natural gas. New indices were mutually accepted by both parties that reflect the cost of doing business at the Covanta facility. The winter incentive requirements (December, January, and February of each year) were adjusted to reflect the improved historical reliability of the Covanta facility. Maintenance of the steam line between Covanta and the Perry K plant has been taken over by Citizens, which also gives Citizens the option of adding customers to the Covanta steam line when they become available.
Each of the three IRRF steam boilers produces 191,000 lbs./hr. at 500 psig and 750 degrees F. All three boilers were installed in 1986.
If the IRRF shuts down or cannot produce steam, the Perry K plant has two boilers rated at 300,000 lbs./hr. and 650 psig each, to support the customers that rely on the steam originating from IRRF. The total peak steam load of those customers is approximately 425,000 lbs./hr.
Steam production at the Perry K plant and steam purchases from Covanta provide approximately 2.345 million lbs./hr. of peak load capacity. The Steam Division's peak load was established on January 5, 1999, at approximately 1.68 million lbs./hr. At peak flow, approximately 65 percent of the steam system's peak load
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capacity is used to serve customers, leaving approximately 35 percent of that capacity to serve new steam customers and to accommodate chilled water load growth.
The Steam Division is not designed to return condensate water from its customers and is effectively a 100 percent make-up system. However, condensate is returned from two facilities, Lucas Oil Stadium and the Convention Center, due to their close proximity. Approximately 95 percent of the Steam Division's water for steam production comes from the nearby White River, with the balance purchased from Citizens' Water System. Given the use of river water, pre-treatment is critical for efficient operation.
Automated systems are in place to monitor and control pre-treatment water quality. The quality of the untreated water and processed softener water (boiler water) is tested every two hours during routine operation. Automatic blowdown/conductivity meters control boiler dissolved solids. Management believes the Steam Division's water intake and treatment facilities and processes are adequate for effective steam operations.
Steam Distribution System. The Steam Distribution System consists of 23 miles of underground pipe. There are two identifiable distribution districts within the Steam Distribution System: (1) the high pressure district (250 psig and 400 psig) and (2) the low pressure district (10 psig). The high pressure district serves most of the Indianapolis central business district and consists of five 20-inch high pressure mains. Two mains extend north from the Perry K plant, one main extends east from the Perry K plant and two mains extend to the southwest. The north mains connect to the Indiana University-Purdue University at Indianapolis ("IUPUI") campus service area and the Senate Avenue/Methodist Hospital service area. The east main connects to the Lilly Corporate Center, Bankers Life Field House, Lucas Oil Stadium, and the low pressure district. The southwest mains feed the former General Motors Metal Fabrication Facility, the Lilly Technology Center, the Lilly Material Center, Ingredion and the West Street Chilled Water Plant. Each main is designed to carry 300,000 to 600,000 lbs./hr. with minimal pressure loss. The Steam Distribution System also has 695 manholes, which contain traps, valves, anchors and expansion joints. An evaluation of the low pressure system and customers determined that there were unprofitable line segments due to the loss of customers the past several years. An initiative started in 2013 to remove customers from the northern quadrant of the low pressure system. In 2013, seven (7) customers were converted from the steam system to the gas system and in 2014 two (2) customers were converted to gas and electric. This initiative will continue through 2015. Citizens Thermal expects to remove seventeen (17) additional customers and retire several miles of low pressure mains, manholes, traps and valves which will reduce Citizens Thermal's maintenance and capital requirements.
The Steam Division operates and maintains a substantial portion of the steam distribution facilities owned by and serving IUPUI, situated immediately west of downtown Indianapolis. Citizens entered into a Long Term Lease and Maintenance Agreement with IUPUI in December, 2002, in which Citizens agreed to maintain the IUPUI steam distribution facilities through December, 2022.
Generating Facilities. Information relating to the electric generating facilities at the Perry K plant is shown in Table 6.
TABLE 6
GENERATING EQUIPMENT
Description Type Nameplate Operating Capacity Voltage
House Generator Condensing (70 psi 5 MW 3 MW 4,160 bleeder) No. 4 Generator Condensing 15 MW 3 MW 34,500 No. 7 Generator Back 1.7 MW 1.7 MW 4,160 Pressure/Topping No. 8 Generator Back 1.7 MW 1.7 MW 4,160 Pressure/Topping
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The House Generator, installed in 1937, supplies substantially all the power required by the Perry K plant and the related coal yard. Under an IURC-approved electricity contract between IPL and the Board, IPL will supply power to the Perry K plant in the event the House Generator fails or is out of service for maintenance.
The No. 4 Generator was installed in 1924 and is inoperable. A review of the No. 4 turbine is complete and the cost to refurbish the unit does not make financial sense; therefore the unit will be retired and steam management will decide if demolition of the unit will occur.
In May 2009, Citizens Thermal commissioned two back pressure/topping turbines, No.7 and No. 8. These turbines take 650 psig 750 degrees Fahrenheit steam and exhaust steam at 250 psig 600 degrees Fahrenheit. The majority of steam used by the customers is 250 psig steam, and 650 psig steam is used only in-house to operate the House Generator. Prior to the installation of turbines No. 7 and No. 8, the 650 psig steam was sent through pressure reducing valves, which reduced the pressure to 250 psig. The plant electric load has grown to more than 5 MW during the months of November through March and the installation of the 3.4 MW from these units allows the plant to produce all of its electricity in-house versus purchasing from the local electric company.
The IURC determined that the acquisition and operation of electric generators at the Perry K plant do not require Citizens to obtain a certificate of public convenience and necessity under the certificate of need statute, with the understanding that the No. 4 Generator operates at no more than 10 MW.
Operational Staff. Citizens currently employs approximately 48 people in the Steam Division, approximately 24 of which are bargaining-unit employees. Citizens has a labor agreement with the International Brotherhood of Electrical Workers (IBEW), Local 1400, AFL-CIO that cannot be terminated prior to June 23, 2015. The same local represents other employees of the Board. In the opinion of Management, employee relations are good.
Customer Rates. The Steam Division's customers are distributed among three tariff rate classes. Rates and charges listed below were effective on May 30, 2014, pursuant to the IURC's order in cause number 44349.
Rate 1 Customers. Residential and small commercial customers that use steam for space heating are served under Rate 1. They pay a fixed charge ranging from $58 to $570 per month, and the following three-step declining block energy charge:
Any part of the first 1,000 therms $1.78690 per therm Any part of the next 4,000 therms 1.54190 per therm Over 5,000 therms 1.32940 per therm
Rate 2 Customers. Commercial and industrial customers are served under Rate 2, which has the following demand and energy components:
Demand Charge: $185.00 per peak therm per hour Energy Charge: 0.38290 per therm
The billing demand is the maximum average demand for a 30-minute period, measured in therms per hour during the month for which the bill is rendered, but in no case is the billing demand less than 75 percent of the maximum 30-minute demand during the preceding eleven months. Since 2008, Rate 2 customers have accounted for approximately 66 percent of steam revenues, excluding fuel charges.
Rate 3 Customers. The Chilled Water Division of the Thermal Energy System and Lilly are the only Rate 3 customers. They pay a flat energy charge of either $0.0758 per therm plus the actual cost of IRRF steam or $0.0923 per therm, if steam is not available from the IRRF. However, from November through March, if the mean outdoor temperature falls below 40 degrees F, Rate 3 customers are billed as if they were Rate 2 customers.
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Rate Setting. Citizens' rates and charges for steam service must be nondiscriminatory, reasonable and just. Reasonable and just rates and charges are defined by Indiana Code 8-1.5-3-8 to mean rates and charges that produce sufficient revenue to (1) pay all the legal and other necessary expenses incident to the operation of the utility, including (a) maintenance costs, (b) operating charges, (c) upkeep, (d) repairs, (e) depreciation, and (f) interest charges on bonds, and other obligations, including leases; (2) provide a sinking fund for the liquidation of bonds and other evidences of indebtedness, including leases; (3) provide a debt service reserve for bonds and other obligations, including leases, in an amount not to exceed the maximum annual debt service on the bonds and other obligations, including the maximum annual lease rentals; (4) provide adequate money for working capital; (5) provide adequate money for making extensions and replacements, to the extent not provided through depreciation; and (6) provide money for the payment of taxes that may be assessed against the Steam Division. Indiana Code 8-1.5-3-8 further provides that the IURC must approve rates and charges that are sufficient to include a reasonable return on the Steam Division's plant, if the Board so requests.
Rates and charges for steam service, whether contained on a schedule or in a contract, are regulated by the IURC. The IURC is required to review at least every four years the basic rates and charges of utilities, including the Steam Division, under Indiana Code 8-1-2-42.5. Typically, however, rates and charges and terms and conditions for utility service are revised pursuant to a utility's request— through a general rate case — after notice and a hearing before the IURC. The Board also is obligated to file an annual report with the IURC disclosing financial information and other matters.
Prior to the recent rate case described below, Citizens Thermal's most recent steam rate order became effective May 11, 2010.
On June 3, 2013, Citizens filed a petition with the IURC requesting approval to increase its rates and charges for steam service and for certain revisions to its terms and conditions for steam service. The final requested amount of the rate increase was $7.9 million or 11.97%. On May 21, 2014, the IURC, in its order for Cause No. 44349 (the "2014 Order"), approved an 11.43% overall increase in rates, representing an increase in revenues of approximately $7.6 million. Recovery of debt service on the Series 2014A Bonds was included in the 2014 Order. Further, the IURC in the 2014 Order found that the changes Citizens proposed to its terms and conditions for steam service, which include changes to the meter testing period and deposit rules for non-residential customers, were non- discriminatory, reasonable and just. Under the terms of a settlement agreement in IURC Cause No. 44149, Citizens agreed to implement an Operating Expense Rate Adjustment mechanism to track savings related to the conversion of the Perry K plant to natural gas. In this rate case, Citizens was required to propose a baseline for operations and maintenance (“O&M”) expenses in order to administer a tracking mechanism for O&M savings achieved as a result of the Perry K natural gas conversion. Citizens’ proposed baseline was approved.
Citizens' rates and charges include a Fuel Adjustment Cost factor ("FAC"), which provides for the recovery of increases and decreases in estimated fuel costs and associated taxes. The FAC is revised quarterly, based on a formula approved by the IURC. The most recent FAC reflected in the Board's rates and charges was approved by the IURC on April 16, 2014.
Recent Legislative and Regulatory Developments. In 2013, the Indiana General Assembly passed Senate Bill 560 which provides for an IURC order within 300 days of the utility filing its case in chief. Pursuant to the new law, failure to act within this window will result in 50% of the rate request becoming effective immediately, subject to refund if the final order authorizes less than 50% of the requested increase. The IURC has indicated its desire to finalize rate cases within the 300-day requirement. The new law will also make it easier for utilities to utilize forward-looking test years when setting new rates. The law was passed to help mitigate the effects of regulatory lag.
Environmental. The Steam Division, like other utilities, is subject to numerous laws affecting operation of power plants and the installation and maintenance of energy production and delivery systems, as promulgated and enforced by federal, state and local governmental agencies.
The Perry K plant operates in accordance with a Title V operating permit issued by the Indiana Department of Environmental Management. The boilers and equipment identified are operating in material compliance with the permit and applicable air pollution control regulations. Citizens' management and the Board have approved the
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decision to convert four (4) coal or oil-fired boilers to burn natural gas in order to remain competitive and to achieve compliance with certain Clean Air Act regulations related to hazardous air pollutants. Research and evaluation indicates that the conversion will improve the long term competiveness of the system and will reduce ratepayer costs.
In compliance with the Federal Water Pollution Control Act, as amended, the Indiana Department of Environmental Management issued a National Pollutant Discharge Elimination permit for operation of the Perry K plant. The permit allows the discharge of effluent into the White River, subject to certain limitations, monitoring requirements and other conditions. Some in-plant equipment and buried steam distribution pipe is insulated with asbestos. As such pipe is replaced in the ordinary course of business; asbestos is removed by a licensed abatement contractor, disposed of in an environmentally sound manner, and replaced with insulation which does not contain asbestos.
Perry K plant operations require disposal of sludge resulting from water treatment facilities. The Steam Division currently manages the disposal of this by-product at a reuse location in northern Indiana.
Fuels. Among the more important aspects of district heating system operations generally are fuel management and use, including fuel procurement. The cost of fuel for the Perry K plant is approximately 30 percent of total operating expenses and 50 percent of total revenues. The boilers at the Perry K plant use natural gas and/or No. 2 fuel oil. Under normal operating conditions, steam is produced at the Perry K plant using the lowest cost energy available, taking into account IRRF-produced steam. See Steam Division-Production Plant.
The No. 12 and 16 boilers were converted from coal to natural gas and full-load natural gas capability was added to boilers 17 and 18 during the time period of December 2013 to June 2014. Evaluation has shown that the projected long-term price for natural gas from sources such as the Energy Information Administration coupled with the reduction in operations and maintenance costs, as well as future capital requirements, will help to maintain competitive rates for steam against customers' other alternatives.
Gas. Seven boilers at the Perry K plant are fueled with natural gas. On May 8, 2014 the steam business signed on with a third party supplier to supply the full natural gas requirements for the business. Projected usage is expected to be 4-5 Billion Cubic Feet annually.
Oil. Oil is supplied to the two package boilers, each rated at 170,000 lbs./hr., from eight underground steel double-lined storage tanks at the Perry K plant. Each storage tank has a capacity of 30,000 gallons of No. 2 oil. As a result of the gas conversion project these two boilers now have the ability to burn natural gas. Oil will only be utilized if natural gas is curtailed or for internal maintenance requirements on the natural gas system. Total oil storage is sufficient to sustain approximately 8 days of usage at peak burn rates. The storage tanks are cathodically protected and monitored by a leak detection system.
For fiscal year 2013, the Steam Division's cost and use (by percentage) of energy, including steam purchased from the IRRF, are set forth in Table 7.
TABLE 7
ENERGY PURCHASES SEPTEMBER 30, 2013
Source Cost (Million BTU) Usage (%) Purchased steam $4.47 47.77 Coal 3.08 38.29 Natural Gas 4.43 13.93 Oil 19.41 0.01
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Capacity for Growth. The district heating system consists of three pressure delivery districts. See THERMAL ENERGY SYSTEM, Steam Division, Steam Distribution System. The steam distribution system distributes steam at 400 psig, 250 psig and 15 psig and has a total capacity to deliver approximately 2.345 million lbs./hour of steam. The most current peak demand on the steam distribution system has never exceeded 1.7 million lbs./hr., leaving excess capacity to meet peak demands of 645,000 lbs./hr. Steam Division growth is not limited by delivery capacity due to pressure.
Future anticipated growth of the high-pressure district will come from IUPUI and IU Health (formerly Clarian Health Systems). See THERMAL ENERGY SYSTEM, Chilled Water Division, Growth Opportunities.
Citizens entered into a contractual agreement with HHC to provide district steam service to its new Eskenazi (formerly Wishard) Hospital. As part of this agreement Citizens built, owns and operates a new central utility plant adjacent to the hospital that includes 70,000 lb./hr. of boiler capacity. Eskenazi Hospital can be served from this plant or from Citizens steam distribution network. This plant was completed in the fall of 2012 and the Hospital opened in December 2013.
In early 2014 IUPUI completed construction of both the Neuroscience Research Building near Methodist Hospital and the Science and Engineering Lab Building on their campus increasing overall annual revenue by approximately $50,000.
Additional growth in the low-pressure district is expected to come from new and renovated buildings in the downtown area. See THERMAL ENERGY SYSTEM, Steam Division, Influence of Heating, Cooling Degree Days, Competitive Position.
TABLE 8
Total Revenue by Rate Class (in $000's)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Rate 1 Customers $3,239 $3,248 $3,797 $2,788 $4,224 Rate 2 Customers 20,962 20,980 22,591 21,370 21,615 Rate 3 Customers 607 805 734 856 770 Rate 4 Customers 6,271 6,106 8,104 7,128 7,522 Fuel Surcharge & Other 40,694 38,651 33,570 32,161 32,828 Revenue Total Revenue $71,773 $69,790 $68,796 $64,303 $66,959
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TABLE 9
STEAM - HISTORICAL PERFORMANCE
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Revenues (in $ 000) $71,773 $69,790 $68,796 $64,303 $66,959 Operating expenses $68,876 $65,858 $62,527 $60,726 $62,691 Depreciation and Amortization $6,098 $4,420 $5,515 $4,201 $4,391 Capital expenditures (in $ 000) $4,690 $3,355 $7,148 $7,936 $9,459 Sendout (MDth) Perry K plant output 3,081 2,691 2,800 2,229 2,856 Purchased steam (IRRF) 4,368 4,809 4,672 4,752 4,536 Total sendout 7,449 7,500 7,472 6,981 7,392 Perry K plant capacity (mlb./hr) 1,990 1,990 1,990 1,990 2,060 System Peak (mlb./hr) 1,633 1,410 1,400 1,234 1,340 Reserve capacity (%) 17.9 29.1 29.6 38.0 35.0 Heating degree days 5,265 5,190 5,367 4,122 5.351 Cooling degree days 996 1,593 1,461 1,546 1,133
Influence of Heating, Cooling Degree Days
Heating Degree Days. Approximately 76 percent of the Steam Division's send out is related to process loads and is somewhat less influenced by weather and customer conservation efforts. The remaining 24 percent of sendout is for space heating purposes and is more directly affected by weather.
All utilities providing space heating services are subject to variations in send-out and associated revenues as a result of changes in heating degree days. Fewer heating degree days generally result in reduced sendout and lower revenues.
Cooling Degree Days. Steam Division performance also is affected by the number of cooling degree days in a year since the Chilled Water Division is the Steam Division's sixth largest customer. Generally, a higher number of annual cooling degree days results in higher steam send-out and revenues. While demand for chilled water is largely a function of outside air temperatures, demand also is influenced by relative humidity. Demand for chilled water is typically highest in the summer months and lowest in the winter months. However, use of computers and modern building design have tended to stabilize load requirements year round.
Competitive Position. Management believes that the cost of steam produced by the Perry K plant, when combined with steam purchased from the IRRF, is the lowest cost of any of the surveyed district heating systems available to customers of the Steam Division. Taking into account labor, fuel, capital, taxes, insurance and other factors, it would cost customers more on a per unit basis to construct and operate their own boilers. Management believes that steam will be more competitive than heat pumps or natural gas fired boilers for most industrial loads and large and medium commercial loads when all costs are taken into account.
The Steam Division's largest customers have been able to reduce their costs through the negotiation of customer-specific contracts that require IURC approval. Among these customers are Lilly, Ingredion and General Motors Corporation, all of which operate manufacturing and other facilities throughout the United States and purchase large volumes of energy.
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Citizens intends to expand the Steam Distribution System when potential new loads are identified.
Citizens has developed a marketing policy which will provide analytical services to its existing and potential customers to assist them in selecting the optimum utility service. Citizens' marketing policy is designed to work with architects, contractors, and owners to assist in the planning of in-building piping and network expansions to maximize steam use.
Sales. Table 10 shows sales for Fiscal Years 2009 through 2013. Material variations in sales and revenues from Fiscal Year to Fiscal Year largely reflect significant variations in weather — that is, warmer or colder than normal temperatures.
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Table 10 Steam Sold
(Expressed in MDths) Fiscal Year Ended September 30, 2009 2010 2011 2012 2013 General Revenue (Rate 1) 276 271 283 195 319 Demand Revenue (Rate 2) 3,349 3,214 3,244 3,001 3,171 Summer Revenue (Rate 3) 877 1,049 925 1,077 976 Special Contract Revenue 2,204 1,964 2,120 1,865 1,968 (Rate 4) Total Steam Sold 6,707 6,498 6,571 6,137 6,434
Heating degree days (normal is 5,369) Actual 5,265 5,190 5,367 4,122 5,351 Percent (warmer)/colder (4.64%) (6.00%) (2.79%) (23.23%) (3.69%) than normal
Chilled Water Division
The Chilled Water Division owns and operates the West Street System. The Chilled Water Division also operates a separate district cooling system, the Indianapolis Campus Energy ("ICE") system. Citizens does not own the ICE system but pursuant to an operating agreement remains the operator thereof. The West Street System serves customers in and around the Indianapolis central business district and IUPUI. The ICE system serves the Lilly Technology Center. The two systems are operated by the same managerial and operating personnel. See – Indianapolis Campus Energy System below.
West Street System. The West Street System, one of the largest district cooling systems in the United States, serves 60 customers, including a large shopping mall, the Indiana Convention Center, Lucas Oil Stadium, the home of the Indianapolis Colts, university and hospital facilities, hotels, major office buildings, and a portion of Eli Lilly's Corporate Center Campus. IUPUI is the district cooling system's largest customer. See THERMAL ENERGY SYSTEM, Chilled Water Division, Thermal Energy Contracts. The diverse nature of the West Street System's customer base results in varying peak demand periods, which allows for a high level of system utilization. The West Street System consists of four main chilled water production facilities, the West Street Plant (WSCW), the North Illinois Street Plant (ISCW), the Chiller Boiler Plant (CBP) and the North Plant. Total current production capacity is 60,600 tons between these and several additional smaller production facilities.
Indianapolis Campus Energy System. The Chilled Water Division also owned the ICE system and provided service to the north and south campuses of the Lilly Technology Center for space conditioning, manufacturing and research and development purposes pursuant to an agreement originally entered into in 1993. The initial term of the agreement was scheduled to expire in 2016, however, pursuant to the contract, Lilly gave notice to Citizens of its intent to exercise its option to purchase the plant from Citizens. On December 12, 2013, the Chilled Water Division sold its ICE system to Lilly for $12.0 million in cash. As part of this transaction, Citizens Thermal recorded a write-off of the remaining ICE system customer contract intangible asset balance of $12.4 million in December 2013. The overall result of the transaction is that the Chilled Water Division received $12 million in cash and recorded a $2.5 million non-cash loss, which is recorded in Operations and Maintenance Expense. Citizens has entered into a one year operating agreement to facilitate the transfer to Lilly.
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Production Plant
West Street. The West Street Chilled Water Plant (the "West Street Plant") is located on a 1.7-acre site at 350 West Street, in downtown Indianapolis, directly across the street from the Steam Division's Perry K plant. Constructed in 1991 and expanded in 1995 and 2008, the West Street Plant is comprised of a 47,500 sq. ft. building and a 21,000 sq. ft. area occupied by a six-cell (two fans/cell) cooling tower surrounded by security fencing and a four-cell cooling tower mounted above the roof of the plant structure. The West Street plant has an installed capacity of 36,250 tons made available from the equipment shown on Table 11.
TABLE 11
WEST STREET CHILLED WATER PLANT PRODUCTION
Size Supply Return Chiller (Tons) Drive Refrigerant Temp °F Temp °F
1 5,000 Steam R-22 40 52 2 5,000 Steam R-22 40 52 3 5,000 Steam R-22 40 52 4 5,000 Steam R-22 40 52 5 5,000 Steam R-22 40 52 6 5,000 Steam R-22 40 52 7 2,250 Electric R-22 40 52 8 2,000 Electric R-123 40 52 9 2,000 Electric R-134 40 52
North Plant. The Chilled Water Division also operates a 5,500 ton chilled water plant (the "North Plant") situated on the northern edge of the IUPUI campus, west of the Indianapolis central business district. The North Plant is operated under a 20-year lease agreement with IUPUI, and includes a 10-year renewable lease option. This facility was commissioned in June of 2007 and replaced an older facility which housed 5,000 tons of chilling equipment. Current installed capacity of 5,500 tons is made available from the equipment shown on Table 11A.
TABLE 11A
NORTH PLANT CHILLED WATER PLANT PRODUCTION
Size Supply Return Chiller (Tons) Drive Refrigerant Temp °F Temp °F
1 1,500 Electric R-134 40 52 2 2,000 Electric R-134 40 52 3 2,000 Electric R-134 40 52
Illinois Street Plant. The Illinois Street Chilled Water plant ("ISCW") is located on a 0.8-acre site at 819 N. Illinois Street, just north of downtown Indianapolis. Purchased in 2003 and initially commissioned in 2005, two 2,000-ton chillers were installed in an existing 7,200 sq. ft. building. A third 2,000-ton chiller was added to the existing building in 2007. The ISCW plant underwent an expansion that was completed in the Spring of 2008. The expansion added a new 10,000 sq. ft. building that houses one new 2,500-ton chiller that went into service during the 2008 cooling season. Cooling towers for the existing and new chillers were placed on the roof of the new building structure. Site capacity with these two buildings will be 13,500 tons, but room remains for expansion to an ultimate buildout of approximately 26,000 tons. Current installed capacity of 8,500 tons is made available from the equipment shown on Table 11B.
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TABLE 11B
ILLINOIS STREET CHILLED WATER PLANT PRODUCTION
Size Supply Return Chiller (Tons) Drive Refrigerant Temp °F Temp °F
1 2,000 Electric R-134 40 52 2 2,000 Electric R-134 40 52 3 2,000 Electric R-134 40 52 4 2,500 Electric R-123 40 52
Chiller Boiler Plant. The Chiller Boiler Plant ("CBP") is located on a 1 acre site at 1420 West Michigan Street west of downtown Indianapolis. Owned, operated and maintained by Citizens, this plant was built to provide steam and chilled water services to HHC for its new Eskenazi Hospital. Commissioned in 2012 the CBP houses two 3000-ton chillers and three 25,000 lb./hr. steam boilers. Site capacity with the existing building is 9000 tons of chilled water and 75,000 lbs./hr. of steam production and expansion is possible with rights to expand the building to a total of 18,000 tons. Cooling towers for the existing and for any future expansion will be located on the roof of the structure. Current installed capacity of 6000 tons is made available from the equipment shown on Table 11C.
TABLE 11C
CHILLER BOILER PLANT PRODUCTION
Size Supply Return Chiller (Tons) Drive Refrigerant Temp °F Temp °F
1 3,000 Electric R-123 40 52 2 3,000 Electric R-123 40 52
Distribution. Forty-eight inch supply and return lines exit the West Street Plant and extend north under West Street to Maryland Street. At Maryland Street, the lines split into 42-inch supply and return lines extending east along Maryland Street, to serve downtown customers and 42-inch supply and return lines extending west and north to serve the IUPUI system. There are approximately 9.0 trench miles of chilled water piping. The West Street Plant reached its original design capacity of 32,250 tons in 2007 and was expanded in 2008 with the addition of 4,000 tons of new cooling capacity to accommodate continued system growth.
Operational Staff. Citizens currently employs 23 employees at Chilled Water. All of the Chilled Water facilities are monitored and controlled from the West Street Plant which is automated and operates 24 hours per day, 365 days per year under the direction of a single manager. There are three operators per shift working two twelve hour shifts per day.
Franchise. In 1990, the City granted a non-exclusive, non-automatically renewable franchise to provide a local district cooling service through the use of public rights-of-way within a specified geographic area in downtown Indianapolis. Extension of the geographic area was made subject to the approval of the City. The franchise agreement was assigned to the Board and amended by the City and the Board at the time the West Street System was acquired by the Board. Under the franchise agreement, the Board is required to pay the City a franchise fee of four percent of gross revenues, less the previous year's fee, through 2013, and five percent of gross revenues, until the end of the franchise term, in 2025. Through 2013, the franchise fee is subject to an increase equal to five percent of the amount that actual gross annual revenue exceeds a projected gross annual revenue specified in the franchise agreement. The franchise agreement is subject to termination in whole or in part prior to the expiration of its term upon a finding by the City that the Board has abandoned or has failed to promote the franchise or any part of it.
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Rate Regulation. The Chilled Water Division is not regulated by the IURC. Chilled Water is provided to customers under the terms of individual customer contracts. See THERMAL ENERGY SYSTEM, Chilled Water Division, Customer Contracts.
Environmental. The Clean Air Act of 1990 bans the production of chlorofluorocarbons ("CFCs"),which is a widely used coolant chemical. The chillers supplying the West Street System (as well as the ICE System) utilize R-22, R-134 and R-123 as coolant, which are non-CFC products known as a hydrochlorofluorocarbon ("HCFC"). Clean Air Act programs ban the production of new equipment containing certain HCFCs, including R-22, allowing the production of certain HCFCs for use in servicing existing equipment only, beginning in January 2010. In January 2020, the production of certain HCFCs, including R-22, will be prohibited, leaving available only the volumes of HCFCs to service equipment. The Chilled Water Division undertook planning in FY 2009 to prepare for the phase-out and eventual ban of R-22.
The Chilled Water Division's facilities are in compliance with the Clean Air Act.
Fuel. The Chilled Water Division purchases approximately 8 million therms of steam per year from the Steam Division to drive six of the nine chillers at the West Street Plant. The cost of steam is the second largest variable expense of operating the West Street System. Electricity cost represents the largest variable expense. In 2013, purchased steam comprised approximately 35 percent of total variable costs while accounting for approximately 63 percent of the total chilled water production. However, the purchased steam is a relatively low cost fuel that, when combined with the West Street Plant production capacity, provides competitive advantages over smaller scale on-site chillers at individual buildings.
While the cost of steam is advantageous, management believes the ability to produce a limited amount of chilled water with the system's electric-powered chillers provides flexibility. Typically, the steam-powered chillers are used to provide chilled water whenever possible as a result of the inherent cost advantage. However, on any given day, the electric-powered chillers, which takes less time than the steam-powered chillers to chill water, can be used to more quickly adjust to changes in demand. In addition, the electric-powered chillers allow better management of steam usage during the winter months, when the steam demand charge is set.
Customer Contracts. As in most district cooling systems, chilled water delivered by the West Street System is sold to retail customers pursuant to requirements contracts with terms typically ranging from five to 20 years. The remaining average life of the Chilled Water Division's contracts is now approximately five to 15 years; however, these contracts may be canceled, subject to compliance with the provisions of such contracts. Some contracts will terminate prior to the final maturity of the Bonds. In the normal course of business, management plans to extend the term of its customer contracts as they come up for renewal.
The Chilled Water Division uses a standard rate structure for most of its contracts. Customer billing rates typically have two components – a fixed capacity charge and a variable usage charge. The capacity charge is based upon cooling demand that is phased in or adjusted based upon actual usage. All rates have annual escalation provisions based upon price indices. Several of the Chilled Water Division's customer contracts contain "most favored customer" provisions entitling these customers to rates no higher than other customers given the same circumstances.
Since 1991, all contracts subject to renewal have been renewed by the customers, except for the contracts for National City Center, the former American Fletcher National Bank headquarters on Monument Circle (now JPMorgan Chase Bank, N.A.) and the former Jefferson Plaza Building. Two of those customers terminated service in mid-2000 prior to the Board's acquisition of the Chilled Water facilities with the former Jefferson Plaza terminating upon new ownership of the building in 2007. Management believes that, for the majority of customers, cancellation or non-renewal of a contract would require significant capital expenditures to acquire and install or repair existing independent water chilling equipment and air conditioning systems, as well as additional ongoing expenses for operations and maintenance.
IUPUI. IUPUI is under contract with Citizens through December 31, 2021, for chilled water service. As a result of an amendment to the original contract between IUPUI and Mid-America Energy Resources, Inc., Indiana University Health Partners, Inc. ("IU Health") will now receive chilled water for its campus hospital facilities
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directly from the Chilled Water Division. IU Health previously received chilled water service through IUPUI. The contract, as amended, makes the Board's chilled water service, with certain exceptions, the exclusive cooling source for IUPUI and the IU Health hospitals on the IUPUI campus, and limits the customer's right to use another cooling source. The Chilled Water Division is responsible for the operation, maintenance and repair of the IUPUI distribution system.
The rate structure for IUPUI consists of three tiers: (1) a facility charge that is scheduled to increase no more than 4.0 percent per year; (2) a variable production charge that varies with actual cost of electricity, steam, water, sewer and chemicals incurred by the Chilled Water Division to produce chilled water; and (3) an incremental distribution and maintenance charge. IUPUI and IU Health receive a capital avoidance credit, applied to their bills for the use of the North Plant. This credit is approximately $137,000 per month.
Through fiscal year 2013, IUPUI accounted for approximately 54 percent of total ton hours sold and 50 percent of total revenues generated. IUPUI's non-peak demand and year round usage are important to the ability to increase capacity.
The IUPUI contract also allows termination without penalty in the event that the biennial budget approved by the Indiana General Assembly does not include sufficient moneys to allow IUPUI to pay for operating expenses of this nature. An early termination is deemed unlikely by management as a result of the significant costs (and resulting appropriations required) of alternative space conditioning.
Indiana Government Center. Citizens will provide service to the Indiana Government Center (North and South) under a District Cooling Service Contract signed in 2003. Subsequent amendments to this contract now provide for chilled water service to the Indiana Statehouse, the Indiana State Library, the Indiana Training Services Building, and the Indiana Historical Society Building. The contract provides for a Capacity Rate, a Consumption Rate and a Lost Water Rate. The contract contains a provision, similar to that contained in the IUPUI contract, allowing termination in the face of inadequate appropriations. Negotiations are now underway for a new contract with similar terms to the existing contract.
Convention Center, Lucas Oil Stadium. Citizens' contract to provide chilled water service to the Indiana Convention Center and Lucas Oil Stadium is with the Capital Improvement Board of Managers of Marion County. The contract was entered into in 1998, most recently amended in 2008, and expires March 31, 2018. It is subject to automatic renewal for additional five-year terms, unless either party provides notice within one year of the expiration of its term. Under the contract, the Capital Improvement Board pays a Capacity Charge, a Consumption Charge and a Lost Water Charge, all of which are subject to escalation to reflect inflation. The Capacity Charge is based on a Contract Capacity that is subject to adjustment under certain circumstances. Much of the peak space conditioning requirements for the Convention Center and Lucas Oil Stadium occurs during non-peak hours. This frees up the overall capacity of the West Street System and benefits the Capital Improvement Board, which avoids large capital expenditures and ongoing maintenance costs. The Convention Center and Lucas Oil Stadium's demand for large quantities of chilled water during non-peak hours demonstrates the benefits of a district chilled water system.
Growth Opportunities. With the addition of 6,000 tons of new capacity in 2013, the West Street Chilled Water System now has 60,000 tons of installed capacity. This includes the use of 4,400 tons of existing customers' "in-house" cooling systems to meet peak demands. Such an addition is a cost effective way to add additional revenue-generating load while maintaining the ability to meet the peak demands without large capital investments. In February 2014, the old Wishard Campus buildings were transferred to IUPUI and are serviced by the WSCW system. As part of an amendment to the original cooling contract, Citizens will lease the old Wishard Chiller Water Plant from IUPUI. This 4,000-ton plant will be connected to the WSCW system thus increasing the installed capacity of 64,600 tons. All of the old Wishard buildings will be evaluated by IUPUI to determine whether the buildings will be maintained or demolished for future development
The IUPUI campus and surrounding area continue to be the prime target for growth of the West Street System. Aggressive expansion plans for both IUPUI and IU Health Systems have fueled this growth. The IUPUI Science and Engineering Laboratory Building was recently completed as has a major addition to Riley Hospital for
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Children. Construction of the new IUPUI University Hall began in early 2014. This building will be constructed by a third party and then leased to IUPUI. All of these buildings utilize or will utilize district chilled water for cooling.
Other growth opportunities exist in association with the construction of the new IU Health Neuroscience Center of Excellence Building near Methodist Hospital Campus on the northwest portion of downtown. The 700-ton building which was completed in mid-2012 is cooled with district chilled water. IUPUI completed construction of a 1,100-ton Neuroscience Research Building in this area in 2014. The chilled water distribution system was extended to service this area in 2011 which enhances the potential of serving all or part of IU Health Methodist Hospital Campus.
In late 2011 Citizens entered into a contract to serve chilled water to the new 300-room Alexander hotel located near the Lilly Corporate Center, which opened for business in January 2013.
Citizens recently entered into a contractual agreement with HHC to provide district steam and chilled water service to its new Eskenazi (formerly Wishard) Hospital. Citizens built, owns and operates a new central utility plant adjacent to the hospital with 6,000 tons of chilled water capacity and 70,000 lb./hr. of boiler capacity. This plant was completed in the fall of 2012 and the Hospital opened in December 2013.
As a result of the opening of the new Eskenazi Hospital, HHC transferred its existing 7,000-ton chilled water plant, at its old Wishard Hospital, to IUPUI in early 2014. Citizens and IUPUI have agreed that Citizens shall lease and operate this chilled water plant for the purpose of serving the existing and future buildings on the former Wishard campus. This campus is an ideal location to serve future IUPUI and IU Health growth.
Competitive Position. Competition for district cooling comes primarily from on-site chilling units within individual buildings. The use of on-site chillers historically has been the most common way for buildings to provide space conditioning. The availability of district cooling, however, has offered building owners a significant number of benefits over on-site chillers, including reduced up-front costs incurred related to acquiring and installing chilled water systems, the elimination of ongoing maintenance requirements, increased square footage available for rental or other uses by not having to house the space conditioning equipment within the building, and the elimination of environmental issues. In addition, Citizens structures its contracts so as to be cost competitive with on-site chillers.
The entrance of a new district cooling system or the development of new technologies for cooling large buildings on-site could have a negative impact on financial results. However, because of the difficulties associated with the high cost of constructing a plant with a related underground pipeline and obtaining a franchise agreement, the Board does not view the possibility of a new market entrant as a major threat. Moreover, Citizens has entered into long-term contracts with the majority of the market's most attractive customers. Citizens is not aware of any new technologies in place or under development which, in its opinion, would have a material impact on the Chilled Water Division's operations.
Sales. Table 12 shows chilled water sales for Fiscal Years 2009 through 2013. Material variations in sales and revenues from Fiscal Year to Fiscal Year largely reflect significant variations in weather — that is, warmer or colder than normal temperatures. See THERMAL ENERGY SYSTEM, Chilled Water Division, Customer Contracts.
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Table 12 Chilled Water Sold (Expressed in Mton Hours) Fiscal Year Ended September 30,
2009 2010 2011 2012 2013 Chilled Water Sold 150,837 170,034 166,042 170,104 167,926
Cooling degree days (normal is 1,042) Actual 996 1,593 1,461 1,546 1,133 Percent warmer/(colder) (4.41%) 52.9% 40.2% 48.4% 6.29% than normal
Steam Division and Chilled Water Division
Thermal Energy Revenues. Table 13 shows sales for Fiscal Years 2009 through 2013. Material variations in sales and revenues from Fiscal Year to Fiscal Year largely reflect significant variations in weather — that is, warmer or colder than normal temperatures. See THERMAL ENERGY SYSTEM, Steam Division, Rate Setting and THERMAL ENERGY SYSTEM, Chilled Water Division, Customer Contracts.
Table 13 Thermal Energy Revenues (Expressed in thousands) Fiscal Year Ended September 30,
2009 2010 2011 2012 2013 Steam Division: General Revenue (Rate 1) $ 3,239 $ 3,248 $3,797 $2,788 $4,224 Demand Revenue (Rate 2) 20,962 20,980 22,591 21,370 21,615 Summer Revenue (Rate 3) 607 805 734 856 770 Special Contract Revenue 6,271 6,100 8,104 7,128 7.522 (Rate 4) Fuel Revenue 40,625 38,413 33,505 32,105 32,690 Other Revenues 69 244 65 57 138 Total Steam Division Revenue $ 71,773 $ 69,547 $68,796 $64,303 $66,959
Chilled Water Division $ 33,877 $ 38,005 $38,506 $39,645 $41,911
Thermal Energy Revenue $ 105,650 $ 107,552 $107,302 $103,948 $108,870
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Thermal Energy Customers. Table 14 shows the top ten customers of the Steam Division and Chilled Water Division by revenue for Fiscal Years 2009 – 2013.
Table 14 Top 10 Customers by Revenue (in 000s) Fiscal Year Ended September 30, 2009 2010 2011 2012 2013 Steam Lilly $ 21,148 $ 19,469 $ 22,552 $ 18,550 $19,151 Ingredion 7,129 7,837 7,530 7,250 7,164 IUPUI 8,155 7,837 7,920 7,180 7,465 Citizens Thermal Energy 3,263 3,480 3,413 3,556 3,222 IU Health * 10,222 9,839 8,161 9,217 9,112 Marriot Hotel 1,475 1,569 General Motors/Racer Trust 2,023 1,825 1,767 1,545 1,308 Operations Division 2,462 2,255 2,430 1,946 2,111 Capital Improvement Board 1,665 997 VA Medical Center 1,813 1,773 1,743 1,550 1,543 Wishard Health Services 1,786 1,730 1,705 1,602 1,656
Chilled Water IUPUI/IU Health $ 13,118 $ 14,750 $ 16,811 $ 17,446 $16,526 Lilly Corporate 6,869 7,471 7,924 8,454 9,636 State Office Building 2,041 2,135 2,337 2,101 2,129 Capital Improvement Board 1,629 1,695 1,722 1,969 1,983 Circle Center Mall 766 749 822 920 889 Marriott Hotel 545 560 551 588 562 IMAX 491 500 543 528 535 Conrad Hilton 409 414 468 465 464 Indiana State Capitol 409 439 255 Marion County Library 478 502 399 Eskenazi Hospital 2,107 J.W. Marriott 1,299 1,234 NCAA 424 *Previous Clarian Partners and Methodist Hospital
Due to the sale of the ICE system as described under THERMAL ENERGY SYSTEM, Chilled Water Division, Indianapolis Campus Energy System, in the future, Lilly will not remain as a top customer of the Chilled Water System.
Capital Improvements. Citizens estimates expenditures for additions, betterments, replacements and improvements for the five-year period of Fiscal Years 2014 through 2018 at $24.3 million for the Steam Distribution System and $12.3 million for the Chilled Water Distribution System. Citizens expects to fund such expenditures from internally generated funds, short-term borrowings, and permanent financing. The table below shows the actual capital expenditures in Fiscal Years 2012-2013, the budgeted capital expenditures for Fiscal Year 2014 and the Forecast Capital Expenditures for Fiscal Year 2015 for the Steam System and the Chilled Water System.
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Table 15
Historical Steam Capital Expenditures (000s) Actual Actual Actual Actual Actual Description 2009 2010 2011 2012 2013 Mains & Services 755 988 1,103 1,180 1,651 Structures & Improvements 314 144 323 624 437 Production Equipment 3,391 2,185 2,192 1,720 3,277 Natural Gas Conversion - - - - 3,814 Fleet & Work Equipment 109 - 38 72 85 Environmental 121 16 (5) - - Eskenazi Chiller and Boiler Plant - 22 3,497 4,340 195 Steam Operations Capital 4,690 3,355 7,148 7,936 9,459
Historical Chilled Water Capital Expenditures (000s) Actual Actual Actual Actual Actual Description 2009 2010 2011 2012 2013 Mains & Services 1,448 271 1,383 2,522 245 Structures & Improvements 9 17 90 (15) 192 Production Equipment 946 455 240 424 185 Fleet & Work Equipment 19 - 197 518 Environmental - - 24 1 - Eskenazi Chiller and Boiler Plant - 101 8,523 6,900 1,121 Chilled Water Operations Capital 2,422 844 10,260 10,029 2,261
Total Thermal Capital (Historical) 7,112 4,199 17,408 17,965 11,720
Forecasted Steam Capital Expenditures Budget Forecast Forecast Forecast Forecast Description 2014 2015 2016 2017 2018 Mains & Services 1,289 1,032 855 855 855 Structures & Improvements 330 400 815 340 440 Production Equipment 1,219 405 1,325 1,965 1,835 Natural Gas Conversion 5,181 87 - - - Fleet & Work Equipment 75 - - 150 120 Environmental 45 45 101 200 100 Steam Operations Capital 8,139 1,969 3,096 3,510 3,350
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Forecasted Chilled Water Capital Expenditures (000s) Budget Forecast Forecast Forecast Forecast Description 2014 2015 2016 2017 2018 Mains & Services 1,025 280 295 250 250 Structures & Improvements 735 465 315 380 690 Production Equipment 1,940 1,105 695 660 490 Fleet & Work Equipment 230 50 50 50 50 Environmental - - - - 200 Chilled Water Operations Capital 3,930 1,900 1,355 1,340 1,680
Total Thermal Capital (Forecasted) 12,069 3,869 4,451 4,850 5,030
CERTAIN MATTERS POTENTIALLY AFFECTING THE THERMAL ENERGY SYSTEM
Series 2014A Bonds are Limited Obligations
The Series 2014A Bonds will be limited obligations of Citizens, payable solely as described in the Indenture. See SECURITY FOR BONDS. The Series 2014A Bonds are not, and shall never constitute, a charge against the general credit or taxing power of the City, its utility district as a special taxing district or the State of Indiana or any political subdivision thereof.
No property taxes have been or are expected to be levied or are expected to be available to pay debt service on the Series 2014A Bonds.
Environmental Regulation
The Thermal Energy System operations are subject to various local, state and federal environmental laws and regulations. Compliance with such laws and regulations is not believed to require significant capital outlays at this time. See THERMAL ENERGY SYSTEM, Steam Division, Environmental. There are a number of federal and state legislative and regulatory efforts underway which seek to limit and/or control pollutants. The impact and cost of such proposed legislative and regulatory initiatives on Citizens and the Thermal Energy System are under evaluation, but the costs of compliance with such proposed legislation and initiatives are not yet known and therefore cannot be quantified at this time. See THERMAL ENERGY SYSTEM, Production Plant, Environmental.
Federal and State legislation and regulations also impact the operation of the Thermal Energy System through the regulation of land use, appropriation of water, and water quality. The constraints imposed by environmental laws and regulations can potentially limit the current yield or further expansion of existing projects as well as prohibit new project development. The financial impact of these constraints on the Thermal Energy System are not yet known and therefore cannot be quantified at this time, but are not believed to be financially material.
Catastrophic Loss and Terrorist Attacks
The Thermal Energy System is susceptible to certain risks posed by fire, explosion and other catastrophic loss. Certain of these risks may be mitigated by the purchase of insurance; however, it is not possible to predict at this time whether the insurance coverage would be sufficient to pay all of the costs associated with a flood, drought or other catastrophic event. To the extent insurance coverage is not sufficient to replace facilities damaged by fire, explosion or other catastrophic event (or to the extent damage caused by such events is excluded from policy
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coverage), Citizens Energy Group may be required to expend significant amounts to replace the damaged facilities and operations may be negatively impacted to an extent that cannot be determined at this time.
Terrorist attacks, such as the attacks that occurred on September 11, 2001, and future risk of further terrorist attacks, may have an impact on the operation of the Thermal Energy System. The specific impact on the Thermal Energy System cannot be determined. However, the terrorist attacks on the World Trade Center and the Pentagon could mean that public infrastructure facilities, including gas storage, transmission and distribution systems such as the Thermal Energy System could be direct targets, or indirect casualties of, an act of terror. Any future attacks could lead to damage to one or more significant components of the Thermal Energy System.
Insurance
Citizens Energy Group has obtained insurance coverage for the Thermal Energy System. The Thermal Energy System facilities are insured against certain catastrophic losses; however, it is not possible to determine whether the level of such coverage will be sufficient to cover actual losses sustained as a result of catastrophic loss. In the event the Thermal Energy System sustains damage rendering it unable to operate for any significant length of time, the collection of Income and Revenues of the Thermal Energy System will be adversely impacted. In addition, Citizens Energy Group will be required to pay the capital costs necessary to repair the damage from funds other than insurance proceeds.
IURC Regulation
As more thoroughly discussed under "THERMAL ENERGY SYSTEM, Steam Division, Rate Setting" the Steam Division operated by Citizens has been subject to the ratemaking jurisdiction of the IURC for a number of years and has significant experience establishing rates and charges under Indiana Code 8-1.5-3-8. However, any future changes in rates and charges or terms of service for the Steam Division are subject to approval of the IURC and the Board. There is no assurance that the IURC will approve any further increases to the Steam Division's rates or in the precise amounts requested.
Additional Factors
In addition to the matters discussed under this heading, factors that could cause the actual results of Citizens and the Thermal Energy System to differ materially from those contemplated in any forward-looking statements include, among others, the following:
• Factors affecting utility operations, such as unusual weather conditions; catastrophic weather-related damage; unusual maintenance or repairs; unanticipated changes to gas commodity costs or availability as a result of higher demand, shortages, transportation problems or other developments; environmental or pipeline incidents; or gas pipeline system constraints.
• Increased competition in energy markets, including effects of industry restructuring and unbundling.
• Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission, the IURC or other state public utility commissions, state entities which regulate natural gas transmission, gathering and processing, and similar entities with regulatory oversight.
• Economic conditions, including inflation rates and monetary fluctuations.
• Changing market conditions and a variety of other factors associated with physical energy and financial trading activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, interest rate and warranty risks.
• Availability or cost of capital, resulting from changes in Citizens, the Thermal Energy System, interest rates and credit ratings or market perceptions of the utility industry and energy-related industries.
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• Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees or work stoppages.
• Costs and other effects of legal and administrative proceedings, compliance with the terms of settlements, investigations, claims and other matters, including, but not limited to, those described in this Official Statement.
• Changes in federal, state or local legislative requirements, such as changes in tax laws or rates, environmental laws and regulations.
Forward-Looking Statements
This Official Statement and its appendices, contain statements relating to future results that are "forward- looking statements." When used in this Official Statement, the words "estimate," "forecast," "intend," "expect" and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty. Accordingly, such statements are subject to risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward- looking statements will not be realized, or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward looking statements and actual results. Those differences could be material and those differences could negatively impact the availability of Income and Revenues of the Thermal Energy System to pay debt service on the Series 2014A Bonds. Citizens undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.
FINANCIAL INFORMATION
Citizens' most recent annual financial information is located at http://www.citizensenergygroup.com/pdf/2013AnnualReport_Financials.pdf and the most recent interim financial information is located at http://www.citizensenergygroup.com/pdf/Q22014Report.pdf. In addition, Citizens' most recent annual financial information and interim financial information are available to the public on the Municipal Securities Rulemaking Board's Internet Web site. Neither Citizens' independent auditors, nor any other independent accountants have compiled, examined or performed any procedures with respect to the financial information contained herein, including any prospective information, nor has Citizens requested its independent auditors, nor any other independent accountants, to update any financial information contained herein. Citizens has not requested that its independent auditors, nor any other independent accountants, agree to the use of such financial information in this Official Statement.
LITIGATION
No litigation is pending or, to the knowledge of Citizens, threatened in any court to restrain or enjoin the transactions described in this Official Statement (the "Transactions"), the issuance or delivery of the Series 2014A Bonds or the collection of Income and Revenues of Thermal Energy System or the Pledged Funds pledged or to be pledged to pay the principal of and interest on the Series 2014A Bonds, or in any way contesting or affecting the Transactions, the validity of the Series 2014A Bonds or the Master Indenture and all supplements thereto or the power to collect and pledge such Income and Revenues of Thermal Energy System and the Pledged Funds to pay the Series 2014A Bonds, or contesting the power or the authority of Citizens to enter into or close the Transactions, to issue the Series 2014A Bonds or to enter into the Master Indenture and all supplements thereto.
Citizens is a defendant in various suits arising out of the normal course of its Gas Utility System, Gas Utility Distribution System, Thermal Energy System and Water System businesses and the operation of the Wastewater System, in which payments for damages may be substantial, but cannot be determined. Citizens regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. Citizens believes that these matters ultimately will be resolved in a manner which will not materially adversely affect the financial position of Citizens.
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LEGALITY FOR INVESTMENT
Pursuant to the Act, the Series 2014A Bonds are securities in which the State of Indiana and all its public officers, governmental units, agencies and instrumentalities, all banks, trust companies, savings banks and institutions, building and loan associations, savings and loan associations, investment companies, and other persons carrying on a banking business, all insurance companies, insurance associations, and other persons carrying on an insurance business, and all executors, administrators, guardians, trustees and other fiduciaries may legally invest any funds belonging to them or within their control, and the Series 2014A Bonds are authorized security for any and all public deposits.
TAX MATTERS
In the opinion of Ice Miller LLP, Indianapolis, Indiana, bond counsel, under existing federal statutes, decisions, regulations and rulings, interest on the Series 2014A Bonds is excludable from gross income for purposes of federal income taxation, pursuant to Section 103 of the Code, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for purposes of computing the federal alternative minimum tax imposed on certain corporations. The opinion of Ice Miller LLP is based on certain certifications, covenants and representations of Citizens (collectively, the "Tax Covenants") and is conditioned on continuing compliance with the Tax Covenants. See APPENDIX E, FORM OF OPINION OF BOND COUNSEL.
The Code imposes certain requirements which must be met subsequent to the issuance of the Series 2014A Bonds as a condition to the exclusion from gross income of interest on the Series 2014A Bonds for federal tax purposes. Noncompliance with such requirements may cause interest on the Series 2014A Bonds to be included in gross income for federal tax purposes retroactive to their respective dates of issue irrespective of the date on which such noncompliance occurs. Should the Series 2014A Bonds bear interest that is not excludable from gross income for federal income tax purposes, the market value of the Series 2014A Bonds would be materially and adversely affected. The Tax Covenants include covenants that (i) Citizens will not take or fail to take any action with respect to the Series 2014A Bonds, if such action or omission would result in the loss of the exclusion from gross income for federal tax purposes of interest on the Series 2014A Bonds under Section 103 of the Code, and Citizens will not act in any other manner which would adversely affect such exclusion; (ii) Citizens will not make any investment or do any other act or thing during the period that the Series 2014A Bonds are outstanding which would cause the Series 2014A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code; and (iii) if required by the Code, Citizens will rebate any necessary amounts to the United States of America. It is not an Event of Default or a Second Lien Event of Default under the Master Indenture if interest on the Series 2014A Bonds is not excludable from gross income for federal tax purpose or otherwise pursuant to any provision of the Code which is not in effect on the date of issuance of the Series 2014A Bonds.
In the opinion of Ice Miller LLP, Indianapolis, Indiana, bond counsel, under existing federal statutes, decisions, regulations and rulings, interest on the Series 2014A Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series 2014A Bonds for State income tax purposes. See APPENDIX E, FORM OF OPINION OF BOND COUNSEL.
Indiana Code 6-5.5 imposes a franchise tax on certain taxpayers (as defined in Indiana Code 6-5.5) which, in general, includes all corporations which are transacting the business of a financial institution in Indiana. The franchise tax will be measured in part by interest excluded from gross income under Section 103 of the Code minus associated expenses disallowed under Section 265 of the Code. Taxpayers should consult their own tax advisors regarding the impact of this statute on their ownership of the Series 2014A Bonds.
Although bond counsel will render an opinion that interest on the Series 2014A Bonds is excludable from federal gross income and exempt from State income tax, the accrual or receipt of interest on the Series 2014A Bonds may otherwise affect a bondholder's federal income tax or state tax liability. The nature and extent of these other tax consequences will depend upon the bondholder's particular tax status and a bondholder's other items of income or deduction. Taxpayers who may be affected by such other tax consequences include, without limitation, financial institutions, certain insurance companies, corporations, certain foreign corporations, individual recipients of Social Security or railroad retirement benefits and taxpayers who may be deemed to have incurred (or continued)
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indebtedness to purchase or carry the Series 2014A Bonds. Bond counsel expresses no opinion regarding any other such tax consequences. Prospective purchasers of the Series 2014A Bonds should consult their own tax advisors with regard to the other tax consequences of owning the Series 2014A Bonds.
Legislation affecting municipal bonds is considered from time to time by the United States Congress, including some proposed changes under consideration at the time of issuance of the Series 2014A Bonds. Bond Counsel's opinion is based upon the law in existence on the date of issuance of the Series 2014A Bonds. It is possible that legislation enacted after the date of issuance of the Series 2014A Bonds or proposed for consideration will have an adverse effect on the excludability of all or a part of the interest on the Series 2014A Bonds from gross income, the manner in which such interest is subject to federal income taxation or the market price of the Series 2014A Bonds.
ORIGINAL ISSUE DISCOUNT
The initial public offering price of the Series 2014A Bonds maturing on October 1, 2034 (the "Discount Bond"), is less than the principal amount payable at maturity, and as a result, the Discount Bond will be considered to be issued with original issue discount. The difference between the initial public offering price of the Discount Bond as set forth on the inside cover page of this Official Statement (assuming it is the first price at which a substantial amount of that maturity is sold) (the "Issue Price" for such maturity), and the amount payable at maturity of the Discount Bond will be treated as "original issue discount." A taxpayer who purchases a Discount Bond in the initial public offering at the Issue Price for such maturity and who holds such Discount Bond to maturity may treat the full amount of original issue discount as interest which is excludable from the gross income of the owner of that Discount Bond for federal income tax purposes and will not, under present federal income tax law, realize taxable capital gain upon payment of the Discount Bond at maturity.
The original issue discount on the Discount Bond is treated as accruing daily over the term of such Discount Bond on the basis of the yield to maturity determined on the basis of compounding at the end of each six month period (or shorter period from the date of the original issue) ending April 1 and October 1 (with straight line interpolation between compounding dates).
Section 1288 of the Code provides, with respect to tax exempt obligations such as the Discount Bond, that the amount of original issue discount accruing each period will be added to the owner's tax basis for the Discount Bond. Such adjusted tax basis will be used to determine taxable gain or loss upon disposition of the Discount Bond (including sale, redemption or payment at maturity). Owners of the Discount Bond who dispose of such Discount Bond prior to maturity should consult their tax advisors as to the amount of original issue discount accrued over the period held and the amount of taxable gain or loss upon the sale or other disposition of such Discount Bond prior to maturity.
As described under "TAX MATTERS," the original issue discount that accrues in each year to an owner of a Discount Bond may result in certain collateral federal income tax consequences. Owners of such Discount Bond should be aware that the accrual of original issue discount in each year may result in a tax liability from these collateral tax consequences even though the owners of such Discount Bond will not receive a corresponding cash payment until a later year.
Owners who purchase such Discount Bond in the initial public offering but at a price different from the Issue Price for such maturity should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds.
The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of bonds such as the Discount Bond. Owners who do not purchase such Discount Bond in the initial public offering should consult their own tax advisors with regard to the other tax consequences of owning the Discount Bond.
Owners of such Discount Bond should consult their own tax advisors with respect to the state and local tax consequences of owning such Discount Bond. It is possible under the applicable provisions governing the
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determination of state and local income taxes that accrued interest on the Discount Bond may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment until a later year
AMORTIZABLE BOND PREMIUM
The initial offering prices of the Series 2014A Bonds maturing on October 1 in the years 2015 through and including 2033 (collectively, the "Premium Bonds") are greater than the principal amount payable at maturity. As a result, the Premium Bonds will be considered to be issued with amortizable bond premium (the "Bond Premium"). An owner who acquires a Premium Bonds in the initial offering will be required to adjust the owner's basis in the Premium Bonds downward as a result of the amortization of the Bond Premium, pursuant to Section 1016(a)(5) of the Code. Such adjusted tax basis will be used to determine taxable gain or loss upon the disposition of the Premium Bonds (including sale, redemption or payment at maturity). The amount of amortizable Bond Premium will be computed on the basis of the taxpayer's yield to maturity with compounding at the end of each accrual period. Rules for determining (i) the amount of amortizable Bond Premium and (ii) the amount amortizable in a particular year are set forth in Section 171(b) of the Code. No income tax deduction for the amount of amortizable Bond Premium will be allowed pursuant to Section 171(a)(2) of the Code, but amortization of Bond Premium may be taken into account as a reduction in the amount of tax exempt income for purposes of determining other tax consequences of owning the Premium Bonds. Owners of the Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the treatment of Bond Premium upon the sale or other disposition of Premium Bonds and with respect to the state and local tax consequences of owning and disposing Premium Bonds.
Special rules governing the treatment of Bond Premium, which are applicable to dealers in tax exempt securities are found at Section 75 of the Code. Dealers in tax exempt securities are urged to consult their own tax advisors concerning treatment of Bond Premium
LEGAL OPINIONS, ENFORCEABILITY OF REMEDIES
Certain legal matters incident to the authorization and issuance of the Series 2014A Bonds are subject to the unqualified approving opinion of Ice Miller LLP, Indianapolis, Indiana, bond counsel and special counsel to the Board, and of Gonzalez Saggio & Harlan LLP, Indianapolis, Indiana, special counsel to Citizens. Ice Miller LLP, Indianapolis, Indiana, bond counsel, also has served from time to time as special counsel to the Board on various other legal matters on an assignment basis and in such capacity has performed legal services limited to the scope and nature of such assignments. In addition, Barnes & Thornburg LLP, Indianapolis, Indiana, will pass upon certain matters for the underwriters of the Series 2014A Bonds in connection with the issuance and sale of the Series 2014A Bonds.
The various legal opinions to be delivered concurrently with the delivery of the Series 2014A Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transactions opined upon, or of the future performance of parties to such transactions.
RATINGS
Standard & Poor's Ratings Services ("S&P") and Fitch Ratings Ltd., assigned to the Series 2014A Bonds ratings of "A (stable)" and "A (stable)", respectively.
Such ratings reflect only the views of the respective rating agencies and an explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same. Citizens furnished to the rating agencies certain information and material concerning the Series 2014A Bonds and the Thermal Energy System. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that they might not be lowered or withdrawn entirely by the rating agencies if, in their judgment, circumstances so warrant.
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The underwriters have undertaken no responsibility either to bring to the attention of the holders of the Series 2014A Bonds any proposed change in or withdrawal of any rating or to oppose any such proposed revisions or withdrawal. Any such downward change in or withdrawal of any rating might have an adverse effect on the market price or marketability of the Series 2014A Bonds.
UNDERWRITING
The Series 2014A Bonds are being purchased, subject to certain conditions, by the underwriters listed on the cover page of this Official Statement, as represented by J.P. Morgan Securities LLC. The underwriters have agreed to purchase all, but not less than all, the Series 2014A Bonds at a purchase price of $39,203,810.45, without accrued interest, which amount reflects principal amount of the Series 2014A Bonds ($35,265,000.00), less the underwriters' discount of $185,708.60 and plus a net original issue premium of $4,124,519.05.
J.P. Morgan Securities LLC ("JPMS"), one of the underwriters of the Series 2014A Bonds, has entered into a negotiated dealer agreement ("Dealer Agreement") with Charles Schwab & Co., Inc. ("CS&Co.") for the retail distribution of certain securities offerings, at the original issue prices. Pursuant to the Dealer Agreement (if applicable to this transaction), CS&Co. will purchase Series 2014A Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any Series 2014A Bonds that CS&Co. sells.
Loop Capital Markets LLC (“LCM”), one of the underwriters of the Series 2014A Bonds, has entered into distribution agreements (each a “Distribution Agreement”) with each of UBS Financial Services Inc. (“UBSFS”) and Deutsche Bank Securities Inc. (“DBS”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to each Distribution Agreement, each of UBSFS and DBS will purchase Bonds from LCM at the original issue prices less a negotiated portion of the selling concession applicable to any Series 2014A Bonds that such firm sells.
Morgan Stanley, parent company of Morgan Stanley & Co. LLC., an underwriter of the Series 2014A Bonds, has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2014A Bonds.
CONTINUING DISCLOSURE
Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in Securities and Exchange Commission Rule 15c2-12, as amended (the "Rule"), Citizens will enter into the Continuing Disclosure Undertaking Agreement for the Series 2014A Bonds, with the Trustee as counterparty. The Continuing Disclosure Undertaking Agreement will provide that so long as the Series 2014A Bonds remain outstanding, Citizens will annually provide certain financial information and operating data to the Municipal Securities Rulemaking Board (the "MSRB") in accordance with the Rule and will provide notice of certain events to the MSRB in compliance with the Continuing Disclosure Undertaking Agreement. Submissions to the MSRB will be made through its Electronic Municipal Market Access system ("EMMA"). The form of the Continuing Disclosure Undertaking Agreement is attached hereto as APPENDIX D.
If Citizens fails to abide by the Continuing Disclosure Undertaking Agreement, the sole remedy is for specific performance of Citizens' obligations under such Agreement. Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by a broker dealer or municipal securities dealer before recommending the purchase or sale of the Series 2014A Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2014A Bonds and their market prices.
Citizens currently has outstanding various bonds for which it has covenanted in one or more continuing disclosure agreements to comply with the requirements of the Rule. In the previous five years, Citizens has complied, in all material respects, with any previous undertakings in a written contract or agreement that it entered into pursuant to subsection (b)(5) of the Rule, except that (1) it filed audited financial statements for fiscal years
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2009, 2010 and 2012 on April 5, 2011, January 28, 2011 and January 31, 2013, respectively, after the dates required (January 15, 2010, January 8, 2011 and January 12, 2013, respectively) and it filed operating data for fiscal year 2010 on April 7, 2011, after the date required (March 29, 2011); and (2) it filed an event notice on June 7, 2013, with respect to a rating upgrade released by S&P on October 8, 2010, of its Thermal Energy System Bonds.
In addition to the foregoing, (1) in limited instances over the last five years, Citizens did not provide certain notices through EMMA in connection with particular downgrades of ratings of Assured Guaranty Municipal Corp. and Municipal Bond Insurance Association, which is or was a provider of credit enhancement of certain issues of its bonds, one of which issues has been fully redeemed and (2) with respect to a ratings upgrade released by S&P on June 13, 2013, of Citizens' Gas Utility Distribution System Bonds, Citizens filed an event notice with respect thereto on July 29, 2013. All such notices have subsequently been filed with respect to all outstanding issues of such bonds. In connection with its Thermal Energy System Bonds, for fiscal year 2013, Citizens did not file a debt service table as a part of its annual information in the form provided in the applicable Official Statement. Updated information related to such debt was included in the filing of its annual financial statements made available on EMMA on December 18, 2013. Citizens made a filing on June 30, 2014, through EMMA of the debt service table in the form included in the applicable Official Statement. Finally, Citizens has begun voluntarily filing quarterly financial statements through EMMA.
To the extent any of the above constitute late filings of required annual financial or operating information or material events pursuant to Citizens’ previous undertakings, Citizens has put in place additional procedures to prevent any future late filings.
CERTIFICATION OF INFORMATION
Citizens will confirm to the underwriters, by a certificate signed on its behalf by the President of the Board and the President of Citizens Energy Group and delivered at the closing of the issuance and sale of the Series 2014A Bonds, to the effect that at the time of the execution of the bond purchase agreement by the representative of the underwriters and Citizens and at the time of such closing, (a) the information and statements, including financial statements, of or pertaining to the Thermal Energy System contained in this Official Statement were and are correct in all material respects, and (b) insofar as the Thermal Energy System and its affairs, including financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Citizens by such certificate, will further confirm to the effect that insofar as the descriptions, including financial data, of or pertaining to the Thermal Energy System, other governments and their activities contained in this Official Statement are concerned, such descriptions have been supplied by Citizens or obtained from sources believed by Citizens to be reliable, and that Citizens has no reason to believe that they are untrue or incomplete in any material respect.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS
Citizens' various operations share - and will continue to share - various services, under contracts and otherwise, with the Board's other operations. Among these services are billing and collections, regulatory affairs, customer relations, customer service, finance and accounting, human resources, information technology and marketing. The Gas Operations Division sells natural gas to the Thermal Energy System. In addition, the West Street System is among the Steam Division's largest customers. These relationships and transactions are described in more detail in "THERMAL ENERGY SYSTEM" above.
One of the members of the Board of Directors is an employee of Eli Lilly & Company, one of the Thermal Energy System's most significant customers. A member of the Board of Trustees for Utilities is CEO of Clarian Health Partners, Inc., a significant Thermal Energy System customer. This information is not intended to be complete, but merely illustrative; and from time to time trustees, directors, officers and employees of the Board may serve on the boards of customers of the Thermal Energy System or be employees of such customers.
J.P. Morgan Securities LLC, which is serving as the representative of the underwriters for the Series 2014A Bonds, and JPMorgan Chase Bank, N.A., which is the provider of a line of credit for the Thermal Energy System, are direct or indirect subsidiaries of JPMorgan Chase & Co.
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MISCELLANEOUS
Information contained in this Official Statement with respect to Citizens, the Thermal Energy System, and copies of the Master Indenture, all supplemental indentures and the other documents, instruments and papers referred to in this Official Statement may be obtained from Citizens c/o Citizens Energy Group, 2020 North Meridian Street, Indianapolis, Indiana 46202; Attention: Chief Financial Officer, or by telephone at (317) 927-4450.
This Official Statement was prepared in connection with the offering, issuance and sale of the Series 2014A Bonds and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement has been duly authorized and approved by Citizens and duly executed and delivered on its behalf by the officer signing below.
Any statements in this Official Statement involving matters of estimates, opinion or projections whether or not expressly so stated, are intended as such and not as representations of fact. No representation is made that any of such statements will be realized. The agreements of Citizens are fully set forth in the Master Indenture and Supplemental Indenture in accordance with the Act. Neither any advertisement of the Series 2014A Bonds nor this Official Statement is to be construed as constituting a contract or agreement between Citizens and the purchasers or owners of the Series 2014A Bonds.
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This Official Statement has been duly authorized, approved, executed and delivered by Citizens Energy Group.
THE CITY OF INDIANAPOLIS, ACTING BY AND THROUGH ITS BOARD OF DIRECTORS FOR UTILITIES OF ITS DEPARTMENT OF PUBLIC UTILITIES, d/b/a Citizens Energy Group
By: /s/ John R. Brehm John R. Brehm, Senior Vice President and Chief Financial Officer
APPENDIX A
SELECTED FINANCIAL DATA
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SELECTED FINANCIAL DATA
(Expressed in 000's) Fiscal Years Ended September 30, 2009 2010 2011 2012 2013
Operating Revenues $105,650 $ 107,552 $ 107,302 $ 103,948 $108,870
Operating Expenses: Utility Cost of Goods Sold 54,763 54,103 50,438 49,020 50,198 Operations & Maintenance 30,752 29,643 31,554 31,952 33,124 Depreciation & Amortization 11,653 9,775 11,208 10,085 10,513 Taxes 2,831 2,803 2,858 3,172 3,410 Total Operating Expenses 99,999 96,324 96,058 94,229 97,245
Operating Income 5,651 11,228 11,244 9,719 11,625
Other Income-Net: Interest Income 39 2 3 24 8 Other (342) (328) (65) (15) 12 Total Other Income (303) (326) (62) 9 20
Interest Charges: Interest on Long-term Debt 7,615 7,418 6,086 6,228 6,135 Other Interest including net premium (discount) Amortization (35) 19 1,510 (454) (561) Total Interest Charges 7,580 7,437 7,596 5,774 5,574
Net Income (Loss) $ (2,232) $ 3,465 $ 3,586 $ 3,954 $ 6,071
Note: The selected financial information is derived from financial statements available at www.citizensenergygroup.com. See financial statements and accompanying Management Discussion and Analysis for more information.
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APPENDIX B
OTHER CITIZENS OPERATIONS
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OTHER CITIZENS OPERATIONS
The following is a discussion of other Citizens operations. No income and revenues of any of these operations are pledged to or available for the payment of the Series 2014A Bonds.
CITIZENS RESOURCES AND AFFILIATES
Citizens Resources and its Affiliates are not a part of the Thermal Energy System. Citizens' ownership interest in Citizens Resources is part of the Unregulated System.
Citizens Resources
Citizens Resources ("Resources") and the Affiliates are not a part of the Thermal Energy System. No income, revenues or assets of Resources and its Affiliates are pledged to or available for the payment of the Series 2014A Bonds and the Income and Revenues of the Thermal Energy System are not available to pay the liabilities or obligations of Resources. Citizens owns all the stock of Resources, a West Virginia limited liability company originally organized before Citizens became successor trustee of the public charitable trust to which Resources' stock is subject. Among its functions, Resources and its subsidiaries have been the means to operate certain for-profit businesses in furtherance of the Energy Trust purposes. Resources is governed by a board of directors comprised of the same persons who serve on the Citizens Board. Resources' officers are senior officers of Citizens.
Citizens Energy Services Corporation LLC
Citizens Energy Services Corporation LLC (“CESCO”) serves as a holding company for several subsidiaries.
LNG Indy, LLC. LNG Indy, LLC, d/b/a Kinetrex Energy, LLC (“Kinetrex”), a subsidiary of CESCO, operates as a provider of liquefied natural gas ("LNG") for use as transportation and industrial fuel. On December 3, 2012, Citizens and Kinetrex filed a joint petition with the IURC seeking certain approvals in connection with the creation and proposed operations of Kinetrex, a transportation and industrial fueling business utilizing LNG to serve the needs of customers throughout the Midwest. Kinetrex will market and sell LNG as a competitive alternative to diesel fuel for use in heavy-duty vehicles or off road applications such as drilling rigs and rail applications. Citizens, Kinetrex and the OUCC entered into a settlement agreement that facilitated the proposed LNG initiative upon the IURC’s approval. The settlement agreement was filed with the IURC on May 8, 2013, and a hearing on the settlement agreement was held May 22, 2013. The IURC issued an order on June 26, 2013, approving terms of the settlement agreement regarding the operation of LNG Indy, LLC, its purchases of natural gas, provision of LNG to Citizens Gas for peaking and balancing purposes and reporting requirements. The IURC declined to regulate Kinetrex’ rates and charges. On July 5, 2013, Kinetrex Energy began operations. On August 22, 2013, Citizens transferred its decommissioned LNG South plant to Kinetrex at Citizens net book value. An Asset Contribution Agreement was filed with the IURC on the same day. Kinetrex also purchased the LNG inventory in both the LNG North and LNG South plants during the fourth quarter of 2013 at fair market value from Citizens Gas. For
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additional information regarding Kinetrex, see Notes 6 and 7 of the combined second-quarter financial statements found at www.citizensenergygroup.com/pdf/Q22014Report.pdf.
Southern Madison Utilities, LLC. On March 15, 2013, CESCO acquired the stock of Southern Madison Utilities, LLC ("SMU"). SMU is a small unregulated water utility serving 28 retail customers in Madison County, Indiana, and a small portion of Hamilton County, Indiana. The utility also supplies wholesale water supplies to the Town of Pendleton, Indiana. The utility now operates under the Citizens Southern Madison ("CSM") brand. The acquisition was attractive because it improves water supply diversity in order to ensure reliable water service to customers in the rapidly growing Fishers area and the northeast perimeter of the Citizens Water service territory. The capacity of CSM is about 1.5 million gallons per day of water supply.
CSM is operated as an unregulated, for-profit entity of CESCO.
Citizens Westfield Utilities, LLC. On January 10, 2014, Citizens Westfield Utilities, LLC (“CWU”) was formed to serve as an intermediate holding company for the gas, water, and wastewater utilities for the Westfield service area which include Westfield Gas Corporation, which is operated as a regulated investor-owned natural gas distribution utility, Citizens Water of Westfield, LLC which is operated as a regulated investor-owned water utility, and Citizens Wastewater of Westfield, LLC which is operated as a regulated investor-owned wastewater utility.
Citizens Water of Westfield, LLC and Citizens Wastewater of Westfield, LLC. Pursuant to an Asset Purchase Agreement dated as November 16, 2012 (the “Westfield Water APA”), Citizens Water of Westfield, LLC (“Citizens Westfield Water”) and the City of Westfield agreed to the purchase by Citizens Westfield Water of the City of Westfield’s water system, subject to certain conditions in the Westfield Water APA (the “Water Acquisition”). Citizens Westfield Water is a wholly-owned subsidiary of CWU, itself a wholly-owned subsidiary of CESCO, which is a wholly-owned subsidiary of Resources. In addition, pursuant to an Asset Purchase Agreement dated as of November 16, 2012 (the “Westfield Wastewater APA”) Citizens Wastewater of Westfield, LLC (“Citizens Westfield Wastewater”) and the City of Westfield have agreed to the purchase by Citizens Westfield Wastewater of the City of Westfield’s wastewater system, subject to certain conditions in the Westfield Wastewater APA (the “Wastewater Acquisition” and together with the Water Acquisition, the “Westfield Acquisitions”). Citizens Westfield Wastewater is a wholly owned subsidiary of CWU, itself a wholly-owned subsidiary of CESCO, which is a wholly-owned subsidiary of Resources. Citizens Westfield Water and Citizens Westfield Wastewater are managed by the same team of professionals as Citizens. On November 25, 2013, the IURC approved the Westfield Acquisitions and made certain findings more fully described in Cause No. 44273. The Westfield Acquisitions were completed on March 21, 2014. For additional information regarding the Westfield Acquisitions, CWU, Citizens Westfield Water and Citizens Westfield Wastewater see Notes 2, 6 and 7 of the combined second-quarter financial statements found at www.citizensenergygroup.com/pdf/Q22014Report.pdf. The assets obtained in the Westfield Acquisitions (the “Westfield Systems”) are not part of the Thermal Energy System and none of the revenues of the Westfield Systems are available for payment of the Thermal Energy System Bonds. The assets comprising the Westfield Systems and the revenues therefrom are not
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pledged as security under the Thermal Indenture. The Net Revenues of the Thermal Energy System are not pledged to the payment of any expenses or liabilities of the Westfield Systems.
Westfield Gas Corporation. In 2004, CESCO purchased the stock of Westfield Gas Corporation ("Westfield Gas"), a regulated investor-owned natural gas distribution utility which is operated by Citizens under an agreement with Westfield Gas. Westfield Gas is a public utility regulated by the IURC. Westfield Gas was transferred to CWU in March, 2014.
ProLiance Holdings, LLC
ProLiance Holdings LLC ("ProLiance") was jointly owned by Resources (39%) and Vectren Energy Marketing & Services, Inc. ("Vectren Energy") (61%). As described below, ProLiance sold its ownership interest in ProLiance Energy, LLC ("PLE") in 2013.
PLE had been Citizens' exclusive supplier of natural gas since April 1, 1996, except for Citizens' election to participate with support from PLE in a gas prepayment program in 2007 for approximately 8% of its send out gas.
On June 18, 2013 ProLiance disposed of certain of the net assets, along with the long term pipeline and storage commitments of PLE, through a sale transaction with a subsidiary of Energy Transfer Partners ("ETP"), ETC Marketing, Ltd. ("ETC"). As a result of this transaction, ProLiance recorded a loss of $64.1 million. Resources’ share of the net loss was $25.0 million, consistent with its ownership share. ProLiance is accounted for under the equity method. This loss was reflected in the September 30, 2013 Condensed Combined Statements of Financial Position as reductions in Investments and Retained Earnings. To a great extent, the loss reflects the loss of prior earnings from the original investment of $0.5 million made in 1996.
As part of the sale, Resources provided a loan to ProLiance of $6.5 million. The note evidencing the loan is interest bearing and matures on June 24, 2018. The loan is secured by the remaining assets of ProLiance. The note balance at March 31, 2014, is $6.5 million.
In addition, in connection with the disposition, Citizens and Vectren issued a guarantee to ETC. The guarantee issued by these partners is a backup guarantee to the $50.0 million guarantee issued by ProLiance to ETC, and provides for a maximum guarantee of $30.0 million, or $11.7 million for Citizens’ 39 percent ownership share, and extends until 2016. This guarantee will be called upon only in the event that ProLiance fails to pay ETC for a legitimate claim, and only if the ProLiance guarantee is not sufficient to satisfy the relevant obligations. Although there can be no assurance that these guarantees will not be called upon, Citizens believes that the likelihood that such partners or ProLiance will be called upon to satisfy any obligations pursuant to these guarantees is remote.
On March 19, 2014, Exelon Corporation announced it had reached an agreement to purchase ETC ProLiance Energy (“ETC ProLiance”) from ETC. This purchase was concluded in April 2014. ETC ProLiance is now a part of the Exelon subsidiary Constellation, a competitive retail supplier of power, natural gas and energy products and services for homes and businesses. This development is not expected to have a material impact on the operations of
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Citizens Gas, its access to competitively priced gas supplies, or the Citizens and Vectren guarantee to ETC.
Other Affiliates
For information on other affiliates of Resources, see Note 5 in Citizens' most recent annual financial information located at http://www.citizensenergygroup.com/pdf/2013AnnualReport_Financials.pdf.
OIL OPERATIONS
Oil Operations are not part of the Thermal Energy System; they are part of the Unregulated System.
Oil Operations. Citizens has received oil revenues since June 1969 when oil was discovered while Citizens was developing underground natural gas storage in Greene County. Oil is produced from two different formations in the same oil field, the deeper of which contained a gas cap of approximately 1,900 MDth.
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APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE
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SUMMARY OF CERTAIN PROVISIONS OF MASTER INDENTURE
This is a summary of certain provisions of the Master Indenture, as amended. This summary does not purport to be complete and is qualified by reference to the entire Master Indenture. Copies of the Master Indenture may be obtained from the City. See MISCELLANEOUS above.
Computations
Unless the facts are different and except as provided elsewhere in the Master Indenture, all computations required for the purposes of the Master Indenture shall be made on the assumption that (i) the principal of and interest on all Bonds shall be paid as and when the same become due; (ii) all deposits required by the Master Indenture to be credited to the redemption of Bonds shall be made in the amounts and at the times, required by the Master Indenture; (iii) all Bonds required by the Master Indenture to be redeemed shall be redeemed on the respective Amortization Installment Dates therefor in the amounts and at the times as required by the Master Indenture; and (iv) the Bonds at issue are outstanding.
Opinions
Whenever pursuant to the Master Indenture a person is required to deliver its certificate or opinion, such person, for the purposes of such person's estimates, may take into account reasonably expected revenues from projected steam and chilled water sales and securities, projected other income, reasonable rate changes and projected changes in relevant Operating Expenses and debt service requirements.
Deposits
The cash and investments required to be accounted for in each of the Funds and Accounts may be deposited into a single bank account, provided that adequate accounting records are maintained to reflect and control the restricted allocation of the cash on deposit therein, for the various purposes of such Funds or Accounts as provided in the Master Indenture. The designation and establishment of the various Funds and Accounts shall not be construed to require the establishment of any completely independent, self-balancing funds or accounts, as such term is commonly defined and used in governmental accounting, but rather is intended solely to constitute an earmarking of certain revenues and assets of the Thermal Energy System, for certain purposes and to establish priorities for application of such revenues and assets as provided in the Master Indenture.
Accounting Terms
Unless another provision of the Master Indenture provides otherwise, the Master Indenture shall be interpreted by giving to the accounting terms used in the Master Indenture the respective definitions given to such terms under GAAP. The Board shall use GAAP in determining the (i) Income and Revenues of Thermal Energy System and (ii) Operating Expenses of Thermal Energy System and (iii) in allocating common revenues and expenses between operating divisions.
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Application of Indenture
Unless a provision of the Master Indenture is specifically made applicable to the Gas Utility System, the Gas Utility Distribution System, Citizens Resources or any affiliate thereof or successor thereto, or the public charitable trust to which the Gas Utility System is subject, the Master Indenture applies only to the Thermal Energy System, and the actions, duties, obligations and responsibilities of the Board and the City relating to the Thermal Energy System.
Amount, Equality of Bonds
The Master Indenture constitutes a continuing agreement to secure the full and final payment of the principal of and redemption premium, if any, and interest on all Bonds which may, from to time, be authenticated, delivered and issued under the Master Indenture as First Lien Bonds or Second Lien Bonds. The aggregate principal amount of Bonds of any series which may be so authenticated, delivered and issued under the Master Indenture is not limited, except as provided in Article IV of the Master Indenture, and as provided in any Supplemental Indenture authorizing a series of Bonds.
Details of Bonds
Each Supplemental Indenture authorizing the issuance of a series of Bonds shall state the purpose for which the series of Bonds are being issued, the form in which such series Bonds shall be issued, the terms of such Bonds and the deposits to be made from the proceeds of such series of Bonds. Each series of Bonds may differ with respect to:
(a) title;
(b) date;
(c) maturities, optional maturities, term or terms and method for determination thereof;
(d) interest rates and provisions, if any, for determining the interest rate to be borne on Auction Rate Bonds, Variable Rate Bonds, and provisions for Capital Appreciation Bonds, Original Issue Discount Bonds or Put Bonds;
(e) interest payment dates or interest accretion or valuation dates;
(f) denominations, including the minimum denominations for such Bonds;
(g) transfer, registration and exchangeability, including provisions for issuance of Bonds in book entry form;
(h) limitation on the aggregate principal amount of Bonds which may be issued;
(i) purchase, puts, redemption and tender, whether optional or mandatory, and terms and conditions thereof;
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(j) the means by which, and the place at which, the Bonds and the interest thereon may be determined from time to time and payable;
(k) the purpose for which the series of Bonds is being issued, for example, the Steam Division, the Chilled Water Division, "new money" or Refunding Bonds;
(l) sale or other disposition of the Bonds, and the use and application of the proceeds of such sale or other disposition;
(m) lost, stolen or mutilated Bonds;
(n) issuance of temporary Bonds;
(o) conditions to the execution, delivery and authentication of the Bonds;
(p) record date or dates;
(q) form for each type of Bond issued;
(r) different modes of operation for Bonds;
(s) means and methods of obtaining consent or deeming consent to amendments to the Master Indenture or the Supplemental Indenture authorizing the issuance of the series of Bonds;
(t) types of securities which may be used to defease the Bonds;
(u) First Lien Bonds or Second Lien Bonds; and
(v) anything else not expressly prohibited by the Master Indenture.
In authorizing the issue of a series of Bonds, the Board shall, by resolution, or in the Supplemental Indenture authorizing such Bonds, determine and specify all matters in respect to such Bonds set forth above and shall also determine and specify the form of such series of Bonds in the manner provided in the Supplemental Indenture authorizing the same.
Capital Appreciation Bonds
The Supplemental Indenture authorizing the issuance of a series of Bonds may provide that the payment of interest on specified Bonds of such series shall be made only at maturity or at a specified time or determined times prior to maturity or upon earlier redemption, by Amortization Installment or in some other way ("Capital Appreciation Bonds"). Any such Supplemental Indenture shall specify the Compounded Amount of such Bonds as of each valuation date on the Bonds from the date of issue to maturity and the method by which the Compounded Amount of such Bonds accretes over time to their stated maturity. Except as provided in the Supplemental Indenture authorizing the issuance of such Bonds, the principal amount of any Capital Appreciation Bond shall be deemed to be its Compounded Amount for all purposes of the Master Indenture. The original offering price, the date as of which it was
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calculated and the yield to maturity (compounded as provided in such Supplemental Indenture) shall be established by a certificate of the underwriter for such Bonds or the City's financial advisor and filed with the Trustee, which, upon filing, shall be conclusive. The Series 2014A Bonds are not Capital Appreciation Bonds within the meaning of the Master Indenture.
Original Issue Discount Bonds
The Supplemental Indenture providing for the issuance of a series of Bonds may provide that specified Bonds of such series be originally reoffered to the public at a price (excluding accrued interest) less than 85 percent of the principal amount thereof and shall specify the method by which and the valuation dates on which the Compound Accreted Value of such Bond accretes over time to its stated maturity ("Original Issue Discount Bonds"). For purposes of the Master Indenture, except as provided in the Supplemental Indenture authorizing such series, the principal amount of an Original Issue Discount Bond shall be deemed to be its Compound Accreted Value, whether or not expressly stated in such provisions. The original offering price, the dates as of which it was calculated and the yield to maturity (compounded as provided in such Supplemental Indenture) shall be established by a certificate of the underwriter of such Bonds or the City's financial advisor and filed with the Trustee, which upon filing, shall be conclusive. The Series 2014A Bonds are not Original Issue Discount Bonds within the meaning of the Master Indenture.
Put Bonds, Variable Rate Bonds
(a) The Supplemental Indenture authorizing the issuance of Bonds may provide for their purchase, put or remarketing at the option of their holders on specified dates by the City, by its designee as remarketing agent or otherwise, or by the Trustee, as specified in such Supplemental Indenture ("Put Bonds"). A Bond so purchased, put or remarketed continues to be outstanding. The purchase, put or remarketing price shall be paid from remarketing or sale proceeds, draws on a Credit Facility, Refunding Bond proceeds, other moneys lawfully available to the City, or from any combination of the foregoing. The City, a remarketing agent and the Trustee or other fiduciary may remarket or sell the purchased or Put Bonds. In accordance with Article IV of the Master Indenture, the City may issue Bonds for the purpose of financing any loss in the principal amount incurred by the remarketing or sale of Put Bonds. Obligations incurred in connection with the purchase, put or remarketing of Bonds shall not be deemed to be debt service obligations for the purpose of calculating payments into the Thermal Energy System General Fund, the First Lien Bond Fund or the Second Lien Bond Fund; provided, however, that such obligations may be treated as principal or interest payment obligations, as applicable, for purposes of Sections 7.01 (a) and (b) of the Master Indenture (relating to certain Events of Default), if so provided in the Supplemental Indenture authorizing the issuance of the same.
(b) The Supplemental Indenture authorizing the issuance of a series of Bonds may provide for Bonds of such series to (i) bear interest at an adjustable, auction, convertible, floating, variable or other similar rate or rates of interest ("Variable Rate"), or (ii) be subject to a Derivative Transaction, the effect of which is to convert bonds bearing interest at a fixed interest rate to bonds bearing an auction or a variable interest
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rate (in either case, but only for Bonds, "Variable Rate Bonds"). Any such Supplemental Indenture shall specify (1) the manner, means or method of determining the interest rate or rates and changes thereof for Bonds; (2) the maximum interest rate or rates, if any, at which such Bonds may bear interest; and (3) for Bonds only, provisions, if any, for the conversion of Variable Rate Bonds to Bonds bearing interest at a fixed rate of interest and the reconversion of such Bonds to Variable Rate Bonds. Auction Rate Bonds and Multi-Mode Bonds are types of Variable Rate Bonds. The Series 2014A Bonds are not Put Bonds within the meaning of the Master Indenture.
(c) (i) If the City issues a series of Put Bonds or Variable Rate Bonds, the City shall establish an assumed fixed interest rate for such series of Bonds (the "Assumed Interest Rate") and use the Assumed Interest Rate in making calculations of debt service under the Master Indenture and in determining the Reserve Increment for such series of Bonds. The Assumed Interest Rate is not required to be the maximum interest rate or rates on such series of Bonds.
(ii) Notwithstanding anything in subparagraphs (a), (b) and (c) above to the contrary, the initial Assumed Interest Rate for such Put Bonds or Variable Rate Bonds shall be set forth in the Supplemental Indenture authorizing the issuance of such Put Bonds or Variable Rate Bonds.
(iii) The Chief Financial Officer shall certify the initial Assumed Interest Rate to the Trustee unless it is set forth in the Supplemental Indenture authorizing the issuance of such series of Put Bonds or Variable Rate Bonds.
(d) The Chief Financial Officer may adjust the initial Assumed Interest Rate and any resulting Assumed Interest Rate from time to time; provided, however, that the Assumed Interest Rate shall not be less than the average interest rate actually borne by the series of Put Bonds or Variable Rate Bonds during the twelve months immediately preceding the date of adjustment, calculation or determination (unless provided in the Supplemental Indenture authorizing the issuance of such Bonds); and provided further, however, that if any provision of the Master Indenture requires the calculation or determination of actual or historical debt service during any period, Put Bonds, Variable Rate Bonds shall be deemed to bear interest at the actual interest rates borne by such Bonds during such period.
(e) Bonds may be issued and classified as both Put Bonds and Variable Rate Bonds, and if there is any conflict between provisions governing Put Bonds and Variable Rate Bonds, the Chief Financial Officer shall determine which provisions shall be applied to such Bonds.
Procedures for Redemption
The procedures for redemption of Bonds shall be as set forth below, except as such procedures may be specified in a Supplemental Indenture authorizing the issuance of a series of Bonds.
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Notice of Redemption
Notice of the call for any such redemption identifying the Bonds or portions thereof to be redeemed shall be mailed by the Trustee, first-class, postage prepaid, not more than 45, but at least 30 days, prior to the redemption date to the registered owners of the Bonds or portions thereof which are to be redeemed at their last addresses shown on the registration books; but such mailing of notice of redemption of a Bond shall not be a condition to the redemption of any other Bond or portion thereof, and failure to mail any such notice or any defect in such notice with respect to a Bond shall not affect the validity of the proceedings for the redemption of any other Bond for which notice was properly given.
If not later than the date fixed for redemption, moneys shall be deposited with the Trustee to pay (i) the Bonds called for redemption, (ii) accrued interest thereon to the redemption date and (iii) any applicable redemption premium, such Bonds shall cease to bear interest from and after the redemption date and shall no longer be deemed to be outstanding under the Master Indenture. Notwithstanding the giving of notice of redemption of Bonds in accordance with these paragraphs, if on the redemption date specified in such notice moneys shall not be on deposit with the Trustee as provided in this paragraph, then such redemption shall be canceled, and the Bonds shall continue to be outstanding.
Cancellation
Bonds which are redeemed may not be reissued. The Trustee shall cancel such Bonds and destroy them. If the Chief Financial Officer requests in writing, the Trustee shall furnish a certificate as to such destruction to the City.
Partial Redemption of Bonds
(a) If less than all of the Bonds of a particular maturity at the time outstanding are to be called for redemption, the particular Bonds or portions thereof of such maturity to be redeemed shall be selected by the Trustee in such manner as the Trustee deems fair and appropriate. The Trustee shall call for redemption in accordance with Section 3.02 as many Bonds or portions thereof as will as nearly as practicable exhaust the moneys available therefor. Particular Bonds or portions thereof shall be redeemed only in the Minimum Denomination.
(b) The Supplemental Indenture authorizing the issuance of a series of Bonds shall specify the minimum authorized denomination of Bonds of such series (the "Minimum Denomination"). For redemption of Bonds in denominations greater than the Minimum Denomination, each unit of principal amount equal to the Minimum Denomination shall be treated as though it was a separate bond of the Minimum Denomination and shall bear one number for each such unit. If the Trustee determines that one or more, but not all, such units is/are to be called for redemption, then upon notice of redemption, the owner of such Bond shall forthwith surrender such Bond to the Trustee for (1) payment of the redemption price of such unit or units called for redemption, and (2) exchange for a new Bond or Bonds of the aggregate principal amount of the unredeemed balance of the principal amount of the surrendered Bond, The
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new Bond or Bonds shall be of like maturity and interest rate and issued to the registered owner thereof without charge.
If the owner of any such Bond of a denomination greater than the Minimum Denomination shall fail to present such Bond to the Trustee for payment and exchange, such Bond shall, nevertheless, be due and payable on the redemption date to the extent of such unit or units called for redemption; interest shall cease to accrue on such unit or units on and after the redemption date, provided that funds sufficient to pay the redemption price are on deposit with the Trustee on the redemption date; and, in such event, such Bond shall not be entitled to the benefit of the Master Indenture to the extent of such unit or units. The Trustee shall not issue or exchange a new Bond or Bonds for such unit or units so paid until such Bond is presented to the Trustee.
Purposes of Issuance
Series of Bonds may be authorized and executed by the City, authenticated by the Trustee and issued pursuant to the Master Indenture, from time to time, (a) for the purpose of providing funds to pay (i) the cost of acquiring or constructing or acquiring and constructing property for the Thermal Energy System, (ii) the cost of refunding Bonds or other obligations of the City relating to the Thermal Energy System, or (iii) the Cost of Acquisition or Construction of any Project, or (b) for any other purpose for which the City, as to its Thermal Energy System, is authorized to issue revenue obligations by the Act or other Indiana law. Bonds also may be issued to fund working capital for the Thermal Energy System.
General Conditions of Issuance
(a) The Trustee shall not authenticate and deliver a series of First Lien Bonds unless for each such series the City delivers the following to the Trustee:
(i) A written request for authentication signed by or on behalf of the City.
(ii) A Supplemental Indenture as provided in Section 2.03 of the Master Indenture and Article X of the Master Indenture.
(iii) A certified copy of the resolutions of the Board authorizing the issuance and sale of such series of First Lien Bonds and the execution and delivery of such Supplemental Indenture.
(iv) A certificate of the Trustee that, to the Trustee's knowledge, no Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture or any Supplemental Indenture.
(v) A certificate of the Chief Financial Officer that, to such officer's knowledge, no Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture or any Supplemental Indenture.
(vi) An Opinion of Board Counsel,
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(vii) An Opinion of Bond Counsel.
(b) The Trustee shall not authenticate and deliver a series of Second Lien Bonds unless for each such series the City delivers to the Trustee the following:
(i) A written request for authentication signed by or on behalf of the City.
(ii) A Supplemental Indenture as provided in Section 2.03 of the Master Indenture and Article X of the Master Indenture.
(iii) A certified copy of the resolutions of the Board authorizing the issuance and sale of such series of Second Lien Bonds and the execution and delivery of such Supplemental Indenture.
(iv) A certificate of the Trustee that, to Trustee's knowledge, no Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture or any Supplemental Indenture.
(v) A certificate of the Chief Financial Officer that, to such officer's knowledge, no Event of Default or Second Lien Event of Default has occurred and is continuing under the Master Indenture or any Supplemental Indenture.
(vi) An Opinion of Board Counsel,
(vii) An Opinion of Bond Counsel.
(c) Solely for purposes of subparagraphs (iv) and (v) of (a) and (b) above, failure of an Account of the Thermal Energy System Reserve Fund to be Fully Funded shall not constitute an Event of Default or Second Lien Event of Default.
Additional Conditions for Issuance
(a) Except as described below under "Special First Lien Bonds," "Refunding Bonds" and "Bonds for Emergencies," the Trustee shall not authenticate or deliver a series of First Lien Bonds, unless for each such series, in addition to the relevant items described under "General Conditions of Issuance" above, the City delivers the following to the Trustee:
(i) A report of the Chief Engineering Officer, the Senior Vice President, Operations, or a Consulting Engineer which shall (A) describe the Project financed or to be financed from the proceeds of the First Lien Bonds of such series, or from Second Lien Bonds or Subordinate Obligations to be refinanced from the proceeds of such First Lien Bonds, and (B) estimate the Date of Commercial Operation or projected completion date of such Project.
(ii) A certificate of the Chief Financial Officer certifying that the Account of the Thermal Energy System Reserve Fund created for such Bonds, if
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any, is Fully Funded or, upon issuance of the First Lien Bonds of such series, will be Fully Funded;
(iii) A certificate of the Chief Financial Officer certifying that:
A. as determined from the latest audited or unaudited financial statements of the City, the accrued Income and Revenues of Thermal Energy System were not less than 100 percent of the sum of items (i), (ii) and (iii) under the section in the Official Statement captioned "SECURITY FOR BONDS - Income and Revenues of Thermal Energy System - Covenant" during the period of twelve consecutive months out of 18 consecutive months ending not more than 60 days prior to the month in which the Chief Financial Officer expects such series of First Lien Bonds to be issued, as if such twelve consecutive months were a Fiscal Year; and
B. the Income and Revenues of Thermal Energy System for the Projected Test Period, after payment of Operating Expenses of Thermal Energy System for the Projected Test Period, will not be less than the sum of (1) 100 percent of the Aggregate Adjusted Bond Service Requirement for all series of Bonds then outstanding and (2) 120 percent of the estimated maximum annual Adjusted Bond Service Requirement for the series of First Lien Bonds to be issued.
(iv) In making the certificates required by subparagraph (iii) above, the Chief Financial Officer also shall certify that the audited or unaudited financial statements upon which such officer is relying were prepared in accordance with GAAP.
(b) Except as described below under "Refunding Bonds" and "Bonds: for Emergencies," the City shall not authenticate or deliver a series of Second Lien Bonds, unless for each such series, in addition to the relevant items described under "General Conditions of Issuance" above, the City delivers the following to the Trustee:
(i) A report of the Chief Engineering Officer, the Senior Vice President, Operations, or a Consulting Engineer which shall (A) describe the Project financed or to be financed from the proceeds of the Second Lien Bonds of such series, or from First Lien Bonds or Subordinate Obligations to be refinanced from the proceeds of such Second Lien Bonds and (B) estimate the Date of Commercial Operation or projected completion date of such Project.
(ii) A certificate of the Chief Financial Officer certifying that the Account of the Thermal Energy System Reserve Fund created for such Bonds, if any, is Fully Funded or, upon issuance of the Second Lien Bonds of such series, will be Fully Funded;
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(iii) A certificate of the Chief Financial Officer certifying that:
A. as determined from the latest audited or unaudited financial statements of the City, the accrued Income and Revenues of Thermal Energy System were not less than 100 percent of the sum of items (i), (ii) and (iii) under the section in the Official Statement captioned "SECURITY FOR BONDS - Income and Revenues of Thermal Energy System - Covenant" during the period of twelve consecutive months out of 18 consecutive months ending not more than 60 days prior to the month in which the Chief Financial Officer expects such series of Second Lien Bonds to be issued, as if such twelve consecutive months were a Fiscal Year; and
B. the Income and Revenues of Thermal Energy System, after (1) payment of Operating Expenses of Thermal Energy System for the Projected Test Period and (2) payment or provision for payment of the Aggregate Adjusted Bond Service Requirement for all series of First Lien Bonds for the Projected Test Period will not be less than
(i) 100 percent of the Aggregate Adjusted Bond Service Requirement for all series of Second Lien Bonds then outstanding and (ii) unless provided in a Supplemental Indenture, 110 percent of the estimated maximum annual Adjusted Bond Service Requirement for the series of Second Lien Bonds to be issued.
(iv) In making the certificates required by subparagraph (iii) above, the Chief Financial Officer also shall certify that the audited or unaudited financial statements upon which such officer is relying were prepared in accordance with GAAP, as applicable.
(c) Subparagraphs (a) and (b) of this section are not applicable to the issuance of the Special First Lien Bonds or any Reimbursement Obligations relating to such Special First Lien Bonds.
Special First Lien Bonds
Notwithstanding anything in the Master Indenture to the contrary, the City may issue not to exceed $10.0 million in aggregate principal amount of Special First Lien Bonds and use the proceeds thereof for any purpose permitted by the Master Indenture. The Trustee may authenticate and deliver such Bonds, subject to the further provisions of this paragraph. The City may issue the Special First Lien Bonds and any Reimbursement Obligations relating to such Special First Lien Bonds from time to time in one or more series without complying with clauses (iv) and (v) of subparagraph (a) under "General Conditions of Issuance" or the requirements described under subparagraph (a) of "Additional Conditions of Issuance" above. In connection with the issuance of each series of Special First Lien Bonds, the Chief Financial Officer shall
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designate them as such and certify the amount of Special First Lien Bonds that the City previously issued, if any. The Trustee shall not authenticate any series of Special First Lien Bonds if the aggregate principal amount of such series of Special First Lien Bonds, together with the aggregate principal amount of all series of Special First Lien Bonds previously issued by the City, exceeds $10.0 million.
Refunding Bonds
The City may issue First Lien Bonds and Second Lien Bonds from time to time to provide for the refunding of First Lien Bonds, including Special First Lien Bonds, and Second Lien Bonds, without complying with clauses (iv) and (v) of subparagraph (a) or (b) under "General Conditions of Issuance," as applicable, or subparagraphs (a) or (b) under "Additional Conditions for Issuance." The Trustee shall authenticate and deliver such Bonds, subject to the further provisions of this section:
(i) The City may issue First Lien Bonds and Second Lien Bonds for the purpose of refunding (including by purchase, tender or exchange) at any time within one year prior to maturity any First Lien Bond or Second Lien Bond for the payment of which sufficient Income and Revenues of Thermal Energy System will not be available. Any Refunding Bonds issued under this charge (i) shall mature (or Amortization Installments shall commence) not earlier than the latest stated maturity of any such Bond that will not be refunded.
(ii) The City may issue First Lien Bonds and Second Lien Bonds at any time for the purpose of refunding (including by purchase, tender or exchange) First Lien Bonds and Second Lien Bonds, including amounts to pay principal and redemption premium and interest to the redemption date (or purchase, tender or exchange date) and the expenses of issuing such Bonds and effecting such refunding; provided, that: (A) the Aggregate Bond Service Requirement after the issuance of the Refunding Bonds shall not be greater in any Fiscal Year than the Aggregate Bond Service Requirement in such Fiscal Year were such refunding not to occur, as certified by the Chief Financial Officer; or (B) the requirements of subparagraph (a) under "Additional Conditions for Issuance" in the case of First Lien Bonds or subparagraph (b) under "Additional Conditions for Issuance" in the case of Second Lien Bonds are satisfied; provided, however, that the Projected Test Period for Refunding Bonds shall begin on the first day of the first Fiscal Year occurring after the issuance of the Refunding Bonds and end on the last day of such Fiscal Year. (The Chief Financial Officer's certificate shall be filed with the Trustee.)
This section does not apply to the remarketing or reoffering from time to time of any Variable Rate Bond or Put Bond pursuant to an ongoing program of the City contemplating the same.
Bonds for Emergencies
The City may issue First Lien Bonds and Second Lien Bonds from time to time if:
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(a) in the opinion of the Chief Engineering Officer or the Senior Vice President, Operations, as evidenced by a certificate filed with the Trustee, such series of Bonds is necessary to repair any damage or loss to the Thermal Energy System, if the Thermal Energy System or any portion thereof has been destroyed or damaged by disaster to such an extent that it cannot be efficiently operated; or
(b) in the opinion of the President of the Board, the Chief Executive Officer, the Chief Engineering Officer, the Senior Vice President, Operations, or Chief Financial Officer, as evidenced by a certificate filed with the Trustee, it is necessary (i) as a matter of law in the case of the Steam Division, or (ii) for the proper conduct of the Thermal Energy System in the case of the Steam Division or the Chilled Water Division; provided, however, that in the case of clause (a) above, such Bonds may be issued only to the extent that insurance proceeds from such damage or loss are not expected to be sufficient. Any such series of Bonds may be issued without complying with the conditions described under "Additional Conditions for Issuance," and the Trustee shall authenticate and deliver such Bonds.
Prior or Parity Lien Obligations
Except as permitted by the Master Indenture, (a) the City will not issue any obligations that are prior to the First Lien Bonds as to the lien on the Pledged Funds; and (b) the City will not issue any obligations (other than First Lien Bonds) that are prior to the Second Lien Bonds as to the lien on the Pledged Funds. Issuance of First Lien Bonds, payable as contemplated by Article V of the Master Indenture, does not violate this paragraph.
Financing Contracts
(a) The City may undertake a Financing Contract relating to the Thermal Energy System or any portion thereof directly or indirectly requiring payments from the Thermal Energy System General Fund prior to the payments required to be made into the First Lien Bond Fund and the Second Lien Bond Fund, so long as the City files with the Trustee either: (i) a certificate of the Chief Financial Officer certifying that the maximum lease rental, debt service or other annual future expected fixed costs component of payments under all Financing Contracts relating to the Thermal Energy System then under contract (including the Financing Contract to be entered into) is less than 20 percent of the average of the then estimated Aggregate Adjusted Bond Service Requirements for all Fiscal Years during the proposed term of the Financing Contract at issue; or (ii) a certificate of the Chief Financial Officer certifying that such officer estimates that the Income and Revenues of Thermal Energy System for each of the first five Fiscal Years after a payment is required under such Financing Contract, will be not less than the sum of items (i), (ii) and (iii) under the section in the Official Statement captioned "SECURITY FOR BONDS -Income and Revenues of Thermal Energy System - Covenant" for each of such Fiscal Years. For the purpose of such certificate, the Chief Financial Officer shall assume that the payments under all outstanding Financing Contracts are Operating Expenses of Thermal Energy System.
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(b) All payments due on any Financing Contract entered into pursuant to subparagraph (a) above shall be deemed to be Operating Expenses of Thermal Energy System for purposes of the Master Indenture and paid from the Thermal Energy System General Fund prior to payments to the First Lien Bond Fund or the Second Lien Bond Fund, as applicable; provided, however, that notwithstanding anything in the Master Indenture to the contrary, (a) if the property, services or commodities covered by the Financing Contract are not being and are not expected to be received or made available, or (b) an Event of Default described in Section 7.1 (a) of the Master Indenture has occurred and is continuing, and such property, services or commodities are not necessary for the proper operation of the Thermal Energy System or any portion thereof, then and in that event the payments due under such Financing Contract shall be payable on parity with the payments required to be made from the Thermal Energy System General Fund to the First Lien Bond Fund and the Second Lien Bond Fund; provided further, however, that the obligations of the City under any such Financing Contract shall not, directly or indirectly, be payable out of, or constitute a charge against, any moneys or securities in any fund or account maintained by the City pursuant to Article V of the Master Indenture, other than the Thermal Energy System General Fund. In any event, the payments on Financing Contracts entered into pursuant to subparagraph (a) above shall not be included as part of the Aggregate Bond Service Requirement or Aggregate Adjusted Bond Service Requirement for the First Lien Bonds and the Second Lien Bonds for any other purpose under the Master Indenture.
(c) The City may undertake any other Financing Contract-like obligation directly or indirectly requiring payments from the Thermal Energy System General Fund so long as such obligation is subordinate to the payments required to be made from the Thermal Energy System General Fund to the First Lien Bond Fund and the Second Lien Bond Fund.
Subordinate Lien Obligations
The City may issue bonds, certificates of indebtedness, commercial paper, notes, warrants and other evidences of indebtedness payable as to principal and interest from the Thermal Energy System General Fund and Income and Revenues of Thermal Energy System or any portion thereof, subject and subordinate to the credits, deposits and payments required to be made from the Thermal Energy System General Fund and the Income and Revenues of the Thermal Energy System (the "Subordinate Obligations") to the First Lien Bond Fund, the Second Lien Bond Fund and the payments required for Operating Expenses. The City may secure payment of the Subordinate Obligations by a lien and pledge on the Income and Revenues of Thermal Energy System or any portion thereof junior and subordinate to the lien and pledge on the Income and Revenues of Thermal Energy System created in the Master Indenture for the payments of the Operating Expenses and the payments required to be made to the First Lien Bond Fund and the Second Lien Bond Fund. Moneys in the Thermal Energy System Reserve Fund shall not be used to pay Subordinate Obligations.
The immediately preceding paragraph is subject in all respects to the provisions of Article V of the Master Indenture.
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Separate Systems; Other Debt
(a) The City may issue or become liable on bonds, certificates of indebtedness, commercial paper, notes, warrants and other evidences of indebtedness or any guaranties, direct or indirect, of such obligations to acquire, construct and operate utilities, utility properties and related properties, to acquire and construct facilities and interests in the capacity or output of such facilities, which the City has elected to acquire, construct and operate as a utility or system separate from the Thermal Energy System (the "Separate Debt"); provided that the Separate Debt is secured solely from sources other than Pledged Funds.
Notwithstanding anything in this section to the contrary, no such certificate shall be required if the aggregate principal amount of all Separate Debt, including the Separate Debt being issued, is less than ten percent of the aggregate principal amount of the outstanding Bonds.
(b) Nothing in the Master Indenture shall limit or prohibit (i) the City from incurring debt or issuing bonds, certificates of indebtedness, commercial paper, notes, warrants or other evidences of indebtedness for the Gas Utility System, the Gas Utility Distribution System or the Unregulated System or any portion thereof or (ii) a Subsidiary or an Affiliate from incurring debt or issuing bonds, certificates of indebtedness, commercial paper, notes, warrants or other evidences of indebtedness for its purposes.
Certificates Conclusive
Certificates, except for the Trustee's own certificate described under "General Conditions of Issuance," delivered to the Trustee pursuant to Article IV of the Master Indenture shall be conclusive, and the Trustee shall have no duty with respect thereto, except to mail a copy thereof to any Bondholder requesting the same in writing.
Thermal Energy System General Fund
The City covenants and agrees with the holders from time to time of the Bonds that it will pay into the Thermal Energy System General Fund as promptly as practicable after actual receipt thereof (i) all the Income and Revenues of Thermal Energy System (other than the revenues and other amounts expressly required or permitted by the Master Indenture to be credited to, or deposited in, any other account or fund), (ii) all extraordinary items of the kind referred to in the definition of Income and Revenues of Steam Division, (iii) all extraordinary items of the kind referred to in the definition of Income and Revenues of Chilled Water Division, and (iv) all other moneys required to be paid into the Thermal Energy System General Fund pursuant to the Master Indenture.
The City further covenants and agrees that all Income and Revenues of Thermal Energy System and other moneys so paid into the Thermal Energy System General Fund shall be a special trust fund in the hands of the City and shall be used and applied to the extent available in the manner and in the order of priority provided in Article V of the Master Indenture, subject to Article VII of the Master Indenture (Defaults and Remedies).
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The Chief Financial Officer may designate a Thermal Contract as a "contribution in aid of construction" and, if so designated, revenues derived from such contract shall be deposited in a special account in the Thermal Energy System Capital Expenditures Fund or the Thermal Energy System Construction Fund, as specified by the Chief Financial Officer, and used to acquire and construct the Project related to such contribution.
Operating Expenses of Thermal Energy System
To the extent not paid or provided for in some other way, the City shall pay or make provision for payment of the Operating Expenses of Thermal Energy System from the Thermal Energy System General Fund before making any other payments from the Thermal Energy System General Fund. For purposes of this paragraph, Operating Expenses of Thermal Energy System includes payment of (a) fees and expenses of the Trustee and any Paying Agents and the fees and expenses of any remarketing agents and tender agents related to series of Bonds, and (b) Costs of Credit Facilities for the First Lien Bonds and the Second Lien Bonds; provided, however, "Costs of Credit Facilities" means the initial and annual fees and expenses provided for in Credit Facilities, but "Costs of Credit Facilities" does not mean Reimbursement Obligations.
First Lien Bond Fund
(a) Subject to payment of Operating Expenses as described above, the City shall pay to the Trustee from the Thermal Energy System General Fund for deposit into the First Lien Bond Fund in each month the amounts provided in the order of priority indicated, as follows:
(i) The City shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund the amount accruing in such calendar month for the payment of interest on the next ensuing interest payment dates for each of the First Lien Bonds. In connection therewith, any amounts paid or required to be paid into the First Lien Bond Fund representing accrued interest received on the sale of First Lien Bonds, interest funded from the proceeds of a series of First Lien Bonds, investment income and any other transfers and credits made or required to be made (except for the monthly deposits provided for), shall be taken into consideration and allowed for. All such moneys shall be used to pay interest on the First Lien Bonds when due.
(ii) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund the amount accruing in such calendar month for the payment of principal of First Lien Bonds that are Serial Bonds, which principal shall accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In addition, the City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Amortization Installments for First Lien Bonds that are Term Bonds, which also shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be
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paid into the First Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay principal of such Serial Bonds or applied to the retirement of such Term Bonds in accordance with such Supplemental Indentures when due.
(iii) To the extent not paid already, the City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund at least the amount accruing in such calendar month for the payment of all fees and expenses related to Credit Facilities for First Lien Bonds. All such moneys shall be used to pay such fees and expenses when due.
(iv) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Reimbursement Obligations allocable to or representing interest due on or under Credit Facilities for First Lien Bonds, which obligations shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be paid into the First Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay such obligations when due.
(v) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the First Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Reimbursement Obligations allocable to or representing principal due on or under Credit Facilities for First Lien Bonds, which obligations shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be paid into the First Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay such obligations when due.
(b) Moneys in the First Lien Bond Fund shall be made available by the Trustee to any Paying Agents on or before the date upon which any installment of interest, principal or Amortization Installment is due on First Lien Bonds, either at maturity or by redemption, in amounts sufficient to meet any such installments when due.
(c) Moneys set aside from time to time with the Trustee or the Paying Agents for the purpose of paying the principal of or Amortization Installment, redemption premium, if any, and interest on First Lien Bonds and other obligations shall be held in trust for the holders of such Bonds or other such obligations. Until set aside, all moneys in the First Lien Bond Fund shall be held in trust for the equal and ratable benefit of the holders of all First Lien Bonds, all and all other such obligations at the time outstanding, subject to the further provisions of the Master Indenture.
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(d) Whenever the amounts on deposit in the First Lien Bond Fund shall be sufficient to provide moneys to retire all First Lien Bonds and all other such obligations, including interest which may become due and payable, and any redemption premium, no further payments need to be made by the City to the First Lien Bond Fund.
(e) To the extent the First Lien Bond Fund has less than the amount needed for the deposits described in (a)(i) – (v) above, such funds therein shall be applied on a pro rata basis among all series of First Lien Bonds prior to the application of any moneys or Reserve Policies in the Thermal Energy System Reserve Fund.
Second Lien Bond Fund
(a) Subject to the payment of Operating Expenses and payment under the First Lien Bond Fund, each as described above, the City shall pay to the Trustee from the Thermal Energy System General Fund for deposit into the Second Lien Bond Fund in each month the amounts provided in the order of priority indicated, as follows:
(i) The City shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund the amount accruing in such calendar month for the payment of interest on the next ensuing interest payment dates for each of the Second Lien Bonds. In connection therewith, any amounts paid or required to be paid into the Second Lien Bond Fund representing accrued interest received on the sale of Second Lien Bonds, interest funded from the proceeds of a series of Second Lien Bonds, investment income and any other transfers and credits made or required to be made (except for the monthly deposits provided for), shall be taken into consideration and allowed for. All such moneys shall be used to pay interest on the Second Lien Bonds when due.
(ii) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund the amount accruing in such calendar month for the payment of principal of Second Lien Bonds that are Serial Bonds, which principal shall accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In addition, the City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Amortization Installments for Second Lien Bonds that are Term Bonds, which shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be paid into the Second Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay principal of such Serial Bonds or applied to the retirement of such Term Bonds in accordance with such Supplemental Indentures when due.
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(iii) To the extent not paid already, the City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund at least the amount accruing in such calendar month for the payment of all fees and expenses related to Credit Facilities for Second Lien Bonds. All such moneys shall be used to pay such fees and expenses when due.
(iv) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Reimbursement Obligations allocable to or representing interest due on or under Credit Facilities for Second Lien Bonds, which obligations shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be paid into the Second Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay such obligations when due.
(v) The City also shall pay or cause to be paid from the Thermal Energy System General Fund to the Trustee for deposit into the Second Lien Bond Fund at least the amount accruing in such calendar month for the payment of all Reimbursement Obligations allocable to or representing principal due on or under Credit Facilities for Second Lien Bonds, which obligations shall be deemed to accrue as provided in the Supplemental Indentures authorizing the issuance of the same. In connection therewith, any amounts paid or required to be paid into the Second Lien Bond Fund (except for the monthly deposits provided for) shall be taken into consideration and allowed for. All such moneys shall be used to pay such obligations when due.
(b) Moneys in the Second Lien Bond Fund shall be made available by the Trustee to any Paying Agents on or before the date upon which any installment of interest, principal or Amortization Installment is due on Second Lien Bonds, either at maturity or by redemption, in amounts sufficient to meet any such installments when due.
(c) Moneys set aside from time to time with the Trustee or the Paying Agents for the purpose of paying the principal of or Amortization Installment, redemption premium, if any, and interest on Second Lien Bonds and other obligations shall be held in trust for the holders of such Bonds or other such obligations. Until set aside, all moneys in the Second Lien Bond Fund shall be held in trust for the equal and ratable benefit of the holders of all Second Lien Bonds, all and all other such obligations at the time outstanding, subject to the further provisions of the Master Indenture.
(d) Whenever the amounts on deposit in the Second Lien Bond Fund shall be sufficient to provide moneys to retire all Second Lien Bonds and all other such obligations, including interest which may become due and payable, and any redemption premium, no further payments need to be made by the City to the Second Lien Bond Fund.
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(e) To the extent the Second Lien Bond Fund has less than the amount needed for the deposits described in (a)(i) – (v) above, such funds therein shall be applied on a pro rata basis among all series of Second Lien Bonds prior to the application of any moneys or Reserve Policies in the Thermal Energy System Reserve Fund.
Series 2013/2014 Account of the Thermal Energy System Reserve Fund
(a) The City has authorized in the Series 2014A Supplemental Indenture that the Series 2013/2014 Account of the Thermal Energy System Reserve Fund is to be maintained specifically for the Series 2013A Bonds and has elected to secure the Series 2014A Bonds with such reserve as well as one or more series of Covered Bonds that the City may hereafter designate.
(b) On the delivery date for the Series 2014A Bonds, the Series 2013/2014 Account of the Thermal Energy System Reserve Fund will be Fully Funded as a result of prior deposits by the City.
(c) The Series 2013/2014 Account of the Thermal Energy System Reserve Fund shall, except for transfers of excess amounts as authorized in this section, be used and applied for the purposes of paying the principal of and Amortization Installments and interest on the Series 2013A Bonds and the Series 2014A Bonds (and Covered Bonds) and Reimbursement Obligations related thereto when due, whenever there are insufficient moneys in the First Lien Bond Fund for such purposes and moneys are not available therefor in the Thermal Energy System General Fund, it being understood that no moneys on deposit in the Series 2013/2014 Account of the Thermal Energy System Reserve Fund shall be used to pay any other Bonds issued pursuant to the Master Indenture and any Supplemental Indenture thereto (other than any Covered Bonds) while the Series 2013A Bonds and the Series 2014A Bonds are outstanding. On the date upon which there are no longer any Series 2013A Bonds and the Series 2014A Bonds (and any Covered Bonds) outstanding, the Chief Financial Officer shall direct the Trustee in writing to transfer amounts in the Series 2013/2014 Reserve Account to another Fund under the Master Indenture or for any other lawful use of the City.
(d) If after any withdrawal from the Series 2013/2014 Account of the Thermal Energy System Reserve Fund, the amount in such Series 2013/2014 Account is less than the Series 2013/2014 Reserve Requirement, the first moneys available in the Thermal Energy System General Fund after all current payments described under "Operating Expenses of Thermal Energy Systems," "First Lien Bond Fund" and "Second Lien Bond Fund," including all deficiencies in prior payments required by such sections (including any deposits which would have been made from the Thermal Energy System General Fund into such Funds and Accounts had moneys been available) have been made in full shall be used to restore the Series 2013/2014 Account to the Series 2013/2014 Requirement by depositing such funds in the Series 2013/2014 Account, on a pro rata basis with deposits to all other accounts of the Thermal Energy System Reserve Fund that have less than the applicable Reserve Requirement deposited therein.
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Thermal Energy System Derivatives Obligations Fund
Subject to the flow of funds as described above, the City shall transfer from the Thermal Energy System General Fund to the Thermal Energy System Derivatives Obligations Fund in each calendar month the amount accruing or otherwise needed to pay all Derivative Obligations when due; provided, however, that to the extent that moneys on deposit in the Thermal Energy System Derivatives Obligations Fund are needed to fulfill the City's obligations under the flow of funds as described above, the Trustee shall use such moneys to fulfill such obligations, as provided in Article V of the Master Indenture. Otherwise, the City shall use such moneys to pay Derivative Obligations when due, it being understood that such Derivative Obligations shall accrue or otherwise be deemed to be payable in accordance with the Supplemental Indentures authorizing the same. If the amount in the Thermal Energy System Derivatives Obligations Fund are insufficient to pay the Derivative Obligations when due, the first moneys available in the Thermal Energy System General Fund after all current payments required by the flow of funds as described above, including all deficiencies in prior payments required by such Sections (including any deposits which would have been made from the Thermal Energy System General Fund into such Funds and Accounts had moneys been available) have been made in full, shall be used to fund such overdue Derivative Obligations.
The City shall deposit or cause to be deposited into the Thermal Energy System General Fund all payments and any other moneys received as a result of a Derivatives Transaction.
Thermal Energy System Capital Expenditures Fund
On or before the first day of each Fiscal Year, the Chief Engineering Officer and the Chief Financial Officer shall establish (a) a budget and plan for capital expenditures on a month-by-month basis for such Fiscal Year for the Thermal Energy System, including the sources of funds and uses of funds therefor, and (b) a "Capital Expenditures Requirement" for such Fiscal Year for the Thermal Energy System, taking into account such budget and plan. Notwithstanding anything in the Master Indenture to the contrary, the Chief Engineering Officer and the Chief Financial Officer may amend such budget and plan for capital expenditure in any and all respects at any time during the ensuing Fiscal Year, but not more often than once per month, together with the Capital Expenditure Requirement related thereto.
Each month, after the payments required by the flow of funds as described above, including all deficiencies in prior payments required by such Sections (including any deposits which would have been made from the Thermal Energy System General Fund into such Funds and Accounts had moneys been available) have been made in full, the City shall transfer from the Thermal Energy System General Fund to the Thermal Energy System Capital Expenditures Fund Income and Revenues of Thermal Energy System in an amount sufficient to fund the Capital Expenditures Requirement for such Fiscal Year during such Fiscal Year, in accordance with such budget and plan for capital expenditures, as the same may be amended as provided in the immediately preceding paragraph.
Upon incurrence of a budgeted capital expenditure for the Thermal Energy System the City, upon written approval by an Authorized Officer, may withdraw moneys from the Thermal
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Energy System Capital Expenditures Fund in an amount sufficient to pay such capital expenditure.
Upon amendment of the budget and plan for capital expenditures, together with any reduction in the related Capital Expenditures Requirement, the Chief Financial Officer may, by written order, transfer moneys in an amount not in excess of such reduction from the Thermal Energy System Capital Expenditures Fund to the Thermal Energy System General Fund.
Unless provided in a Supplemental Indenture, to the extent moneys on deposit in the Thermal Energy System Capital Expenditures Fund are needed to fulfill the City's obligations under the flow of funds as described above, the City shall make such moneys available to the Trustee, together with written instructions as to the use of such moneys, which instructions shall be consistent with Article V of the Master Indenture. If the amount in the Thermal Energy System Capital Expenditures Fund are insufficient to fund the Capital Expenditures Requirement, the first moneys available in the Thermal Energy System General Fund after all current payments required by the flow of funds as described above, including all deficiencies in prior payments required by such Sections (including any deposits which would have been made from the Thermal Energy System General Fund into such Funds and Accounts had moneys been available) have been made in full, shall be used to fund such overdue Capital Expenditures Requirement.
Thermal Energy System Working Capital Fund
The proceeds of each series of Bonds issued to finance working capital shall be deposited in an account of the Thermal Energy System Working Capital Fund to be established by the Supplemental Indenture authorizing the issuance of such series of Bonds. Moneys in each such account shall be disbursed by the Trustee in accordance with the related Supplemental Indenture.
Thermal Energy System Construction Fund
The proceeds of each series of Bonds issued to finance a Project shall be deposited in an account of the Thermal Energy System Construction Fund to be established by the Supplemental Indenture authorizing the issuance of such series of Bonds. Moneys in each such account shall be disbursed by the Trustee in accordance with the related Supplemental Indenture.
Use of Balance of Moneys
The balance of any moneys remaining in the Thermal Energy System General Fund after the required deposits, payments and provisions under the Master Indenture, including the payments described above with respect to the flow of funds, and including all deficiencies in prior payments (including any deposits which would have been made from the Thermal Energy System General Fund had moneys been available), have been made in full, may be used by the City for any lawful purpose that is reasonably expected by the City to contribute to or benefit the Thermal Energy System or the public charitable trust to which the Thermal Energy System and the Gas Utility System are subject; provided, however, that no moneys may be so used outside the Thermal Energy System unless the Chief Financial Officer certifies that such officer reasonably expects that the Income and Revenues of Thermal Energy System after meeting the
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obligations contemplated by the flow of funds described above will be sufficient to fund capital expenditures for the Thermal Energy System in each of the five years following the date of such certificate, notwithstanding the use of such moneys.
Invested Funds
Moneys held by the Trustee under the Master Indenture shall, to the fullest extent practicable and reasonable, be invested by the Trustee as directed in writing by the City in Investment Securities. Such Investment Securities shall mature or be subject to redemption at the option of the holder thereof, prior to the respective dates when the moneys held for the credit of such accounts will be required for the purposes intended. Moneys in the Thermal Energy System Reserve Fund not required immediately shall, to the fullest extent practicable and reasonable, be invested by the Trustee as directed in writing by the City in Investment Securities maturing not more than five years thereafter. In addition, Investment Securities in the Thermal Energy System Reserve Fund shall be valued at their fair market value and marked-to-market at least once each year.
Notwithstanding anything in the Master Indenture to the contrary, (a) the City may by Supplemental Indenture limit the Investment Securities in which moneys in the Funds and Accounts may be invested and (b) in the absence of written direction from the City, the Trustee is authorized and directed to invest any uninvested funds in the Morgan Stanely Prime Fund.
Except as provided in the Master Indenture, all income resulting from the investment of moneys shall be deposited in the respective Funds and Accounts from which such investments were made. Notwithstanding anything in the Master Indenture to the contrary, in the case of a series of Bonds, the Supplemental Indenture authorizing the issuance of such series of Bonds may provide that income resulting from investment of the moneys in a Bond Fund and allocable to capitalized interest may be deposited into an account or accounts of the Thermal Energy System Construction Fund until the Date of Commercial Operation of the Project or Projects to be financed by the issuance of Bonds of such series.
In the event invested moneys are needed in a Bond Fund or in any other Fund or Account to meet obligations thereof and for which uninvested moneys are not available, the Trustee and the City, as applicable, shall sell or present for redemption investments to the extent required to provide for such need.
Certain Covenants to Secure Bonds
(a) The Board covenants that the Income and Revenues of Thermal Energy System in each Fiscal Year will be not less than the sum of:
(i) Operating Expenses of Thermal Energy System during such Fiscal Year;
(ii) an amount equal to the Aggregate Bond Service Requirement on all the Bonds for such Fiscal Year; and
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(iii) the amount, if any, to be paid from the Thermal Energy System General Fund during such Fiscal Year into the Thermal Energy System Reserve Fund during such Fiscal Year, relating to all the Bonds.
(b) (i) If for any Fiscal Year the Income and Revenues of Thermal Energy System are less than the sum of items (i), (ii) and (iii) above and the Board has not deposited into the Thermal Energy System General Fund Income and Revenues of Thermal Energy System sufficient to meet such test, then the Board shall take any appropriate action, under the law and within its power, to generate for Fiscal Years thereafter Income and Revenues of Thermal Energy System in the amounts required by subparagraph (a) above for such Fiscal Years. Such actions may include, but shall not be limited to, (A) the filing of a proceeding before the Commission seeking additional Income and Revenues of Steam Division or other relief and (B) the Board taking any other action which would (1) increase Income and Revenues of Thermal Energy System or (2) decrease Operating Expenses of Thermal Energy System. If any of such actions permits reasonable administrative or judicial review under the laws of the State of Indiana or the United States, such review shall be taken; provided, however, that additional filings seeking increased revenues or other relief before the Commission shall not be required, so long as an issue of law or fact similar to that which would be raised by such additional filing is then pending or on appeal or such an issue of law or fact was previously determined adversely on appeal.
(ii) If for any two consecutive Fiscal Years, the Income and Revenues of Thermal Energy System are less than the sum of items (i), (ii) and (iii) of subparagraph (a) above for each such Fiscal Year, then the Board shall (A) notify the Trustee in writing of the failure, and (B) retain a Consulting Engineer to conduct a study of the Thermal Energy System and prepare written recommendations to the Board about how the City might generate for Fiscal Years thereafter Income and Revenues of Thermal Energy System in the amounts required by subparagraph (a) above for such Fiscal Years. Upon receipt of such written recommendations from a Consulting Engineer, the Board shall promptly file a copy of the same with the Trustee.
(c) Notwithstanding anything in the Master Indenture to the contrary, failure by the Board to comply with subparagraph (a) above for any Fiscal Year or any two consecutive Fiscal Years, as applicable, shall not constitute an Event of Default within the meaning of Section 7.01(a)(iv) of the Master Indenture, so long as the Board is complying with subparagraph (b) above.
(d) Income and Revenues of Thermal Energy System in any Fiscal Year in an amount in excess of the amount specified in subparagraph (a) above for such Fiscal Year shall not be credited against the requirement for such aggregate amount for any subsequent Fiscal Year or Fiscal Years.
For purposes of the foregoing covenant, the Aggregate Bond Service Requirement for Variable Rate Bonds shall be calculated at the lesser of (1) the maximum interest rate borne by
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the Variable Rate Bonds in the preceding twelve months and (2) the maximum interest rate under the Supplemental Indentures providing for the issuance of the Variable Rate Bonds.
Pay Bonds
The City shall duly and punctually pay, or cause to be paid, but only from the Pledged Funds, the principal of and Amortization Installment and interest on each and every Bond on the dates and at the places, and in the manner provided in the Bonds and the Master Indenture.
Maintenance of Thermal Energy System
Subject to provisions of the Master Indenture concerning disposition of Thermal Energy System property, the City shall at all times (a) operate, or cause to be operated, the Thermal Energy System in an efficient manner and at reasonable cost, (b) maintain, preserve and keep, or cause to be maintained, preserved and kept, the Thermal Energy System and all additions, including betterments and extensions, in good repair, working order and condition, reasonable wear and tear excepted, (c) from time to time make, or cause to be made, all necessary and proper repairs, renewals, replacements, additions, extensions and betterments, so that at all times the business of the Thermal Energy System may be conducted, and (d) comply with, or be on an approved compliance schedule with respect to, or cause to be complied with, the terms and conditions of any permit or license for the Thermal Energy System issued by any federal or state governmental agency or body and with any federal or State law or regulation applicable to the construction, operation, maintenance and repair of the Thermal Energy System or requiring a license, permit or approval therefor, except the City in good faith may contest the validity of any term or condition of any such permit or license or the validity of any such federal or State law by appropriate legal proceedings.
In addition, the City at all times shall (i) operate or cause to be operated the Thermal Energy System as a revenue-producing enterprise; and (ii) establish and maintain for the operation of the Thermal Energy System an adequate management and workforce, experienced and skilled in the management and operation of district or thermal energy systems and related businesses.
Disposition of Thermal Energy System Property
(a) Except as may be provided below, the City shall not abandon, sell or otherwise dispose of, lease or transfer possession of, mortgage or otherwise encumber, the Thermal Energy System or any asset or property, real or personal, thereof.
(b) The City may sell, lease or otherwise dispose of such asset or property as may be produced or acquired for the purpose of sale or resale.
(c) The City may sell, lease or otherwise dispose of such asset or property which shall be or shall have become unserviceable, inadequate, uneconomic, obsolete, worn out, unfit or unadapted, or such asset or property which is unnecessary, immaterial to, unuseful or unprofitable in the operation of the Thermal Energy System.
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(d) The City may sell, lease or otherwise dispose of any such asset or property to the extent permitted by law if the book value of such asset or property sold, leased or disposed of by the City during any Fiscal Year shall not exceed five percent of the book value of the Gross Plant for Thermal Energy System.
(e) The City may sell, lease or otherwise dispose of any such asset or property to the extent permitted by law if:
(i) such sale, lease or disposition will not impair or destroy the ability of the City to continue to operate those assets and properties of the Thermal Energy System not sold, leased or disposed of in an efficient manner;
(ii) the terms and conditions of such proposed sale, lease or disposition are, in the judgment of the City, fair and reasonable; and
(iii) the estimated Income and Revenues of Thermal Energy System to be derived for the then current Fiscal Year from the assets and properties of the Thermal Energy System remaining after such sale, lease or disposition, after taking into, consideration the use by the City of the proceeds of such proposed sale, lease or disposition, will be sufficient to enable the City to comply with all covenants and conditions of the Indenture, as shall be established by a certificate of the Chief Financial Officer, the Chief Engineering Officer or the Senior Vice President, Operations, filed with the Trustee prior to such sale, lease or disposition.
(f) The City shall be authorized to sell, dispose of or transfer from the Thermal Energy System any such asset or property which the Commission or a court has ordered or the law otherwise permits to be excluded from utility plant used and useful to provide services.
(g) Notwithstanding anything in this section to the contrary, no sale, lease or disposition of any asset or property of the Thermal Energy System constituting, individually or in the aggregate, more than ten percent of the book value of the Gross Plant for Thermal Energy System shall be permitted without prior notice to the Trustee and the City shall furnish to the Trustee an opinion of nationally recognized bond counsel to the effect that such sale, lease or disposition does not adversely affect the exclusion of the interest income on the Bonds outstanding for federal income tax purposes.
(h) Notwithstanding anything in this section to the contrary, including subparagraph (g), the City shall be authorized to sell, dispose of or transfer from the Thermal Energy System the chilled water system acquired from Indianapolis Campus Energy, Inc., if required to do so pursuant to any contract between such corporation and Eli Lilly & Company, which contract was assigned to the City and which system was acquired by the City subject to such contract, or any successor contract.
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To Maintain Franchises, Other Rights
The City shall obtain and shall not permit or allow to lapse or forfeit, franchises (including the Franchise), permits, privileges, easements or other rights necessary or desirable in the operation of the Thermal Energy System so long as the same shall be necessary or desirable for such purpose. The City from time to time will take reasonable steps to secure the renewal and extension of all such franchises (including the Franchise), permits, privileges, easements and rights at the expiration thereof, if the same shall expire prior to the maturity of the Bonds. The City shall file all information and papers regarding its service areas and customers as may be required by law to protect and preserve such areas. However, nothing in the Master Indenture shall be deemed to prevent the City from making changes to its service areas which it deems appropriate, desirable or necessary.
Insurance
Except as provided in the Master Indenture, the City shall keep, or cause to be kept, the Thermal Energy System insured and will carry such other insurance, with responsible insurers with policies payable to the City, against fire and other risks, accidents or casualties at least to the extent and of the kinds of insurance, including deductibles and reserves, usually carried by persons operating like properties. The proceeds of any and all policies for general liability coverages paid to the City shall be paid into the Thermal Energy System General Fund and be used in paying the claims on account of which they were received. All moneys received for loss or damage to property shall be paid into the account in the Thermal Energy System General Fund relating to the applicable division of the Thermal Energy System and applied in accordance with the Master Indenture.
Tax Covenants
(a) Subject to a Supplemental Indenture authorizing the issuance of a series of Bonds and subparagraph (c) of this section, the City shall not take or cause or permit to be taken, nor cause or permit the Trustee to take, any action which would cause a Bond to be an "arbitrage bond" as defined in Section 148 of the United States Internal Revenue Code of 1986, as amended (or any successor Section of such Code or subsequent federal income tax statute or code which replaces or restates Section 148 as in effect on the date of delivery of such series). To that end the City shall comply with the regulations of Section 148 of the United States Department of Treasury as in effect on the date of delivery of such series of Bonds throughout the term of such series of Bonds.
(b) The City recognizes that the purchasers and holders of tax-exempt Bonds will have accepted such Bonds, and paid a price for them which reflects the understanding that interest on such Bonds is exempt from federal income taxation under laws in force at the time such Bonds shall have been delivered. As a result, the City agrees that it shall take no action which may render the interest on any of such Bonds to be subjected to federal income taxation, whether or not provision shall have been made for the payment of such Bonds.
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(c) Notwithstanding anything in the Master Indenture to the contrary, the City may issue series of Bonds, the interest on which is subject to federal income taxation, or may agree to comply with only such provisions of laws or regulations expressly set forth in a Supplemental Indenture authorizing the issuance of such series of Bonds, in which case subparagraphs (b) and (c) above shall not apply.
Acceleration
The City will not grant the remedy of acceleration to the holders of any debt or obligation secured by a pledge of the Pledged Funds.
Events of Default
Each of the following events is defined as and declared to be and shall constitute an "Event of Default."
(a) if payment shall not punctually be made by the City of the principal of or Amortization Installment established on any First Lien Bond when due;
(b) if payment shall not punctually be made by the City of the interest on any First Lien Bond when due;
(c) if deposit of Income and Revenues of Thermal Energy System in the Thermal Energy System General Fund shall not be made as provided in the Master Indenture; and
(d) subject to the further provisions of the Master Indenture, if the City shall fail to duly and punctually perform or observe any of its other agreements, conditions or covenants contained in the Master Indenture and relating to the Thermal Energy System, and such failure shall (i) impair the security for the Bonds and (ii) continue for 90 days after written notice to the City by the Trustee (which may give such notice whenever it determines that such failure exists, but shall give such notice at the written request of the holders of at least 25 percent of the principal amount of First Lien Bonds then outstanding); provided that, if such failure shall be such that it cannot be corrected within such 90-day period, it shall not constitute an Event of Default if the City institutes corrective action within such period and the City pursues corrective action until the failure is corrected; and provided further that if such action includes legal action, the City pursues such legal action until either the failure is corrected or a court of final and competent jurisdiction determines that such failure shall be correctable as a matter of law.
(e) if an order, judgment or decree shall be entered by any court of competent jurisdiction (i) appointing a receiver, trustee or liquidator for the City or the whole or any substantial part of the Thermal Energy System, (ii) granting relief in involuntary proceedings with respect to the City or the Thermal Energy System under the federal Bankruptcy Code, or (iii) assuming custody or control of the City or of the whole or any substantial part of the Thermal Energy System under the provision of any law for the relief or aid of debtors, and such order, judgment or decree shall not be vacated or set
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aside or stayed (or, if custody or control is assumed by such order, such custody or control shall not be terminated), within 60 days from the date of the entry of such order, judgment or decree; and
(f) if the City shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) commence voluntary proceedings in bankruptcy or seeking a composition of indebtedness, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a receiver of the whole or any substantial part of the Thermal Energy System, or (v) consent to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid of debtors of custody or control of the City or of the whole or any substantial part of the Thermal Energy System.
Notwithstanding anything in the Master Indenture to the contrary, no failure described in subparagraph (d), (e) or (f), shall be, or be deemed to be, an Event of Default, as contemplated above, solely by reason of a failure caused by, relating to or resulting from any of the same with respect to the Second Lien Bonds, for example, a Second Lien Event of Default described in subparagraph (b) shall not give rise to an Event of Default described in subparagraph (d) solely because the City's failure to pay interest on the Second Lien Bonds also is a failure by the City to comply with a covenant of the Master Indenture (the City's covenant to pay interest on all Bonds).
Second Lien Events of Default
Each of the following events is defined as and declared to be and shall constitute a "Second Lien Event of Default":
(a) if payment shall not punctually be made by the City of the principal of or Amortization Installment established on any Second Lien Bond when due; and
(b) if payment of the interest on any Second Lien Bond shall not punctually be made by the City when due.
Notice to Bondholders
(a) The Trustee within 90 days after the occurrence of any Event of Default or Second Lien Event of Default shall give to the Bondholders in the manner provided in the Master Indenture, notice of each default known to the Trustee, unless each such default shall have been cured before the giving of notice (the term "default" for purposes of this section means an Event of Default specified under "Events of Default" above or a Second Lien Event of Default specified under "Second Lien Events of Default" above); that, except in the case of an Event of Default defined in subparagraph (a), (b) or (c) under "Events of Default" above, or subparagraphs (a) or (b) under "Second Lien Events of Default" above, the Trustee shall be protected in withholding such notice, if the Trustee in good faith determines that the withholding of such notice is in the interests of the Bondholders.
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(b) If an Event of Default or Second Lien Event of Default happens and is not remedied, the books of record and account of the City relating to the Thermal Energy System and all other records relating thereto shall at all times be subject to the inspection and use of the Trustee and any persons holding at least 25 percent of the principal amount of the First Lien Bonds and the Second Lien Bonds outstanding and of their respective agents, attorneys or committees. If an Event of Default or Second Lien Event of Default shall have happened and shall not have been remedied, the City shall continue to account, as a trustee of an express trust, for all the Income and Revenues of Thermal Energy System and all other accounts, funds, moneys and securities pledged under the Master Indenture.
Possession of Income, Revenues
If an Event of Default shall have occurred and shall be continuing, the City, upon written demand from the Trustee, and to the extent permitted by law, shall pay over to the Trustee (i) forthwith, all funds, moneys and securities then held by the City and pledged under the Master Indenture, and (ii) as promptly as practicable after receipt, all Income and Revenues of Thermal Energy System and any other Pledged Funds; provided that, each Account of the Thermal Energy System Reserve Fund shall be a source of payment only for its respective Series of Bonds.
Application of Income, Revenues
(a) During the continuance of an Event of Default, the Income and Revenues of Thermal Energy System and any other Pledged Funds received by the City or the Trustee shall be applied by the City or the Trustee, as applicable, in accordance with Article V of the Master Indenture.
(b) In the event that at any time the moneys held by the City or the Trustee pursuant to the preceding paragraph shall be insufficient to satisfy in full all the deposits provided for in Article V of the Master Indenture, such moneys and all the Income and Revenues of Thermal Energy System and any other Pledged Funds received or collected thereafter (subject to the provisions restricting the use of each Account of the Thermal Energy System Reserve Fund to the specific Series of Bonds related thereto) shall be applied as follows:
(i) First Lien Bonds:
First, to the payment of all necessary and proper Operating Expenses of Thermal Energy System, reasonable working capital requirements for the Thermal Energy System, the payment of all reasonable renewals, repairs and replacements of the Thermal Energy System necessary in the judgment of the Board to prevent loss of the Income and 'Revenues of Thermal Energy System, and the payment of all proper expenses of the Trustee.
Second, to the payment of all installments of interest then due (including any interest on principal overdue determined as set forth in this paragraph (b)) on the First Lien Bonds in the order of the maturity of such installments, earliest maturities first, and, if the amounts available
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shall not be sufficient to pay in full any installment or installments of interest maturing on the same date, then to the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Third, to the payment of the unpaid principal and redemption premium, if any, due (determined as set forth in this paragraph (b)) and unpaid at the time of such payment upon the First Lien Bonds without preference or priority of any such Bond over any other such Bond, ratably, according to the amounts due (determined as set forth in this paragraph (b)), respectively for principal and redemption premium, to the persons entitled thereto without any discrimination or preference.
Fourth, to the payment of all Costs of Credit Facilities (to the extent not paid or provided for already) and Reimbursement Obligations relating to the First Lien Bonds and allocable to interest then due (including any interest on principal overdue determined as set forth in this paragraph (b)) in the order of maturity of such installments, earliest maturities first, and if the amounts available shall not be sufficient to pay in full any installment of interest maturing on the same date, then the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Fifth, to the payment of all Reimbursement Obligations relating to the First Lien Bonds and allocable to principal then due (determined as set forth in this paragraph (b)) and unpaid without preference or priority of any such Reimbursement Obligation over any other such Reimbursement Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
Sixth, to the payment of all Derivative Obligations relating to First Lien Bonds then due and unpaid without preference or priority of any such Derivative Obligation over any other such Derivative Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
(ii) Second Lien Bonds:
Seventh, to the payment of all installments of interest then due (including any interest on principal overdue determined as set forth in this paragraph (b)) on the Second Lien Bonds in the order of the maturity of such installments, earliest maturities first and, if the amounts available shall not be sufficient to pay in full any installment or installments of interest maturing on the same date, then to the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Eighth, to the payment of the unpaid principal and redemption premium, if any, due (determined as set forth in this paragraph (b)) and unpaid at the time of such payment on the Second Lien Bonds without preference or priority of any such Bond over any other such Bond, ratably, according to the amounts due (determined as set forth in this paragraph (b)), respectively for principal and redemption premium to the persons entitled thereto without any discrimination or preference, and Reimbursement Obligations relating thereto, as contemplated by and subject to the limitations contained in the Master Indenture.
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Ninth, to the payment of all Costs of Credit Facilities (to the extent not paid or provided for already) and Reimbursement Obligations relating to the Second Lien Bonds and allocable to interest then due (including any interest on principal overdue determined as set forth in this paragraph (b)) in the order of maturity of such installments, earliest maturities first, and if the amounts available shall not be sufficient to pay in full any installment of interest maturing on the same date, then the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Tenth, to the payment of all Reimbursement Obligations relating to the Second Lien Bonds and allocable to principal then due and unpaid (determined as set forth in this paragraph (b)) without preference or priority of any such Reimbursement Obligation over any other such Reimbursement Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
Eleventh, to the payment of all Derivative Obligations relating to Second Lien Bonds then due and unpaid without preference or priority of any such Derivative Obligation over any other such Derivative Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
(iii) All Bonds:
A. For the purposes only of the application of the preceding subparagraphs, principal due or principal overdue shall mean principal due by reason of stated maturities or by reason of a First Lien Bond having been called for redemption and the redemption date having arrived.
B. Whenever moneys are to be applied pursuant to such subparagraphs, such moneys shall be applied by the City or the Trustee, as applicable, at such times, and from time to time as it 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. Whenever the City or the Trustee shall exercise such discretion, it shall fix the date upon which 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. The City or the Trustee shall give notice as it deemed appropriate of the fixing of any such date and shall not be required to make payment to the holder of any unpaid Bond unless such Bond is presented for appropriate endorsement.
C. If and whenever all overdue installments of interest on all Bonds, together with the reasonable and proper charges, expenses and liabilities of the Trustee and holders of Bonds, their respective agents and attorney, and all other sums payable by the City under the Master Indenture relating to Bonds, including the principal of
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and redemption premium, if any, on all Bonds which shall then be payable, shall either be paid in full by or for the account of the City, or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Master Indenture or the Bonds shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, the Trustee shall pay over to the City all its accounts, funds, moneys and securities and the Income and Revenue of Thermal Energy System and any other Pledged Funds then remaining unexpended in the hands of the Trustee (except accounts, funds, moneys or securities or the Income and Revenues of Thermal Energy System and any other Pledged Funds deposited or pledged, or required by the terms of the Master Indenture to be deposited or pledged, or required by the terms of the Master Indenture to be deposited or pledged with the Trustee), and thereupon the City and the Trustee shall be restored, respectively, to their former positions and rights under the Master Indenture, and all the Income and Revenues of Thermal Energy System and any other Pledged Funds shall thereafter be applied as provided in Article V of the Master Indenture. No such payment over to the City or the Trustee or resumption of the application of the Income and Revenues of Thermal Energy System and any other Pledged Funds as provided in Article V of the Master Indenture shall extend to or affect any subsequent default under the Master Indenture or impair any right consequent thereon.
(c) During the continuance of a Second Lien Event of Default, the Income and Revenues of Thermal Energy System and any other Pledged Funds received by the City or the Trustee shall be applied by the City or the Trustee, as applicable, in accordance with Article V of the Master Indenture.
(d) In the event that the moneys held by the City or the Trustee pursuant to the preceding paragraph shall be insufficient to satisfy in full all the deposits provided for in Article V of the Master Indenture, such moneys and all the Income and Revenues of Thermal Energy System and any other Pledged Funds thereafter received or collected shall be applied as follows:
(i) First Lien Bonds:
First, as provided in Section 5.02 of the Master Indenture;
Second, as provided in Section 5.03 of the Master Indenture;
(ii) Second Lien Bonds:
Third, to the payment of all installments of interest then due (including any interest on principal overdue determined as set forth in this paragraph (d)) on the Second Lien Bonds in the
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order of the maturity of such installments, earliest maturities first, and, if the amounts available shall not be sufficient to pay in full any installment or installments of interest maturing on the same date, then to the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Fourth, to the payment of the unpaid principal and redemption premium, if any, due (determined as set forth in this paragraph (d)) and unpaid at the time of such payment on the Second Lien Bonds without preference or priority of any such Bond over any other such Bond, ratably, according to the amounts due (determined as hereinafter set forth in this paragraph (d)), respectively, for principal and redemption premium, to the persons entitled thereto without any discrimination or preference.
Fifth, to the payment of all Costs of Credit Facilities (to the extent not paid or provided for already) and Reimbursement Obligations relating to the Second Lien Bonds and allocable to interest then due (including any interest on principal overdue determined as set forth in this paragraph (d)) in the order of maturity of such installments, earliest maturities first, and if the amounts available shall not be sufficient to pay in full any installment of interest maturing on the same date, then the payment thereof ratably, according to the amount due thereon, to the persons entitled thereto, without any discrimination or preference.
Sixth, to the payment of all Reimbursement Obligations relating to the Second Lien Bonds and allocable to principal then due (determined as set forth in this paragraph (d)) and unpaid without preference or priority of any such Reimbursement Obligation over any other such Reimbursement Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
Seventh, to the payment of all Derivative Obligations relating to Second Lien Bonds then due and unpaid without preference or priority of any such Derivative Obligation over any other such Derivative Obligation, ratably, according to the amounts due, to the persons entitled thereto, without any discrimination or preference.
(iii) All Bonds:
A. For the purposes only of the application of the preceding subparagraphs principal due or principal overdue shall mean principal due by reason of stated maturities or by reason of a Second Lien Bond having been called for redemption and the redemption date having arrived.
B. Whenever moneys are to be applied pursuant to such subparagraphs, such moneys shall be applied by the City or the Trustee, as applicable, at such times, and from time to time, as it 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. Whenever the City or the Trustee shall exercise such discretion, it shall fix the date upon which application is to be
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made, and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The City or the Trustee shall give notice as it deemed appropriate, of the fixing of any such date and shall not be required to make payment to the holder of any unpaid Bond unless such Bond is presented for appropriate endorsement.
C. If and whenever all overdue installments of interest on all Bonds, together with the reasonable and proper charges, expenses and liabilities of the Trustee and holders of Bonds, their respective agents and attorney, and all other sums payable by the City under the Master Indenture relating to Bonds, including the principal of and redemption premium, if any, on all Bonds which shall then be payable, shall either be paid in full by or for the account of the City, or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Master Indenture or the Bonds shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, the Trustee shall payover to the City all of its accounts, funds, moneys and securities and the Income and Revenue of Thermal Energy System and any other Pledged Funds then remaining unexpended in the hands of the Trustee (except accounts, funds, moneys and securities or the Income and Revenues of Thermal Energy System and any other Pledged Funds deposited or pledged, or required by the terms of the Master Indenture to be deposited or pledged, or required by the terms of the Master Indenture to be deposited or pledged with the Trustee), and thereupon the City and the Trustee shall be restored, respectively, to their former positions and rights under the Master Indenture, and all the Income and Revenues of Thermal Energy System and any other Pledged Funds shall thereafter be applied as provided in Article V of the Master Indenture. No such payment over to the City or the Trustee or resumption of the application of the Income and Revenues of Thermal Energy System and any other Pledged Funds as provided in Article V of the Master Indenture shall extend to or affect any subsequent default under the Master Indenture or impair any right consequent thereon.
Bondholders May Direct Proceedings
Upon the occurrence of an Event of Default, the holders of not less than a majority in principal amount of the First Lien Bonds shall be authorized and empowered (1) to direct the time, method and place of conducting any proceeding for any remedy available to the holders of all the Bonds or to the Trustee therefor, or of exercising any trust or power conferred upon the Trustee under the Master Indenture; or (2) on behalf of the holders of all the Bonds then outstanding, including all the Second Lien Bonds then outstanding, to consent to the waiver of any Event of Default and its consequences and rescind any declaration of maturity of principal
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upon the written request of the holders of such majority. No waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.
Suits by Individual Bondholders
Notwithstanding anything in the Master Indenture to the contrary, the right of any holder of any Bond to receive payment of the principal of and interest on such Bond, on or after the respective due dates expressed in such Bond, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder.
Remedies Not Exclusive
No remedy by the terms of the Master Indenture conferred upon or reserved to the Trustee or the holders of the Bonds is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given under the Master Indenture to the Trustee or to the holders of the Bonds now or hereafter existing at law, in equity or by statute.
Waiver of Default
No delay or omission of the Trustee or of any holder of Bonds to exercise any right or power arising upon the occurrence of an Event of Default, shall impair any right or power or shall be construed to be a waiver of any such default or to be an acquiescence therein. Every power and remedy given by Article VII of the Master Indenture to the Trustee or to the holders of the Bonds may be exercised from time to time and as often as may be deemed expedient by the Trustee or by such holders.
Notices to Bondholders
Except as provided in the Master Indenture, any provision for the mailing of a notice or other paper to holders of the Bonds shall be fully complied with if it is mailed, first-class, postage prepaid, (a) to each registered owner of any of the Bonds then outstanding at each such owner's address if any, appearing upon the books of registry kept pursuant to the Master Indenture, and (b) to each owner of any of the Bonds whose name and address appears upon the list maintained pursuant to the Master Indenture.
Supplemental Indenture without Consent of Bondholders
The City and Trustee may without the consent of, or notice to, any of the Bondholders, enter into an indenture or indentures supplemental to the Master Indenture as shall not be inconsistent with the terms and provisions of the Master Indenture for any one or more of the following purposes, subject to certain provisions of the Master Indenture:
(a) To provide for the issuance of Bonds in accordance with Article IV of the Master Indenture;
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(b) To make any changes or corrections in the Master Indenture as to which the City shall have been advised by counsel that the same are verbal corrections or changes or are required for the purpose of curing or correcting any ambiguity or defective or inconsistent provision or omission or mistake or manifest error contained in the Master Indenture, as are necessary or desirable;
(c) To, add covenants and agreements of the City for the purpose of further securing the payment of the Bonds;
(d) To surrender any right, power or privilege reserved to or conferred upon the City by the Master Indenture;
(e) To confirm as further assurance any lien, pledge or charge, or the subjection to any lien, pledge or charge, created or to be created by the Master Indenture;
(f) To grant to or confer upon the holders of the Bonds any additional rights, remedies, powers, authority or security that lawfully may be granted to or conferred upon them, or to grant to or to confer upon the Trustee for the benefit of the holders of the Bonds any additional rights, duties, remedies, power or authority;
(g) To make any changes or modifications to the Master Indenture or amendments, additions or deletions to the Master Indenture, which may be required to permit the Master Indenture to be qualified under the Trust Indenture Act of 1939 of the United States of America or analogous laws applicable to bonds issued by governmental bodies;
(h) To make any changes or modifications to the Master Indenture or amendments, additions or deletions to the Master Indenture, which, in the judgment of the Board, by resolution, is not to the material prejudice of the Trustee or the holders of the Bonds or a particular series thereof; and
(i) To make any changes or modifications to the Master Indenture or amendments, additions or deletions to the Master Indenture, which affect only the series of Bonds to be affected, converted, issued or remarketed; and
(j) To make any changes to the Master Indenture which in the judgment of the Board are necessary or appropriate to provide for the delivery of a Reserve Policy for the Thermal Energy System Reserve Fund.
Supplemental Indenture with Consent of Bondholders
(a) Subject to subparagraph (b) below, the City and Trustee from time to time and at any time may enter into an indenture or indentures supplemental to the Master Indenture for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Master Indenture, or modifying or amending the rights and obligations of the City and Trustee, or modifying or amending in any manner the rights of the holders of the Bonds with the written consent given as provided in this section of the holders of a majority in aggregate principal amount of Bonds outstanding at
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the time such consent is given; or (ii) if less than all the series of Bonds then outstanding are affected by such modification or amendment, of the holders of a majority in aggregate principal amount of the Bonds of all series so affected and outstanding at the time such consent is given. If any such modification or amendment will not take effect so long as any Bond of any specified series remain outstanding, however, the consent of the holders of the Bonds of such series shall not be required and such series of Bonds shall not be deemed to be outstanding for the purposes of any calculation of outstanding Bonds under this section. For the purposes of this section, a series of Bonds shall be deemed to be affected by a modification or amendment of the Master Indenture if the same adversely affects or diminishes the rights of the holders of Bonds of such series. The Trustee may in its sole discretion determine whether or not in accordance with the foregoing powers of amendment Bonds of any particular series would be affected by any modification or amendment thereof, and any such determination shall be binding and conclusive upon the City and holders of such Bonds.
(b) Notwithstanding subparagraph (a), no such supplemental indenture or indentures shall without the specific consent of the holder of each such Bond which would be affected thereby, (1) change the fixed maturity date for the payment of the principal of any Bond or the dates for the payment of interest thereon or the terms of the redemption thereof, or reduce the principal amount of any bond or the rate of interest thereon, or the redemption price (or the redemption premium) payable upon the redemption or prepayment thereof; or (2) reduce the percentage of Bonds, the holders of which are required to consent to any supplemental Indenture amending or supplementing the Master Indenture, to give any Second Lien Bond or Second Lien Bonds any preference over any other Second Lien Bond or Second Lien Bonds, or to give any Second Lien Bond or Second Lien Bonds over any First Lien Bond or First Lien Bonds; or (3) give to any First Lien Bond or First Lien Bonds any preference over any other First Lien Bond or First Lien Bonds secured hereby; or (4) authorize the creation of any pledge of or lien and charge on, or create a pledge of or lien and charge on, the Income and Revenues of Thermal Energy System or any other Pledged Funds prior, superior or equal to the pledge of or lien and charge on the Income and Revenues of Thermal Energy System, Income and Revenues of Steam Division or Income and Revenues of Chilled Water Division and other Pledged Funds for the payment of the principal of and interest on Bonds in the provision provided in Articles V and VII of the Master Indenture; or (5) deprive in any material respect the holder of a Bond of the security afforded by the Master Indenture for such Bond. Nothing in this subparagraph (b), however, shall be construed as making necessary the approval of the holders of the Bonds of the execution of any supplemental Indenture authorized under "Supplemental Indenture without Consent of Bondholders."
(c) Notwithstanding anything in the Master Indenture to the contrary, the underwriter or other original purchaser of a series of Bonds or a portion thereof may consent to amendments or modifications to the Master Indenture or amendments, additions or deletions to the Master Indenture affecting the same, by signing a writing to that effect and filing it with the Trustee. Any such consent shall bind the underwriter or other original purchaser and each and every successive holder or owner thereof, as contemplated by the Master Indenture.
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Defeasance, Discharge of Bonds
If (a) the City shall pay, or cause to be paid, or there shall otherwise be paid, to the holders of all Bonds the principal of and the applicable redemption premium, if any, and interest due or to become due thereon, at the times and in the manner stipulated in the Bonds and in the Master Indenture, (b) the City shall pay all expenses and fees of the Trustee and any Paying Agent, and (c) the City shall keep, perform and observe all and singular the covenants and promises in the Bonds and in the Master Indenture expressed as to be kept, performed and observed by it or on its part, then all covenants, agreements and other obligations of the City and Trustee to the Bondholders, shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall cause an accounting for such period or periods be requested by the City to be prepared and filed with the City, and upon request of the City shall execute and deliver all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee and any Paying Agents shall pay over or deliver to the City all moneys or securities held by them pursuant to the Master Indenture which are not required for the payment of principal of and the applicable redemption premiums, if any, and interest on the Bonds. If the City shall pay or cause to be paid, or make provision for payment in accordance with Article XI of the Master Indenture, to the holder of all Outstanding Bonds of a particular series, or of a particular maturity within a series, the principal of and the applicable redemption premium, if any, and interest due or to become due thereon, at the times and in the manner stipulated therein and in the Master Indenture, such Bonds shall cease to be entitled to any lien, benefit or security under the Master Indenture (except with respect to the moneys or Defeasance Securities deposited as required under "Bonds No Longer Outstanding, Deemed Paid" below, and all covenants, agreements and obligations of the City to the holders of such Bonds shall thereupon cease, terminate and become void and be discharged and satisfied.
Bonds No Longer Outstanding, Deemed Paid
(a) Bonds or principal installments thereof and interest thereon for the payment or redemption of which moneys shall have been set aside and shall be held in trust by the Trustee (through irrevocable deposit by the City of funds for such payment or redemption or otherwise) at the maturity or redemption date thereof shall be deemed to have been paid within the meaning and with the effect expressed under "Defeasance, Discharge of Bonds" above. Any outstanding Bonds of any series or of a particular maturity within a series shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed under "Defeasance, Discharge of Bonds" above, if (a) in case any such Bonds are to be redeemed on any date prior to their maturity, the City shall have given to the Trustee irrevocable instructions accepted in writing by the Trustee to give notice as provided in Article VIII of the Master Indenture for redemption of such Bonds on such date, (b) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or Defeasance Securities the principal of and the interest on which when due will provide moneys which, together with other moneys, if any, deposited with the Trustee at the same time, shall be sufficient, to pay when due the principal of and the applicable redemption premium, if any, and interest (which with respect to any Variable Rate Bonds shall be assumed to be the maximum interest rate permitted under the Supplemental Indentures governing such Variable Rate Bonds) due and to become due on such Bonds on and prior
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to the redemption date or maturity date thereof, as the case may be, and (c) in the event such Bonds do not mature and are not to be redeemed within the next succeeding 60 days, the City shall have given the Trustee in form satisfactory to it irrevocable instructions accepted in writing by Trustee to give notice, as soon as practicable and in the same manner as notice of redemption is required to be given under Article VIII of the Master Indenture to the holders of such Bonds that the deposit required by clause (b) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with this section and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal of and the applicable redemption premium, if any, on such Bonds.
(b) Neither Defeasance Securities nor moneys deposited with the Trustee pursuant to this section nor principal or interest payments on any such Defeasance Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and the applicable redemption premium, if any, and the interest on such Bonds; provided that any cash received from such principal or interest payments on such Defeasance Securities deposited with the Trustee, (a) to the extent such cash will not be required at any time for such purpose, shall be paid over to the City as received by the Trustee, free and clear of any trust, lien or pledge securing such Bonds or otherwise existing under the Master Indenture, and (b) to the extent such cash will be required for such purpose at a later date, shall, to the extent practicable, be reinvested in Defeasance Securities maturing at times and in amounts, sufficient to pay when due the principal of and the applicable redemption premium, if any, and interest to become due on such Bonds on and prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be paid over to the City, as received by the Trustee, free and clear of any trust, lien or pledge. (For the purpose of this section, Defeasance Securities shall mean and include only such securities which are not callable at the option of the City of such Defeasance Securities.)
(c) With respect to Variable Rate Bonds, prior to the release of the Indenture, there shall be filed with the Trustee the following items (a) a resolution adopted by the City, determining (which determination may be based upon an opinion of a nationally recognized bond counsel or an investment banker) that the rights of the owners of such Variable Rate Bonds to receive payment of interest at the variable rate as provided in the documents pursuant to which such Variable Rate Bonds were issued and the right to receive payment of the purchase price of such Variable Rate Bonds upon tender for purchase as provided in the documents pursuant to which such Variable Rate Bonds were issued, will not be materially impaired by the release of the Master Indenture pursuant to this section; (b) a resolution adopted by the City specifying the use as to which any Current Excess Interest Earnings shall be applied; and (c) there shall have been furnished to the Trustee, as a condition for the release of the Indenture, an opinion of a nationally recognized bond counsel to the effect that such release will not have an adverse effect on the exclusion from gross income for federal income tax purposes of interest on any of the Bonds as are then excludable from gross income.
(d) For purposes of this section, the following definition shall apply: "Current Excess Interest Earnings" means for each period for which interest is received by the
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Trustee on the Defeasance Securities held in escrow for the holders of the Outstanding Bonds, the excess, if any, of interest received on such Defeasance Securities over the amount of interest paid on the Variable Rate Bonds in such period. The agreement pursuant to which such Defeasance Securities are held by the escrow agent shall provide for withdrawal of such Current Excess Interest Earnings when received by the escrow agent and payment of such sums to the City for expenditure in the manner provided in the resolution mentioned in clause (b) of subparagraph (c) above.
(e) If moneys or Defeasance Securities have been deposited with the Trustee in an amount together with the earnings thereon, sufficient to pay the principal of or interest on Bonds as it comes due, such principal or interest, as the case may be, shall not be included in the calculation of the Bond Service Requirement.
Bonds Not Presented for Payment When Due
Notwithstanding anything in the Master Indenture to the contrary, but subject to law, any moneys held by the Trustee or any Paying Agent in trust for the payment and discharge of any of the Bonds which remain unclaimed for five years after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Trustee or Paying Agent at such date, or for five years after the date of deposit of such moneys if deposited with the Trustee or Paying Agent after such date when such Bonds become due and payable, shall, at the written request of the City, be repaid by the Trustee or Paying Agent to the City, as its absolute property and free from trust, and the Trustee or Paying Agent shall thereupon be released and discharged with respect thereto, and the Bondholders shall look only to the City for the payment of such Bonds and coupons; provided, however, that before being required to make any such payment to the City, the Trustee or Paying Agent shall, at the expense of the City, cause to be mailed to each Bondholder a notice that such moneys remain unclaimed and that, after a date specified in such notice, the balance of such moneys then unclaimed will be returned to the City.
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APPENDIX D
FORM OF CONTINUING DISCLOSURE UNDERTAKING AGREEMENT
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CONTINUING DISCLOSURE UNDERTAKING AGREEMENT
This CONTINUING DISCLOSURE UNDERTAKING AGREEMENT, dated as of July 1, 2014 (this "Agreement"), is entered into between the CITY OF INDIANAPOLIS, BY AND THROUGH ITS BOARD OF DIRECTORS FOR UTILITIES OF ITS DEPARTMENT OF PUBLIC UTILITIES, D/B/A CITIZENS ENERGY GROUP (the "Obligor") and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Counterparty (the "Counterparty"), for the purpose of permitting J.P. Morgan Securities LLC, and the other underwriters named in the Bond Purchase Agreement, dated July 16, 2014 (collectively, the "Underwriter"), to purchase the Bonds (as hereinafter defined) in compliance with the Securities and Exchange Commission ("SEC") Rule 15c2-12 (the "SEC Rule"), as published in the Federal Register on November 17, 1994, and as thereafter amended.
Section 1. Definitions. The words and terms defined in this Agreement shall have the meanings herein specified unless the context or use clearly indicates another or different meaning or intent. Those words and terms not expressly defined herein and used herein with initial capitalization where rules of grammar do not otherwise require capitalization, shall have the meanings assigned to them in the SEC Rule.
(a) "Bondholder" or "holder" or any similar term, when used with reference to a Bond or Bonds, means any person who shall be the registered owner of any outstanding Bond, including the holders of beneficial interests in the Bonds.
(b) "Final Official Statement" means the Official Statement, dated July 16, 2014, relating to the Bonds, including any document or set of documents included therein by specific reference which is available to the public on the MSRB's Internet Web site or filed with the SEC.
(c) "MSRB" means the Municipal Securities Rulemaking Board.
(d) "Obligated Person" means any person, including an issuer of municipal securities, which is either generally or through an enterprise, fund or account of such person committed by contract or other arrangement to support payment of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities), for which Annual Information (as defined in Section 5 hereof) is presented in the Official Statement. All Obligated Persons with respect to the Bonds are identified in Section 4 hereof.
Section 2. Bonds. This Agreement applies to the City of Indianapolis, Indiana Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A, in the aggregate principal amount of $35,265,000 (the "Bonds").
Section 3. Term. The term of this Agreement is from the date of delivery of the Bonds by the Obligor to the earlier of (a) the date of the last payment of principal or redemption price, if any, of, and interest to accrue on, all the Bonds; or (b) the date the Bonds are defeased under the Thermal Energy System Trust Indenture, dated as of January 1, 2001, as amended by the First Amendment to Thermal Energy System Trust Indenture, dated as of October 1, 2010, as supplemented by the Series 2008 Thermal Energy System Trust Indenture Supplemental Trust D-1
Indenture, dated as of March 1, 2008, the Series 2010A Thermal Energy System Supplemental Trust Indenture, dated as of March 1, 2010, the Series 2010B Thermal Energy System Supplemental Trust Indenture, dated as of October 1, 2010, the Series 2013 Thermal Energy System Supplemental Trust Indenture, dated as of July 1, 2013, and the Series 2014A Thermal Energy System Supplemental Trust Indenture, dated as of July 1, 2014 (collectively, the "Trust Indenture"), all between the Obligor and the Counterparty, as trustee.
Section 4. Obligated Persons. The Obligor hereby represents and warrants as of the date hereof that it is the only Obligated Person with respect to the Bonds. If the Obligor, at its sole discretion, determines that it is no longer an Obligated Person, this Agreement shall no longer apply to the Obligor.
Section 5. Provision of Annual Information.
(a) The Obligor hereby undertakes to provide the following financial information:
(i) To the MSRB in an electronic format as prescribed by the MSRB, when and if available, the audited financial statements of the Obligor as examined by the Obligor's independent auditors for each twelve-month period ending September 30, beginning with the twelve-month period ending September 30, 2015, together with the opinion of such accountants and all notes thereto, within 30 days of receipt from such auditors; and
(ii) To the MSRB in an electronic format as prescribed by the MSRB, within 180 days of each September 30, beginning with the fiscal year ending September 30, 2015, unaudited annual financial information for the Obligor for such calendar year including (i) unaudited financial statements of the Obligor if audited financial statements are not available, and (ii) financial information or operating data of the type included in Tables 1, 2, 3, 4, 5, 5A, 6, 7, 8, 9, 10, 11, 11A, 11B, 11C, 12, 13 and 14 in, the table under the heading “CITIZENS’ OUTSTANDING OBLIGATIONS” in, the heading “THERMAL ENERGY SYSTEM” in, and in Appendix A to, the Final Official Statement (collectively, the "Annual Information").
(b) If any Annual Information or audited financial statements relating to the Obligor referred to in subsection (a) above no longer can be generated because the operations to which they related have been materially changed or discontinued, a statement to that effect, provided by the Obligor to the MSRB, along with any other Annual Information or audited financial statements required to be provided under this Agreement, shall satisfy the undertaking to provide such Annual Information or audited financial statements. To the extent available, the Obligor shall cause to be filed along with the other Annual Information or audited financial statements operating data similar to that which can no longer be provided.
(c) The Obligor agrees to make a good faith effort to obtain Annual Information. However, failure to provide audited financial statements or Annual Information because it is or they are not available to the Obligor shall not be deemed to be a breach of this Agreement. The Obligor further agrees to supplement the Annual Information filing when such data is available.
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(d) Annual Information or audited financial statements required to be provided pursuant to this Section may be provided by a specific reference to documents available to the public on the MSRB's Internet Web site or filed with the SEC.
Section 6. Accounting Principles. The financial information will be prepared by the Obligor. The audited financial statements of the Obligor, as described in Section 5(a)(i), will be prepared in accordance with Accounting Principles as described in the Final Official Statement and defined in the Trust Indenture.
Section 7. Notice of Certain Events.
(a) The Obligor undertakes to provide to the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the event, notice of any of the following events with respect to the Bonds:
(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 tax status of the security, or other material events affecting the tax status of the security;
(vii) Modifications to rights of security holders, if material;
(viii) Bond calls, if material, and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the securities, if material;
(xi) Rating changes;
(xii) Bankruptcy, insolvency, receivership or similar event of the obligated person;
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(xiii) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the 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; and
(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(b) For the purpose of the event set forth in subsection (a)(xii) above, such event is considered to occur when any of the following occur:
(i) the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority; or
(ii) the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.
(c) The Obligor may from time to time choose to provide notice of the occurrence of any other event, in addition to those listed above, if, in the judgment of the Obligor, such other event is material with respect to the Bonds and should be disclosed, but the Obligor does not commit to provide any such notice of the occurrence of any event, except those events set forth above.
Section 8. Notice to Counterparty. The Obligor hereby agrees to provide to the Counterparty upon request a copy of any Annual Information, audited financial statements, notice of certain events or notice of failure to disclose Annual Information, which it files or causes to be filed pursuant to Sections 5, 7 and 10 hereof, respectively, concurrently with or prior to such filing.
Section 9. Use of Agent. The Obligor may, at its sole discretion, use an agent (the "Dissemination Agent") in connection with the dissemination of any information required to be provided by the Obligor pursuant to the SEC Rule and this Agreement. If a Dissemination Agent is selected for these purposes, the Obligor shall provide prior written notice thereof (as well as notice of replacement or dismissal of such agent) to the Counterparty and the MSRB. Further, the Obligor may, at its sole discretion, retain counsel or others with expertise in securities matters for the purpose of assisting the Obligor in making judgments with respect to the scope of its obligations hereunder and compliance therewith, all to further the purposes of this Agreement as set forth in the preamble and Section 11 hereof.
Section 10. Failure to Disclose. If, for any reason, the Obligor fails to provide the audited financial statements or Annual Information as required by this Agreement, the Obligor D-4
shall provide notice of such failure in a timely manner to the MSRB in an electronic format as prescribed by the MSRB.
Section 11. Remedies.
(a) The purpose of this Agreement is to enable the Underwriter to purchase the Bonds by providing for an undertaking by the Obligated Persons in satisfaction of the SEC Rule. This Agreement is solely for the benefit of the Bondholders and creates no new contractual or other rights for, nor can it be relied upon by, the SEC, underwriters, brokers, dealers, municipal securities dealers, potential customers, other Obligated Persons, if any, or any other third party or person. The sole remedy against the Obligor for any failure to carry out any provision of this Agreement shall be for specific performance of the Obligor's disclosure obligations hereunder and not for money damages of any kind or in any amount, or for any other remedy.
(b) Subject to subsection (e) below, in the event the Obligor fails to provide any information required of it by the terms of this Agreement, any Bondholder may pursue the remedy provided for in subsection (a) above in any court of competent jurisdiction in the county in which the Obligor is located. An affidavit to the effect that such person is a Bondholder supported by reasonable documentation of such claim shall be sufficient to evidence standing to pursue this remedy.
(c) Subject to subsection (e) below, any challenge to the adequacy of the information provided by the Obligor by the terms of this Agreement may be pursued only by holders of not less than 25% in principal amount of Bonds then outstanding in any court of competent jurisdiction in the county in which the Obligor is located. An affidavit to the effect that such persons are Bondholders supported by reasonable documentation of such claim shall be sufficient to evidence standing to pursue the remedy set forth in subsection (a) above.
(d) The Counterparty, upon satisfactory indemnification and demand by those persons it reasonably believes to be Bondholders, may also pursue the remedy set forth above in any court of competent jurisdiction in the county in which the Obligor is located. The Counterparty shall have no obligation to pursue any remedial action in the absence of a valid demand from Bondholders and satisfactory indemnification.
(e) Prior to pursuing any remedy under this Agreement, a Bondholder shall give notice to the Obligor, via registered or certified mail, of such breach and its intent to pursue such remedy. Fifteen days after the mailing of such notice, and not before, a Bondholder may pursue such remedy under this Agreement. The Obligor's failure to honor its covenants hereunder shall not constitute a breach or default of the Bonds, the Trust Indenture or any other agreement to which the Obligor is a party.
Section 12. Counterparty's Obligations.
(a) The Counterparty shall have no obligation to take any action whatsoever with respect to information provided by the Obligor under this Agreement (or by any Obligated Persons covered hereby), except (i) as set forth in this Section and (ii) any obligations arising from the Counterparty serving as a Dissemination Agent, and no implied covenants or
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obligations shall be read into this Agreement against the Counterparty. Further, except as set forth in this Section, the Counterparty shall have no responsibility to ascertain the truth, completeness, accuracy or timeliness of the information provided as required hereunder by the Obligor or any Obligated Person, nor as to its sufficiency for purposes of compliance with the SEC Rule or the requirements of this Agreement. The Counterparty may, at its sole discretion, retain counsel or others with expertise in continuing disclosure matters for the purpose of assisting the Counterparty in making judgments with respect to the scope of its obligations hereunder and compliance therewith.
(b) If the Counterparty has not received the Annual Information by the date which is 10 days before the date set forth in Section 5(a)(ii) hereof, the Counterparty shall notify the Obligor, via registered or certified mail, that it has not received such Annual Information. However, a failure by the Counterparty to provide (or any delay in providing) any notice required by this subsection shall not: (i) operate to relieve the Obligor of its obligation to provide the Annual Information in the manner and within the time specified in this Agreement; or (ii) constitute a defense for the Obligor or the basis for any claim, counterclaim, cross-claim or third-party claim by the Obligor, in any action brought pursuant to Section 11 hereof or otherwise. Nothing contained in this subsection shall operate to grant any additional rights or remedies to any holder of Bonds.
(c) In the event the Counterparty has not received a copy of the Annual Information on or before the fifth business day after the date required by Section 5(a)(ii) hereof, the Counterparty shall be obligated to, and hereby agrees that it will provide a notice of such failure in a timely manner to the MSRB in an electronic format as prescribed by the MSRB; provided, however, that the Counterparty shall not give such notice as described in this subsection or the notice described in subsection (b) above, if the Obligor has provided the Counterparty with notice that the Obligor has provided notice pursuant to Section 10 hereof.
Section 13. Identifying Information. All documents provided to the MSRB under this Agreement shall be accompanied by identifying information as prescribed by the MSRB.
Section 14. Resignation and Removal of Counterparty. The Counterparty may resign in its capacity under this Agreement at any time by giving written notice thereof to the Obligor. So long as the Obligor has not failed to honor its obligations as set forth in Sections 5, 7 and 10 hereof, the Obligor may remove the Counterparty in its capacity under this Agreement at any time by giving written notice thereof to the Counterparty. Upon such resignation or removal, the Obligor may appoint a successor Counterparty hereunder or may execute and deliver a continuing disclosure agreement for the benefit of the Bondholders.
Section 15. Modification of Agreement. The Obligor and the Counterparty may, from time to time, amend or modify this Agreement without the consent of or notice to the Bondholders if either (a)(i) such amendment or modification is made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the Obligor, or type of business conducted, (ii) this Agreement, as so amended or modified, would have complied with the requirements of the SEC Rule on the date hereof, after taking into account any amendments or interpretations of the SEC Rule, as well as any change in circumstances, and (iii) such amendment or modification does not materially D-6
impair the interests of the Bondholders, as determined either by (A) the Counterparty or nationally recognized bond counsel or (B) an approving vote of the holders of the requisite percentage of outstanding Bonds as required under the Trust Indenture, subject to the further provisions of the Trust Indenture, at the time of such amendment or modification; or (b) such amendment or modification (including an amendment or modification which rescinds this Agreement) is permitted by the SEC Rule, as then in effect.
Section 16. Interpretation. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Indiana.
Section 17. Severability Clause. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 18. Successors and Assigns. All covenants and agreements in this Agreement made by the Obligor and the Counterparty shall bind their successors, whether so expressed or not.
Section 19. Notices. All notices required to be given under this Agreement shall be made in writing at the following addresses:
If to the Obligor: City of Indianapolis, by and through its Board of Directors for Utilities of its Department of Public Utilities, d/b/a Citizens Energy Group 2020 North Meridian Street Indianapolis, Indiana 46206 Attn: General Counsel, Board of Directors for Utilities Facsimile: (317) 927-4549
If to the Counterparty: The Bank of New York Mellon Trust Company, N.A. 300 North Meridian Street, Suite 910 Indianapolis, Indiana 46204 Attn: Corporate Trust Department Facsimile: (317) 637-9821
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IN WITNESS WHEREOF, the Obligor and the Counterparty have caused this Agreement to be executed as of July 1, 2014.
CITY OF INDIANAPOLIS, BY AND THROUGH ITS BOARD OF DIRECTORS FOR UTILITIES OF ITS DEPARTMENT OF PUBLIC UTILITIES, as Obligor
By: Sara Mamuska-Morris, Director of Treasury, Citizens Energy Group
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Counterparty
By:
Name:
Title:
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APPENDIX E
FORM OF OPINION OF BOND COUNSEL
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July 23, 2014
Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis d/b/a Citizens Energy Group Indianapolis, Indiana
The Bank of New York Mellon Trust Company, N.A. as Trustee Indianapolis, Indiana
Re: $35,265,000 City of Indianapolis Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A (the "Series 2014A Bonds")
Ladies and Gentlemen:
We acted as bond counsel to the City of Indianapolis, acting by and through its Board of Directors for Utilities of its Department of Public Utilities (the "City"), in connection with the issuance and sale by the City of the Series 2014A Bonds pursuant to the Thermal Energy System Trust Indenture dated as of January 1, 2001, as supplemented and amended by the Series 2008 Thermal Energy System Supplemental Trust Indenture dated as of March 1, 2008, the Series 2010A Thermal Energy System Supplemental Trust Indenture dated as of March 1, 2010, the First Amendment to Thermal Energy System Trust Indenture, dated as of October 1, 2010, the Series 2010B Thermal Energy System Supplemental Trust Indenture dated as of October 1, 2010, the Series 2013 Thermal Energy System Supplemental Trust Indenture dated as of July 1, 2013 and the Series 2014A Thermal Energy System Supplemental Trust Indenture dated as of July 1, 2014 (collectively, the "Trust Indenture"), each between the City and The Bank of New York Mellon Trust Company, N.A, as trustee (the "Trustee").
As bond counsel, we examined, among other things: (a) a certified transcript containing the proceedings of the City relating to the organization of the City, the authorization, issuance and sale of the Series 2014A Bonds and the approval, execution and delivery of the Trust Indenture; (b) certificates of certain material facts, estimates and expectations regarding the use of the proceeds of the Series 2014A Bonds; (c) the opinion of Gonzalez, Saggio & Harlan LLP, Indianapolis, Indiana, special counsel to Citizens, dated the date of this opinion letter; (d) an executed counterpart of the Trust Indenture; and (e) specimens of the Series 2014A Bonds.
We also examined Indiana Code 8-1-11.1, as amended, and such other provisions of law (collectively, the "Act") and the Constitution of the State of Indiana as we deemed relevant and necessary as the basis for the following opinions.
As to questions of fact material to the following opinions, we relied upon a certified transcript of proceedings and other certificates and covenants of the City, among other things, to maintain the exclusion of interest on the Series 2014A Bonds from gross income (collectively, the "Tax Covenants"), without undertaking to verify any fact by independent investigation.
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Based upon the foregoing and our review of such other information, papers and documents as we believe necessary or advisable, we are of the opinion that:
1. The Trust Indenture was duly authorized, executed and delivered by the City, and, assuming the due authorization, execution and delivery of the Trust Indenture by the Trustee, constitutes the legal, valid and binding obligation of the City, enforceable against the City in accordance with its terms; subject to the qualification that the enforcement of the Trust Indenture may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the availability of equitable remedies.
2. The Series 2014A Bonds constitute legal, valid and binding obligations of the City (secured solely by and payable solely from the Pledged Funds, as provided in the Trust Indenture on a parity with outstanding First Lien Bonds) and are enforceable in accordance with their terms and the terms of the Trust Indenture; subject to the qualification that the enforcement of the Series 2014A Bonds may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights and the availability of equitable remedies.
3. Under statutes existing on the date of this opinion letter, interest on the Series 2014A Bonds is exempt from income taxation in the State of Indiana.
4. Under federal statutes, decisions, regulations and rulings existing on the date of this opinion letter, interest on the Series 2014A Bonds is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date of this opinion letter (the "Code"), is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for purpose of computing the federal alternative minimum tax imposed on certain corporations. This opinion is conditioned upon continuing compliance with the Tax Covenants. Failure to comply with the Tax Covenants could cause interest on the Series 2014A Bonds to lose the exclusion from gross income for federal income tax purposes retroactive to their date of issue.
It is to be understood that the rights of the owners of the Series 2014A Bonds and the enforceability of the Trust Indenture may be subject to the valid exercise of the constitutional powers of the State of Indiana and the United States of America. It is to be further understood that the rights of the owners of the Series 2014A Bonds and the enforceability of the Trust Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditor's rights enacted prior to and after the date of this opinion letter and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.
Very truly yours,
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APPENDIX F
DEFINITIONS
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DEFINITIONS
"Account" means an account in a Fund authorized or established under Article V of the Master Indenture.
"Act" means Indiana Code 8-1-11.1, and includes, in the case of Refunding Bonds, Indiana Code 5-1-5 as the same from time to time may be amended or supplemented.
"Additional Bonds" means any Bonds issued pursuant to the Master Indenture, except the Series 2008A Bonds, the Series 2008B Bonds, the Series 2010A Bonds, the Series 2010B Bonds, the Series 2013A Bonds and the Series 2014A Bonds.
"Adjusted Bond Service Requirement" means for any period, the Bond Service Requirement for a series of Bonds, adjusted for such series of Bonds as specified in the Master Indenture or the Supplemental Indenture authorizing the issuance of such series of Bonds.
"Affiliate" means any entity, excluding a Subsidiary, owned in part by the City or a Subsidiary.
"Aggregate Adjusted Bond Service Requirement" means for any period the sum of the Adjusted Bond Service Requirements for such period for each series of Bonds.
"Aggregate Bond Service Requirement" means for any period the sum of the Bond Service Requirements for such period for each series of Bonds.
"Amortization Installment" means for any Term Bonds of a series similarly structured, the amount of money or the purchase price of Federal Securities required to pay or provide for the payment of such Term Bonds (whether at maturity or by mandatory redemption and including redemption premiums, if any).
"Amortization Installment Date" shall have for Term Bonds of a series similarly structured, the meaning specified in the Supplemental Indenture authorizing the issuance of such Term Bonds.
"Assumed Interest Rate" means an assumed fixed interest rate established by the City pursuant to the Master Indenture for a series of Put Bonds or Variable Rate Bonds.
"Auction Rate Bonds" means Variable Rate Bonds which bear a rate of interest per annum that results from implementation of an auction process for a series of Bonds pursuant to a Supplemental Indenture.
"Authorized Officer" means, for purposes of Section 5.06 of the Master Indenture, the President and each Senior Vice President of Citizens Energy Group or its successor and each other officer or manager certified by the President of Citizens Energy Group or its successor to be an Authorized Officer.
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"Board" means the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, or if such Board shall be abolished, the board, body, commission or agency succeeding to the principal functions of such Board.
"Bond" or "Bonds" means any Bond or Bonds or all Bonds, including First Lien Bonds and Second Lien Bonds, authenticated and delivered under the Master Indenture. "Bond" or "Bonds" also means any bond, certificate, commercial paper, note, obligation and other evidence of indebtedness issued pursuant to Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Master Indenture.
"Bond Fund" means the First Lien Bond Fund or Second Lien Bond Fund, as applicable.
"Bondholder" or "holder of a Bond" or "Owner" or any similar term means the registered owner of any Bond or such registered owner's duly authorized attorney-in-fact, representative or assignee.
"Bond Service Requirement" means for any period, for any series of Bonds, the amounts specified in the Supplemental Indenture authorizing the issuance of such series of Bonds.
"Bonds outstanding" or "outstanding" means all Bonds which have been authenticated and delivered by the Trustee under the Master Indenture, except:
(a) Bonds canceled by the Trustee because of payment or redemption prior to maturity;
(b) Bonds for the payment or redemption of which moneys sufficient to pay when due the principal of and redemption premium, if any, on and interest accrued or to accrue on such Bonds to the redemption date or maturity date shall have been deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Bonds); provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee, shall have been filed with the Trustee;
(c) Bonds in lieu of which others have been authenticated, unless proof satisfactory to the Trustee is presented that any such Bonds are held by bona fide holders in due course; and
(d) Bonds which shall be deemed to be paid within the meaning of Section 11.02 of the Master Indenture, but only when the Master Indenture shall have been discharged with respect to such Bonds under Article XI thereof.
"Capital Appreciation Bonds" means Bonds issued pursuant to Section 2.04 of the Master Indenture.
"Capital Expenditures Requirement" is described in Section 5.07 of the Master Indenture.
"Chief Engineering Officer" means the person designated by the Board as having primary responsibility for the engineering operations of the Thermal Energy System.
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"Chief Financial Officer" means the person designated by the Board as having primary responsibility for the financial operations of the Thermal Energy System.
"Chilled Water Division" means all assets and properties, including any and all interests therein, whether real or personal or tangible or intangible, held or operated by the City in trust or otherwise and used directly to provide chilled water and related services and products.
"City", "Citizens" or "Citizens Energy Group" means as the context requires (1) the City of Indianapolis, acting by and through the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, in connection with the exclusive government, management, regulation and control of the Thermal Energy System or (2) the Board.
"City Bonds" means any Bonds which are owned directly or indirectly by or on behalf of or for the account of the City.
"City of Indianapolis" means the City of Indianapolis, a consolidated city and a municipal corporation of the State of Indiana.
"Commission" and "IURC" mean the Indiana Utility Regulatory Commission or, if the IURC or such Commission shall be abolished or some part of its functions assumed by some other governmental agency, the agency, authority, board, body, commission or department succeeding to or sharing the functions of such Commission.
"Compound Accreted Value" shall have the meaning given to such term in the Supplemental Indenture authorizing the issuance of Capital Appreciation Bonds or Original Issue Discount Bonds.
"Compounded Amount" shall have the meaning given to such term in the Supplemental Indenture authorizing the issuance of Capital Appreciation Bonds or Original Issue Discount Bonds.
"Consulting Engineer" means an independent engineer or engineering firm or corporation having a favorable reputation for special skill, knowledge and experience in analyzing the operations of, preparing rate analyses for, forecasting the revenues of, or preparing feasibility reports with respect to the financing of district energy systems, including the Thermal Energy System, initially including Thermal Ventures, Inc.
"Cost of Acquisition and Construction" means the costs of acquisition and/or construction of property for the Thermal Energy System, and the costs of any betterments, improvements, extensions or additions to the Thermal Energy System, including all costs necessarily incurred in connection with the acquisition of such property or the making of such betterments, improvements, extensions or additions, including, but not limited to, the following to the extent funds are permitted by law to be provided therefor by the issuance of Bonds:
(a) working capital and reserves in such amounts as may be deemed necessary by the Board for the Thermal Energy System;
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(b) interest accruing in whole or in part on Bonds prior to and during the acquisition and construction of a Project and for such additional period as the Board may reasonably determine;
(c) acquisition of energy supplies and reserves, including land, leaseholds, leases, gas reserves, gas in the ground, gas in storage, manufactured gas, and options therefor, electricity and options therefor, coal and options therefor, oil and options therefor, steam and options therefor and working capital, equipment, structures, facilities or prepayments and reserves therefor, for the Thermal Energy System;
(d) the deposit or deposits from the proceeds of a series of Bonds to meet the Reserve Requirement;
(e) the deposit or deposits from the proceeds of Bonds in any funds or accounts established pursuant to the Master Indenture as reserves for renewals, replacements and contingencies or for decommissioning or terminating the Thermal Energy System;
(f) all federal, state and local taxes and payments in lieu of taxes legally required to be paid in connection with the acquisition and construction of a Project;
(g) all costs relating to injury and damage claims arising out of the acquisition and construction of a Project; and
(h) preliminary survey, investigation and development costs, engineering, contractors' fees, permits, licenses, and approvals, labor, materials, equipment, lands, rights-of-way, franchises, easements and other interests in land, utility services and supplies, payments to other public agencies, training and testing costs, insurance premiums, principal of and interest on Bonds and all other obligations, the proceeds of which were or are to be applied to provide the Costs of Acquisition and Construction and issued in anticipation of the Bonds, fees and expenses or fiduciaries legal and financing costs of administrative and general costs, and all other costs incurred by the City and properly allocable to the acquisition and construction of a Project, completing and placing the same in operation or the issuance of the Bonds, including Costs of Credit Facilities, costs of Derivative Transactions and Reserve Policies.
"Costs of Credit Facilities" means the initial and annual fees and expenses provided for in any Credit Facilities.
"Covered Bonds" means, one or more series of Bonds for which a particular Account or Accounts of the Thermal Energy System Reserve Fund are created to secure.
"Credit Facility" means a credit facility, a guaranty, a letter of credit (whether direct pay or standby), a line of credit, a liquidity facility, a municipal bond insurance policy, a standby bond purchase agreement, a surety bond or any other related or similar agreement or document or any combination of agreements or documents described in this definition and issued by a Credit Provider. A Reserve Policy is not a Credit Facility. Execution and delivery of a Credit Facility by the City is not subject to Article IV of the Master Indenture.
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"Credit Provider" means a bank, a financial institution, a guarantor, an insurance company, a surety or any other credit enhancer or liquidity provider which issues a Credit Facility for all or a part of a series of Bonds.
"Current Excess Interest Earnings" means for each period for which interest is received by the Trustee on the Defeasance Securities held in escrow for the holders of the Outstanding Bonds, the excess, if any, of interest received on such Defeasance Securities over the amount of interest paid on the Variable Rate Bonds in such period.
"Date of Commercial Operation," "projected completion date" and terms of like import when used with reference to a Project, mean the date upon which the Project is ready for normal continuous operation as determined by the Chief Engineering Officer.
"Defeasance Securities" means for each series of Bonds for the purpose of Article XI of the Master Indenture those investments and securities specified in the Supplemental Indenture authorizing the issuance of such series of Bonds as being eligible for use in the defeasance of such series pursuant to Article XI of the Master Indenture. If a Supplemental Indenture for a series of Bonds does not specify eligible investments and securities, then "Defeasance Securities" means cash and Direct Obligations. For purposes of the Series 2014A Supplemental Indenture, "Defeasance Securities" means cash; U.S. Treasury bonds, certificates and notes, including State and Local Government Series ("SLGs"); direct obligations of the U.S. Treasury, which have been stripped by the U.S. Treasury itself and "CATS", "TIGRS" and similar securities; Resolution Funding Corp. (REFCORP) (only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book-entry form); pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P (if the issue is only rated by S&P (that is, there is no Moody's rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S.-guaranteed obligations, or AA+ rated pre-refunded municipals); obligations issued by the following agencies which are backed by the full faith-and credit of the U.S.: U.S. Export-Import Bank (Eximbank) (direct obligations or fully guaranteed certificates of beneficial ownership); Farmers Home Administration (FmFLA) (certificates of beneficial ownership); Federal Financing Bank; General Services Administration (participation certificates); U.S. Maritime Administration (guaranteed Title XI financing); U.S. Department of Housing and Urban Development (HUD) (project notes, local authority bonds, U.S.-guaranteed New Communities debentures and U.S.-guaranteed U.S. Public Housing notes and bonds).
"Derivative Obligations" means obligations of the City resulting from a Derivative Transaction relating to a series of Bonds.
"Derivative Transaction" means for, or relating to, a series of Bonds or a portion of such series of Bonds (a) a basis swap, a forward rate agreement, an interest rate hedge, an interest option or rate agreement, an interest rate cap agreement, an interest rate collar agreement, an interest rate floor agreement, an interest rate swap agreement or any other related or similar agreement, including an option to enter into any agreement described in this definition, (b) any combination of agreements described in this definition, and (c) a master agreement for an agreement or a combination of agreements described in this definition, together with all supplements and amendments to such master agreement.
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"Direct Obligations" is defined in the clause (a) of the "Investment Securities" definition in this Appendix J.
"Escrow Deposit Agreement" means any escrow deposit agreement executed by the City with respect to the redemption or defeasance of the Bonds.
"Escrow Securities" means investments and securities held (i) pursuant to an Escrow Deposit Agreement, or (ii) by the Trustee as Defeasance Securities for purposes of Article XI of the Master Indenture.
"Event of Default" shall have the meaning given to such term in Section 7.01 of the Master Indenture.
"Federal Securities" means cash and securities of the type described in items (b), (c) and (e) of the "Investment Securities" definition in this Appendix J.
"Financial Journal" means Financial Times, Investors Business Daily, The New York Times or The Wall Street Journal.
"Financing Contract" means any obligation of the City under a contract, lease, installment sales agreement or other instrument with any person, including, but not limited to, any Subsidiary, Affiliate or separate utility or system financed by the City pursuant to Section 4.08 of the Master Indenture, to make payments for property, services or commodities for the Thermal Energy System, which, at the time of entering into such obligation, the Chief Financial Officer believes is reasonably expected to be used or pledged by such person as all or part of the primary security for the repayment, in whole or part, of bonds, certificates, loans, notes, warrants or other evidences of indebtedness issued or to be issued either directly or indirectly by such person. "Financing Contract" shall not include any such obligation if either (a) all costs to be incurred in connection with such obligation are covered by a final rate order issued by the Commission, or (b) the project to which the obligation relates is covered by a certificate, condition, order, rule or tariff which has been approved by the Federal Energy Regulatory Commission, the Economic Regulatory Administration, any other agency or office of the Department of Energy or any successor to any of the foregoing. A Reimbursement Obligation is not a Financing Contract.
"First Lien Bond Fund" means the fund by that name established in Section 5.03 of the Master Indenture.
"First Lien Bonds" means Bonds issued pursuant to Section 2.02 (a) of the Master Indenture, including the Series 2008A Bonds, the Series 2008B Bonds, the Series 2010B Bonds, the Series 2013A Bonds and the Series 2014A Bonds.
"Fiscal Year" means the fiscal year established from time to time by the Board for accounting purposes for the Thermal Energy System.
"Fitch" means Fitch Ratings Ltd., or any entity which succeeds to its function of rating debt obligations.
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"Franchise" means the Franchise Agreement, between the City of Indianapolis and Mid-America Energy Resources, Inc., relating to a portion of the assets of the Chilled Water Division (which Franchise Agreement has been assigned to the City pursuant to Special Ordinance No. 5, 2000, of the City-County Council of the City of Indianapolis, among other things, and amended by the First Amendment to Franchise Agreement dated as of November 1, 2000), as such Franchise may be further amended or restated and supplemented.
"Fully Funded" means that the Account of the Thermal Energy System Reserve Fund for a series of Bonds is funded in an amount equal to the respective Reserve Requirement for such series, taking into account for such series of Bonds: (a) proceeds of such Bonds deposited in such Account on the date of issuance of such Bonds, as contemplated by Section 5.05 (b) of the Master Indenture and the Supplemental Indenture authorizing such Bonds; (b) monthly deposits in such Account for such series of Bonds, as contemplated by the Supplemental Indenture authorizing such Bonds; (c) any deposit of a Reserve Policy for such series of Bonds, as contemplated in a Supplemental Indenture; and (d) investment earnings as contemplated by a Supplemental Indenture.
"Fund" means a fund authorized or established under Article V of the Master Indenture.
"Funds and Accounts" means the funds and accounts authorized or established under the Master Indenture.
"GAAP" means generally acceptable accounting principles, consistently applied.
"Gas Utility Distribution System" means all assets and properties, including any and all interests therein, whether real or personal or tangible or intangible, held or operated by the City in trust or otherwise and used directly to provide gas utility service, the rates and charges for which are subject to regulation by the IURC or, in the absence of IURC regulation, under rates and charges established by the Board pursuant to Indiana Code 8-1.5-3-8.
"Gas Utility System" means all assets and properties, including any and all interests therein, whether real or personal or tangible or intangible, held or operated by or on behalf of the City in trust or otherwise as part of its gas utility system, now or hereafter existing, held or used for or pertaining to (i) the exploration, production, storage, transmission, transportation, distribution or sale of gas, or other forms or sources of energy, (ii) the production or sale of manufactured gas and its by-products, including coke, (iii) the sale, rental or service of appliances or other equipment, and (iv) the ownership interest of the City in any Subsidiary; but shall not include (a) any assets or properties of any Subsidiary; or (b) any assets and properties financed by the City, as separate utilities or systems, including, for example, the Thermal Energy System.
"Gross Plant for Thermal Energy System" means the gross plant of the Thermal Energy System, as determined by the Board, in service at original cost excluding all construction work in progress; and "Gross Plant for a Fiscal Year" for Thermal Energy System, shall be the amount of such Gross Plant for Thermal Energy System on the last day of the last month of such Fiscal Year.
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"Income and Revenues of Thermal Energy System" means all revenues and other income of the City from the ownership or operation of the Thermal Energy System entered on the City's books of account for the Thermal Energy System in accordance with GAAP, including revenues from Thermal Contracts (unless designated as contributions in aid of construction) and Bond proceeds; but excluding (a) extraordinary items; (b) income on moneys or securities in the Thermal Energy System Construction Fund; and (c) income on Escrow Securities.
"Income and Revenues of the Gas Utility Distribution System" means all revenues and other income of the City from the ownership or operation of the Gas Utility Distribution System entered on the City's books for the Gas Utility Distribution System in accordance with rules and procedures prescribed by the Commission and customarily used by the City in the operation of the Gas Utility Distribution System, provided that if the Commission no longer prescribes accounting rules and procedures, then accounting rules and procedures prescribed by the City.
"Income and Revenues of the Gas Utility System" means all revenues and other income of the City from the ownership or operation of the Gas Utility System entered on the City's books for the Gas Utility System in accordance with accounting rules and procedures prescribed by the Commission and customarily used by the City in the operation of the Gas Utility Distribution System, provided that if the Commission no longer prescribes accounting rules and procedures, then accounting rules and procedures prescribed by the City.
"Indenture" and "Trust Indenture" and "Master Indenture" mean the Thermal Energy System Trust Indenture dated as of January 1, 2001, between the City, and the Trustee, as the same may be amended, modified or supplemented by any amendments to or modifications of the Master Indenture or supplements to the Master Indenture entered into in accordance with the Master Indenture, including the First Amendment.
"Independent Certified Public Accountants" means a firm of certified public accountants of recognized national standing, initially including Deloitte & Touche LLP.
"Interest Payment Date" means, with respect to the Series 2014A Bonds, April 1 and October 1 of each year commencing April 1, 2015.
"Investment Securities" shall mean and include, subject to a Supplemental Indenture limiting such investments pursuant to certain provisions of the Master Indenture, any of the following securities, if and to the extent the same are legal for investment of the City's funds:
(a) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the U.S. Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.
(b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):
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(1) U.S. Export-Import Bank (Eximbank) direct obligations or fully guaranteed certificates of beneficial ownership
(2) Farmers Home Administration (FmHA) certificates of beneficial ownership
(3) Federal Financing Bank
(4) Federal Housing Administration Debentures (FHA)
(5) General Services Administration participation certificates
(6) Government National Mortgage Association (GNMA or "Ginnie Mae") guaranteed mortgage-backed bonds guaranteed pass-through obligations
(7) U.S. Maritime Administration's or guaranteed Title XI financing
(8) U.S. Department of Housing and Urban Development ("HUD"), project notes, local authority bonds guaranteed new communities debentures United States guaranteed public housing notes and bonds.
(c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself):
(1) Federal Home Loan Bank System Senior debt obligations
(2) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") participation certificates senior debt obligations
(3) Federal National Mortgage Association (FNMA or "Fannie Mae") mortgage-backed securities and senior debt obligations
(4) Student Loan Marketing Association (SLMA or "Sallie Mae"): senior debt obligations
(5) Resolution Funding Corp. (REFCORP) obligations
(6) Farm Credit System consolidated systemwide bonds and notes.
(d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA-m; or AA-m and, if rated by Moody's, rated Aaa, Aa1 or Aa2.
(e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral.
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(f) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including the Bank Insurance Fund and the Savings Association Insurance Fund.
(g) Investment agreements, including GIC's, forward purchase agreements and reserve fund put agreements acceptable to the Credit Provider so long as the Series 2008 Bonds are outstanding.
(h) Commercial paper rated, at the time of purchase, "Prime -1" by Moody's and "A-l" or better by S&P.
(i) Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies.
(j) Federal funds or banker's acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime-1" or "A3" or better by Moody's and "A-l" or "A" or better by S&P.
(k) Repurchase Agreements for 30 days or less, subject to the further provisions of the Master Indenture.
"IURC" and "Commission" mean the Indiana Utility Regulatory Commission or if the IURC or the Commission shall be abolished, or some part of its functions assumed by some other governmental agency, the agency, authority, board, body, commission or department succeeding to or sharing the functions thereof.
"Minimum Denomination" means the minimum authorized denomination of a series of Bonds, as set forth in the Supplemental Indenture authorizing such Bonds. The Minimum Denomination for the Series 2014A Bonds is $5,000.
"Moody's" means Moody's Investors Service, Inc., or any entity which succeeds to its function of rating debt obligations.
"Month of Final Payment" means a month which is not more than 60 months following the month the related series of Bonds were delivered.
"Multi-Mode Bonds" means a series of Bonds the interest on which may be determined through a number of modes, as provided in the Supplemental Indenture authorizing the issuance of the same, including an auction rate mode, a fixed rate mode and a variable rate mode, any of which modes is subject to conversion to another. For purposes of the Master Indenture, Multi- Mode Bonds are Variable Rate Bonds.
"Operating Expenses of Thermal Energy System" and "Operating Expenses" mean all necessary and proper expenses of the City entered on the City's books of account (in accordance with GAAP) in connection with the ownership, operation and maintenance of the Thermal Energy System, including all payments on any Financing Contract to the extent provided in the Master Indenture, but excluding interest (other than interest on customers' deposits), depreciation, amortization charges and other noncash items.
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"Opinion of Board Counsel" means for a series of Bonds to be issued an opinion to the effect that:
(a) the documents submitted to the Trustee in connection with the authorization, issuance and sale of such series of Bonds comply with the Master Indenture;
(b) such series of Bonds is/are valid and binding obligations of the City, enforceable in accordance with its/their terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally; and
(c) the issuance and execution of such series of Bonds have been duly authorized, and all documents required by Article IV of the Master Indenture as a condition precedent to the delivery of such series of Bonds have been delivered to the Trustee.
"Opinion of Bond Counsel" means for a series of Bonds to be issued an opinion to the effect that:
(a) the Board has the right and power to adopt the resolutions authorizing such series of Bonds, such resolutions have been duly and lawfully adopted by the Board, and the Master Indenture and such resolutions are in full force and effect and are valid and binding upon the City and enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally;
(b) the Master Indenture creates the valid pledge and lien which it purports to create on the Pledged Funds as security for the payment of such series of Bonds and such series is either a series of First Lien Bonds or a series of Second Lien Bonds;
(c) such series of Bonds is/are valid and binding obligations of the City, enforceable in accordance with its/their terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally; and
(d) such series of Bonds have been duly and validly authorized and issued in accordance with law, such resolutions and the Master Indenture.
"Opinion of Counsel" means an opinion signed by an attorney or firm of attorneys, of recognized standing in the field of law relating to municipal bonds and selected by the City.
"Original Issue Discount Bonds" means Bonds issued pursuant to Section 2.05 of the Master Indenture.
"outstanding"; see "Bonds outstanding" in this Appendix J.
"Paying Agent" means The Bank of New York Mellon Trust Company, N.A. and any commercial bank or trust company, other than the Trustee, designated by the City as paying agent for a series of Bonds and its successor or successors thereafter appointed under the Master Indenture.
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"Pledged Funds" means for a series of Bonds: (i) proceeds of the sale of the Bonds; (ii) the Income and Revenues of Thermal Energy System; (iii) extraordinary items; and (iv) all moneys and securities in the Thermal Energy System General Fund, the First Lien Bond Fund, the Second Lien Bond Fund, the Thermal Energy System Derivatives Obligations Fund, the Account of the Thermal Energy System Reserve Fund created for such series of Bonds, if any, the Thermal Energy System Capital Expenditures Fund, the Thermal Energy System Construction Fund and the Thermal Energy System Working Capital Fund, including in each instance (other than the Thermal Energy System Construction Fund) the income from the investment thereof. "Pledged Funds" do not include contributions in aid of construction, including proceeds of such contributions and investment earnings from such contributions.
"Project" means (i) the acquisition of any property for and any betterments, improvements, extensions or additions to the Thermal Energy System authorized by the Act or other provision of law, (ii) a program undertaken by the City and comprised of two or more such acquisitions, and (iii) the refinancing or refunding of a series of Bonds.
"Projected Completion Date," "Date of Commercial Operation" and terms of like import, when used with reference to a Project (other than a Project described in clause (iii) of such definition), means the date upon which such Project is expected to be ready for normal continuous operation as determined by the Chief Engineering Officer.
"Projected Test Period" means, subject to Section 4.05 of the Master Indenture (concerning Refunding Bonds), the period comprised of twelve consecutive months specified by the Chief Financial Officer in such officer's certificate pursuant to Section 4.03(a)(iii)(B) of the Master Indenture or Section 4.03(b)(iii)(B) of the Master Indenture, which period shall (i) begin not later than the second anniversary of the Date of Commercial Operation of the Project to be financed with proceeds of the series of Bonds to be issued and (ii) end not later than the third anniversary of such Date of Commercial Operation.
"Put Bonds" means a series of Bonds issued pursuant to Section 2.06 of the Master Indenture, as more fully provided therein.
"Put Rate Period" means each period during which a Put Rate is in effect.
"Refunding Bonds" means a series of Bonds or a portion of a series of Bonds issued pursuant to Section 4.05 of the Master Indenture.
"Reimbursement Obligations" means obligations owed to a Credit Provider and related to a Credit Facility and Supported Bonds for payment of principal and purchase or tender price of and interest on a series of Bonds, but Reimbursement Obligations are not "Costs of Credit Facilities." Reimbursement Obligations may be evidenced by a First Lien Bond or a Second Lien Bond, depending upon whether or not the Supported Bonds are First Lien Bonds or Second Lien Bonds unless otherwise certified by the Chief Financial Officer. Subject to Articles V and VII of the Master Indenture, any First Lien Bond or Second Lien Bond evidencing Reimbursement Obligations is, and shall be deemed to be, one and the same obligation with the Supported Bonds.
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"Reserve Policy" as to any series of Bonds, shall be as defined in the applicable Supplemental Indenture.
"Reserve Requirement" as to any Series of Bonds, shall be as defined in the applicable Supplemental Indenture.
"Reset Date" means the date on which a Put Rate Period ends.
"S&P" means Standard and Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, or any entity which succeeds to its function of rating debt obligations.
"Second Lien Bond Fund" means the fund by that name established in Section 5.04 of the Master Indenture.
"Second Lien Bonds" means Bonds issued pursuant to Section 2.02(b) of the Master Indenture.
"Second Lien Event of Default" shall have the meaning given to such term in Section 7.02 of the Master Indenture.
"Separate Debt" means debt incurred by the City in connection with a utility or system separate from the Thermal Energy System, as more fully described in Section 4.10(a) of the Master Indenture.
"Serial Bonds" means the Bonds other than the Term Bonds.
"Series 2013A Bonds" means the City's Thermal Energy System First Lien Revenue Bonds, Series 2013A, issued in the aggregate principal amount of $8,585,000 dated August 20, 2013.
"Series 2013B Bonds" means the City's Thermal Energy System First Lien Revenue Bonds, Series 2013B, issued in the aggregate principal amount of $39,240,000 dated August 20, 2013.
"Series 2013/2014 Reserve Account" means the Account of that name held as part of the Thermal Energy System Reserve Fund.
"Series 2013/2014 Reserve Requirement" means, as of the date of calculation, the least of (i) ten percent of the stated principal amount of the Series 2013A Bonds and Series 2014A Bonds, (ii) the maximum annual Aggregate Adjusted Bond Service Requirement for the Series 2013A Bonds and Series 2014A Bonds, and (iii) 125 percent of the average annual Aggregate Adjusted Bond Service Requirement for the Series 2013A Bonds and Series 2014A Bonds. The Series 2013/2014 Reserve Requirement will be revised in the event the City hereafter designates any Covered Bonds.
"Series 2014A Bonds" means the City's Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A, issued in the aggregate principal amount of $35,265,000 dated July 23, 2014.
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"Series 2014 Bondholder" means the holder of a Series 2014A Bond.
"Special First Lien Bonds" means one or more series of First Lien Bonds issued pursuant to Section 4.04 of the Master Indenture. Except as provided in Article IV of the Master Indenture, Special First Lien Bonds are First Lien Bonds for all other purposes of the Master Indenture.
"State" means the State of Indiana or any successor thereto.
"Steam Division" means all assets and properties, including any and all interests therein, whether real or personal or tangible or intangible, held or operated by the City in trust or otherwise and used directly to provide steam utility and related services and products.
"Subordinate Obligations" means bonds, certificates, commercial paper, notes, obligations and other evidences of indebtedness issued by the City pursuant to Section 4.09 of the Master Indenture, which bonds, certificates, commercial paper, notes, obligations and other evidences of indebtedness are not Bonds or Reimbursement Obligations.
"Subsidiary" means any corporation, the voting shares of which, or substantially all the voting shares of which, shall at the time be owned by the City. For purposes only of this definition, the term "voting share," as applied to the share of any corporation, shall mean shares of any class or classes having voting power for the election of a majority of the directors of such corporation (other than such voting power created by events of default or upon the happening of any other contingency).
"Supplemental Indenture" means any indenture between the City and the Trustee entered into pursuant to, and in compliance with, Article X of the Master Indenture.
"Supported Bonds" means a series of Bonds or a portion of such series of Bonds enhanced, secured or supported in some way by a Credit Facility.
"Term Bonds" means the Bonds for which Amortization Installments are established.
"Thermal Contract" means an agreement between the Board and a customer of the Thermal Energy System for the sale or provision of chilled water, heat, hot water or steam or any other service or product of the Thermal Energy System.
"Thermal Energy System" means the Steam Division and the Chilled Water Division.
"Thermal Energy System Capital Expenditures Fund" means the fund by that name established in Section 5.07 of the Master Indenture, including all Accounts therein.
"Thermal Energy System Construction Fund" means the fund by that name established in Section 5.09 of the Master Indenture, including all Accounts therein.
"Thermal Energy System Derivatives Obligations Fund" means the Fund by that name established in Section 5.06 of the Master Indenture.
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"Thermal Energy System General Fund" means the Fund by that name referred to in Section 5.01 of the Master Indenture.
"Thermal Energy System Reserve Fund" means the Fund by that name established pursuant to Section 5.05 of the Master Indenture.
"Thermal Energy System Working Capital Fund" means the Fund by that name established in Section 5.08 of the Master Indenture, including all Accounts therein.
"Trustee" means The Bank of New York Mellon Trust Company, N.A., and any successor as trustee pursuant to Article IX of the Master Indenture or by operation of law.
"Unregulated System" means that portion of the Gas Utility System not within the Gas Utility Distribution System and also excluding (only for purposes of the Master Indenture) the Steam Division and the Chilled Water Division.
"Valuation Date" means the last day of any Fiscal Year or any other valuation date required by the Supplemental Indenture authorizing the issuance of a series of Bonds, as described in Section 5.05(h) of the Master Indenture.
"Value of Investment Securities" and words of like import are defined in Section 5.05 of the Master Indenture.
"Variable Rate Bonds" means Bonds issued pursuant to Section 2.06 of the Master Indenture, as more fully provided therein.
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CITY OF INDIANAPOLIS, INDIANA • Thermal Energy System First Lien Revenue Refunding Bonds, Series 2014A