$11,265,000 CITY OF LEESBURG, FLORIDA Electric System Revenue Bonds, Series 2007A

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1 NEW ISSUE BOOK-ENTRY ONLY SEE RATINGS HEREIN In the opinion of Bond Counsel, assuming continuing compliance with certain tax covenants, interest on the Series 2007A Bonds is, under existing statutes, regulations, published rulings and court decisions, excludable from gross income for federal income tax purposes. Interest on the Series 2007A Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. However, see TAX MATTERS herein for a description of the alternative minimum tax on corporations and certain other federal tax consequences of ownership of the Series 2007A Bonds. Interest on the Series 2007B Bonds is not excludable from gross income for federal income tax purposes. $11,265,000 CITY OF LEESBURG, FLORIDA Electric System Revenue Bonds, Series 2007A Dated: Date of Delivery $11,710,000 CITY OF LEESBURG, FLORIDA Taxable Electric System Revenue Bonds, Series 2007B Due: October 1, as shown on inside cover The Electric System Revenue Bonds, Series 2007A (the Series 2007A Bonds ) and the Taxable Electric System Revenue Bonds, Series 2007B (the Series 2007B Bonds and together with the Series 2007A Bonds, the Series 2007 Bonds ), of the City of Leesburg (the City ), will be issued only as fully registered bonds in denominations of $5,000 or any integral multiple thereof and will be initially registered only in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Series 2007 Bonds. The Series 2007 Bonds will be available to purchasers only under the book-entry system maintained by DTC through brokers and dealers who are, or act through, DTC Participants. Purchasers will not receive delivery of the Series 2007 Bonds. So long as any purchaser is the Beneficial Owner (as defined herein) of a Series 2007 Bond, such purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on such Series 2007 Bond. The principal of and interest on the Series 2007 Bonds will be paid by U.S. Bank National Association, Orlando, Florida, as Registrar and Paying Agent. See DESCRIPTION OF THE SERIES 2007 BONDS - Book-Entry Only System herein. Interest on the Series 2007 Bonds will be payable on October 1, 2007, and semiannually thereafter on April 1 and October 1 of each year. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THIS ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Series 2007 Bonds are being issued by the City pursuant to Section , Florida Statutes, Chapter 166, Florida Statutes, and Article VIII, Section 2, Constitution of the State of Florida, and other applicable provisions of law, and with respect to the Series 2007B Bonds, Chapter 159, Part VII, Florida Statutes (collectively, the Act ), and Resolution No adopted by the City Commission of the City (the City Commission ) on June 14, 2004, as amended and supplemented, and particularly as amended and supplemented by Resolution Nos. 7960, 7962 and 7964 adopted by the City Commission on July 23, 2007 (collectively, the Bond Resolution ). The Series 2007A Bonds are being issued to provide funds for the purpose of (i) paying the cost of acquiring and constructing additions, extensions and making improvements and repairs to and replacements of various components to the Electric System, (ii) capitalizing a portion of the interest accruing on the Series 2007A Bonds, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007A Bonds including the premiums for a municipal bond insurance policy and Reserve Product. The Series 2007B Bonds are being issued to provide funds for the purpose of (i) funding a deposit to the City s Electric System Fund to reimburse the Electric System for prior capital expenditures, (ii) capitalizing a portion of the interest accruing on the Series 2007B Bonds, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007B Bonds including the premiums for a municipal bond insurance policy and Reserve Product. The principal of, premium, if any, and interest on the Series 2007 Bonds will be payable from and will be secured solely by a lien upon and a pledge of (i) the Net Revenues derived by the City from the operation of the Electric System (described herein), and (ii) until applied in accordance with the provisions of the Bond Resolution, all moneys, including income from the investment thereof, in certain of the funds and accounts established by the Bond Resolution, all in the manner, and subject to the terms and provisions of the Bond Resolution (collectively, the Pledged Revenues ) on a parity with the City s Outstanding Electric System Revenue Bonds, Series 2004 and any Additional Bonds hereafter issued, all in the manner and to the extent provided in the Bond Resolution. See SOURCES OF AND SECURITY FOR PAYMENT OF THE SERIES 2007 BONDS herein. The Series 2007 Bonds are subject to redemption prior to maturity as more fully described herein. See DESCRIPTION OF THE SERIES 2007 BONDS Redemption Provisions herein. THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, THEREON AND ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION SHALL BE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM AND SECURED BY THE PLEDGED REVENUES AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE SERIES 2007 BONDS NOR THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON SHALL CONSTITUTE A GENERAL INDEBTEDNESS OF THE CITY, THE STATE OF FLORIDA (THE STATE ), OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING WITHIN THE MEANING OF THE CONSTITUTION AND LAWS OF THE STATE. THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON DO NOT CONSTITUTE EITHER A PLEDGE OF THE FULL FAITH AND CREDIT OR TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING OR A LIEN UPON ANY PROPERTY OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING OTHER THAN AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE BOND INSURER (DEFINED BELOW) NOR ANY BONDHOLDER NOR ANY OTHER PERSON SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF THE AD VALOREM TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING TO PAY THE SERIES 2007 BONDS OR THE INTEREST AND PREMIUM, IF ANY, THEREON OR TO PAY ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION. Payment of principal of and interest on the Series 2007 Bonds when due will be insured by a municipal bond insurance policy to be issued by MBIA Insurance Corporation (the Bond Insurer ) simultaneously with the delivery of the Series 2007 Bonds. For a discussion of the terms and provisions of said policy, including the limitations thereof, see MUNICIPAL BOND INSURANCE herein and APPENDIX G hereto. The Series 2007 Bonds are offered when, as and if issued, subject to receipt of the legal opinion of Akerman Senterfitt, Orlando, Florida, Bond Counsel. Certain legal matters will be passed on for the City by McLin & Burnsed, P.A., City Counsel and by Holland & Knight LLP, Lakeland, Florida, Disclosure Counsel. The Underwriters are being represented by Bryant Miller Olive P.A., Orlando, Florida. D.A. Davidson & Co., Orlando, Florida, is acting as Financial Advisor to the City in connection with the issuance of the Series 2007 Bonds. It is expected that settlement for the Series 2007 Bonds will occur through the facilities of DTC in New York, New York, on or about August 15, CITI Dated: August 1, 2007 JACKSON SECURITIES

2 MATURITIES, AMOUNTS, INTEREST RATES, PRICES AND INITIAL CUSIP NUMBERS SERIES 2007A BONDS ($11,265,000 Term Bonds) $3,025, % Term Bonds due October 1, 2033, Price %, Initial CUSIP No PAT7 $8,240, % Term Bonds due October 1, 2037, Price %*, Initial CUSIP No PAU4 SERIES 2007B BONDS ($11,710,000 Term Bonds) $3,145, % Term Bonds due October 1, 2017, Price %, Initial CUSIP No PAV2 $8,565, % Term Bonds due October 1, 2031, Price %, Initial CUSIP No PAW0 * Priced to first optional redemption date of October 1, 2017

3 CITY OF LEESBURG, FLORIDA City Hall 501 West Meadow Street Leesburg, Florida Telephone (352) City Commission Sanna Henderson, Mayor David Knowles, Mayor Pro-Tem John Christian Bill Polk Lewis Puckett Administration Jay Evans, Interim City Manager William Pfeilsticker, Finance Director Jerry Boop, Deputy Finance Director City Attorney McLin & Burnsed, P.A. Director of Electric Paul Kalv Financial Advisor D.A. Davidson & Co. Orlando, Florida Bond Counsel Akerman Senterfitt Orlando, Florida Disclosure Counsel Holland & Knight LLP Lakeland, Florida Consulting Engineer / Feasibility Consultant R. W. Beck, Inc. Orlando, Florida Certified Public Accountants Purvis Gray and Company

4 No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than the information and representations contained herein, in connection with the offering of the Series 2007 Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell nor the solicitation of an offer to buy, nor will there be any sale of the Series 2007 Bonds to any person in any jurisdiction to whom it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, the Bond Insurer, R.W. Beck, Inc. and The Depository Trust Company and other sources which are believed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of the date of this Official Statement. Any statements in this Official Statement involving estimates, assumptions and matters of opinion, whether or not so expressly stated, are intended as such and not as representations of fact, and the City expressly makes no representation that such estimates, assumptions and opinions will be realized or fulfilled. Any information, estimates, assumptions and matters of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in the affairs of the Agency since the date hereof. The Series 2007 Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, nor has the Bond Resolution been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such acts. The registration or qualification of the Series 2007 Bonds in accordance with applicable provisions of the securities laws of the states, if any, in which the Series 2007 Bonds have been registered or qualified and the exemption from registration or qualification in certain other states cannot be regarded as a recommendation thereof. Neither these states nor any of their agencies have passed upon the merits of the Series 2007 Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to this Official Statement, copies may be obtained from the City of Leesburg, Florida, 501 W. Meadow Street, Leesburg, Florida 34748, Attention: City Clerk, upon payment of reproduction costs and postage and handling expenses. 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 a part of, their responsibilities 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. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND "FORWARD-LOOKING STATEMENTS." IN THIS RESPECT, THE WORDS "ESTIMATE," " PROJECT," "ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

5 TABLE OF CONTENTS INTRODUCTION...1 THE CITY...2 AUTHORITY FOR ISSUANCE OF THE SERIES 2007 BONDS...2 PURPOSE OF THE SERIES 2007 BONDS...2 ESTIMATED SOURCES AND USES OF FUNDS...3 DEBT SERVICE SCHEDULE...4 DESCRIPTION OF THE SERIES 2007 BONDS...4 General...4 Book-Entry Only System...5 Redemption Provisions...6 Notice of Redemption...9 Effect of Notice of Redemption...9 SOURCES OF AND SECURITY FOR PAYMENT OF THE SERIES 2007 BONDS...10 General...10 Pledged Revenues...10 Limited Obligations...11 Creation of Funds and Accounts...11 Revenue and Operating Fund...12 Reserve Fund...13 Rate Stabilization Fund...13 Rate Covenant...14 Additional Bonds...14 Qualified Swaps...16 Separately Financed Projects...16 Other Covenants...16 Investment of Funds...17 Rights of Bond Insurer...17 MUNICIPAL BOND INSURANCE...17 The MBIA Insurance Corporation Insurance Policy...18 MBIA Insurance Corporation...18 Regulation...19 Financial Strength Ratings of MBIA...19 MBIA Financial Information...19 Incorporation of Certain Documents by Reference...20 DEBT SERVICE RESERVE FUND SURETY BOND...20 MBIA Reserve Product...20 ENGINEER'S REPORT...21 THE ELECTRIC SYSTEM...21 General...21 Operation...22 Service Territory...22 Generating Facilities...23 Interconnection & Distribution Facilities...26 General Plant Facilities...26 Historical Customers, Sales and Power Supply Requirements...27 Rates...28 Ten Largest Customers...29 Rate Comparison...30 i Page

6 CAPITAL IMPROVEMENT PROGRAM...31 FUND BALANCE POLICY...33 HISTORICAL OPERATING RESULTS...34 PROJECTIONS...35 Projected Customers, Sales and Power Supply Requirements...35 Projected Operating Results and Debt Service Coverage...36 CONCLUSIONS OF CONSULTING ENGINEER...37 FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY...38 TAX MATTERS...38 Series 2007A Bonds...38 Tax Treatment of Original Issue Discount...39 Tax Treatment of Original Issue Premium...40 Series 2007B Bonds...40 ADDITIONAL FINANCING...40 PROPERTY TAX REFORMS...40 FINANCIAL STATEMENTS...41 RATINGS...41 UNDERWRITING...41 CONTINUING DISCLOSURE...41 LEGAL MATTERS...43 Legal Opinions...43 LITIGATION...43 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS...43 FORWARD LOOKING STATEMENTS...44 ADVISORS AND CONSULTANTS...44 EXPERTS AND CONSULTANTS...44 INVESTMENT POLICY...45 ENFORCEABILITY OF REMEDIES...45 ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT...45 AUTHORIZATION OF OFFICIAL STATEMENT...46 APPENDIX A GENERAL INFORMATION PERTAINING TO THE CITY OF LEESBURG APPENDIX B CONSULTING ENGINEER'S REPORT APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE CITY OF LEESBURG FOR YEAR ENDED SEPTEMBER 30, 2006 APPENDIX D COPY OF RESOLUTION NOS. 7141, 7960 AND 7964 APPENDIX E FORM OF BOND COUNSEL OPINION APPENDIX F FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY APPENDIX H SPECIMEN RESERVE FUND CREDIT INSTRUMENT ii

7 OFFICIAL STATEMENT relating to $11,265,000 CITY OF LEESBURG, FLORIDA ELECTRIC SYSTEM REVENUE BONDS SERIES 2007A $11,710,000 CITY OF LEESBURG, FLORIDA TAXABLE ELECTRIC SYSTEM REVENUE BONDS SERIES 2007B INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish information with respect to the issuance by the City of Leesburg, Florida (the "City") of its $11,265,000 aggregate principal amount of Electric System Revenue Bonds, Series 2007A (the "Series 2007A Bonds") and its $11,710,000 aggregate principal amount of Taxable Electric System Revenue Bonds, Series 2007B (the "Series 2007B Bonds" and together with the Series 2007A Bonds, the "Series 2007 Bonds"). The principal of, premium, if any, and interest on the Series 2007 Bonds will be payable from and will be secured solely by a lien upon and a pledge of (i) the Net Revenues derived by the City from the operation of the Electric System (described herein), and (ii) until applied in accordance with the provisions of the Bond Resolution, all moneys, including income from the investment thereof, in certain of the funds and accounts established by the Bond Resolution, all in the manner, and subject to the terms of the Bond Resolution (collectively, the "Pledged Revenues"). The pledge of and lien on the Pledged Revenues in favor of the Series 2007 Bonds are on a parity with the lien on and pledge of the Pledged Revenues in favor of the City's outstanding Electric System Revenue Bonds, Series 2004 currently outstanding in the aggregate principal amount of $16,670,000 (the "Series 2004 Bonds") and any Additional Bonds hereafter issued pursuant to the Bond Resolution (as defined herein) all in the manner and to the extent provided in the Bond Resolution. Concurrently with the issuance of the Series 2007 Bonds, MBIA Insurance Corporation (the "Bond Insurer" or "MBIA") will issue its municipal bond insurance policy (the "Bond Insurance Policy") guaranteeing the scheduled payment of principal of and interest on the Series 2007 Bonds when due as set forth in the form of the policy included as APPENDIX G to this Official Statement. See "MUNICIPAL BOND INSURANCE" herein. The Series 2007 Bonds, the Series 2004 Bonds and any Additional Bonds, are referred to herein as the "Bonds." For a discussion of the security for the Series 2007 Bonds, see "SOURCES OF AND SECURITY FOR PAYMENT OF THE SERIES 2007 BONDS" herein. THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, THEREON AND ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION SHALL BE LIMITED OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM AND SECURED SOLELY BY THE PLEDGED REVENUES AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE SERIES 2007 BONDS NOR THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON SHALL CONSTITUTE A GENERAL INDEBTEDNESS OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING WITHIN THE MEANING OF THE CONSTITUTION AND LAWS OF THE STATE. THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON DO NOT CONSTITUTE EITHER A PLEDGE OF THE FULL FAITH AND CREDIT OR TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING OTHER THAN AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE BOND INSURER NOR ANY BONDHOLDER NOR ANY OTHER PERSON SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF THE AD VALOREM TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING TO PAY THE SERIES 2007 BONDS OR THE INTEREST AND PREMIUM, IF ANY, THEREON OR TO PAY ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION. Unless otherwise defined herein or where the context would clearly indicate otherwise, capitalized terms used herein shall have the meaning set forth in the Bond Resolution, portions of which are included as APPENDIX D hereto. The references, excerpts and summaries of all documents referred to herein, including, without limitation, the Bond Resolution, do not purport to be complete statements of the provisions of such documents, and reference is made to the originals of all such documents for full and complete statements of all matters of fact relating to the

8 Series 2007 Bonds, the security for the payment of the Series 2007 Bonds, the rights and obligations of Registered Owners thereof, and the Electric System (described herein). Copies of any such documents that are not attached as appendices hereto may be obtained from the City of Leesburg, Florida, 501 W. Meadow Street, Leesburg, Florida 34748, Attention: City Clerk, upon payment of reproduction costs and postage and handling expenses. THE CITY The City is located in the north central region of the State, approximately forty miles northwest of Orlando, Florida, and is the oldest and most populated of the fourteen municipalities in Lake County ("County"). The corporate limits of the City encompass approximately thirty square miles. The estimated 2006 population of the City was 18,842. The City is a municipal corporation of the State which was created by the State Legislature in 1875 and is governed by and derives its operating authority from the constitution and laws of the State. The City has full home rule powers enabling it to conduct municipal government and exercise any power for municipal purposes, except when expressly prohibited by law. Pursuant to its municipal charter, the City operates under a commission/manager form of government. The City Commission acts as the governing board, with the power to enact ordinances and adopt resolutions, and consists of five City Commissioners, elected to staggered four-year terms. Three of the City Commission members must meet district residency requirements. The remaining two City Commission members are elected at-large without a district residency requirement. The Commissioners annually select from the City Commission a Mayor and a Mayor pro-tempore. For additional information regarding the City, see APPENDIX A attached hereto. AUTHORITY FOR ISSUANCE OF THE SERIES 2007 BONDS The Series 2007 Bonds are being issued by the City pursuant to Section , Florida Statutes, Chapter 166, Florida Statutes, and Article VIII, Section 2, Constitution of the State of Florida (the "State") and other applicable provisions of law, and with respect to the Series 2007B Bonds, Chapter 159, Part VII, Florida Statutes (collectively, the "Act"), and Resolution No adopted by the City Commission of the City (the "City Commission") on June 14, 2004 (the "Master Resolution"), as amended and supplemented, and particularly as amended and supplemented by Resolution Nos. 7960, 7962 and 7964, all adopted by the City Commission on July 23, 2007 (collectively, the "Bond Resolution"). A copy of Resolution No adopted by the City Commission on June 14, 2004 and Resolution Nos and 7964 adopted by the City Commission on July 23, 2007 are attached hereto as APPENDIX D. PURPOSE OF THE SERIES 2007 BONDS The proceeds of the Series 2007A Bonds will be used by the City pursuant to the Bond Resolution to provide funds for the purpose of (i) paying the cost of acquiring and constructing additions, extensions and making improvements and repairs to and replacements of various components to the Electric System (the "2007 Project"), (ii) capitalizing a portion of the interest accruing on the Series 2007A Bonds, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007A Bonds, including the premiums for a municipal bond insurance policy and Reserve Product. The proceeds of the Series 2007B Bonds will be used by the City pursuant to the Bond Resolution to provide funds for the purpose of (i) funding an approximately $10,700,000 deposit to the City's Electric System Fund to reimburse the Electric System for prior capital expenditures, (ii) capitalizing a portion of the interest accruing on the Series 2007B Bonds, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007B Bonds, including the municipal bond insurance policy and a Reserve Product. The City intends to use the proceeds of the Series 2007A Bonds to convert existing electric metering to an automated meter reading system, to acquire additional transformers, to construct substation improvements, to extend distribution lines, to replace distribution lines, and to place existing distribution lines underground. To improve its quality of service to its customers, the City is in its third year of a major conductor replacement program. The City is replacing deteriorated underground conductors and is replacing existing overhead copper conductors with aluminum conductors. See "CAPITAL IMPROVEMENT PROGRAM" herein for a description of improvements to the Electric System planned for implementation during the six year period ending September 30, 2012, a portion of which may be funded with proceeds of the Series 2007A Bonds. 2

9 Approximately $10,700,000 of proceeds from the Series 2007B Bonds will be used to fund a deposit to the City's Electric System operating reserve fund. The City is required by its fund balance policies, enacted by ordinances of the City, to maintain an operating reserve fund for each of its enterprise funds (including the Electric System) at certain levels. These fund balance policies are in addition to the debt service reserve requirements under the Bond Resolution. See "FUND BALANCE POLICY" herein. As a result of unbudgeted capital expenditures made in Fiscal Year 2006, the City reduced its Electric System operating reserve fund below the required levels. The reduction in the Electric System operating reserve fund was the result of approximately $10,700,000 million in expenditures related to the relocation of electric lines due to The Florida Department of Transportation road improvements within the City's service territory, that the City was required to pay and that were not included in the City's Capital Improvement Program. SOURCES OF FUNDS ESTIMATED SOURCES AND USES OF FUNDS SERIES 2007A BONDS SERIES 2007B BONDS TOTAL Principal Amount of Series 2007 Bonds $11,265, $11,710, $22,975, Plus Net Original Issue Premium 136, , TOTAL SOURCES: $11,401, $11,710, $23,111, USES OF FUNDS Deposit to the 2007 Project Construction Account $10,523, $ -- $10,523, Capitalized Interest 599, (1) 741, (2) 1,341, Deposit to City's Electric System Fund -- 10,700, ,700, Costs of Issuance (3) 278, , , TOTAL USES: $11,401, $11,710, $23,111, (1) Amount deposited in 2007 Project Construction Account, which together with interest earnings thereon will pay interest accruing on the Series 2007A Bonds through October 1, (2) Amount deposited in 2007 Project Construction Account, which together with interest earnings thereon will be used to pay interest accruing on the Series 2007B Bonds through October 1, (3) Includes legal and financial advisory fees, printing costs, municipal bond insurance policy and Reserve Product premiums, Underwriters' discount, rating agency fees, and other expenses allocable to the respective series of Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3

10 DEBT SERVICE SCHEDULE The following table sets forth the scheduled annual debt service payments on the Series 2007 Bonds and the Series 2004 Bonds. Maturity Date (October 1) Series 2007A Bonds Series 2007B Bonds Total Debt Service Series Principal Interest Principal Interest 2004 Bonds Total Debt Service 2007* $ -- $70, $ -- $87, $714, $872, * , , ,100, ,335, , , , ,100, ,615, , , , ,105, ,618, , , , ,103, ,615, , , , ,104, ,614, , , , ,105, ,616, , , , ,104, ,616, , , , ,102, ,618, , , , ,104, ,613, , , , ,105, ,616, , , , ,104, ,616, , , , ,102, ,617, , , , ,102, ,614, , , , ,100, ,617, , , , ,103, ,617, , , , ,103, ,614, , , , ,103, ,617, , , , ,100, ,617, , , , ,102, ,613, , , , ,101, ,615, , , , ,104, ,618, , , , ,105, ,616, , , , ,103, ,614, , , , ,100, ,622, ,005, , ,105, ,617, ,055, , ,102, ,618, ,105, , ,102, ,619, ,265, , ,621, ,375, , ,618, ,495, , ,619, Total: $11,265, $15,421, $11,710, $10,208, $30,498, $79,103, * Interest accruing on the Series 2007 Bonds has been capitalized through October 1, General DESCRIPTION OF THE SERIES 2007 BONDS The Series 2007 Bonds will be dated their date of delivery, will be issued in fully registered form, without coupons, in denominations of $5,000 each or integral multiples thereof, and will bear interest at the rates, computed on the basis of a 360-day year consisting of twelve 30-day months, and will mature on the dates set forth on the inside cover page of this Official Statement. Interest on the Series 2007 Bonds will be payable on October 1, 2007, and semiannually thereafter on April 1 and October 1 of each year. The Series 2007 Bonds will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York ("DTC"). Individual purchases will be made in book-entry form through DTC Participants. DTC will receive all payments with respect to the Series 2007 Bonds through U.S. Bank National Association, as Registrar and Paying Agent, which payments will be remitted to DTC's Participants for subsequent disbursement to Beneficial Owners. See "Book-Entry Only 4

11 System" herein. The Series 2007 Bonds will be subject to redemption prior to maturity as described under "Redemption Provisions" herein. Book-Entry Only System The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Series 2007 Bonds. The Series 2007 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond certificate will be issued for each maturity of each series of the Series 2007 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE 2007 BONDS, AS NOMINEE OF DTC, REFERENCES IN THIS OFFICIAL STATEMENT TO THE BONDHOLDERS OR REGISTERED OWNERS OF THE 2007 BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE 2007 BONDS. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereto. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants (the "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 bond 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC and the National Association of Securities Dealers Inc. 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 (the "Indirect Participants" and together with the Direct Participants, the "DTC Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of beneficial interests in Series 2007 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for such Series 2007 Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (the "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 2007 Bonds will 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 2007 Bonds, except in the event that use of the book-entry system for the Series 2007 Bonds is discontinued. To facilitate subsequent transfers, all Series 2007 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 2007 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2007 Bonds; DTC's records reflect only the identity of the Direct 5

12 Participants to whose accounts such Series 2007 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 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 Series 2007 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2007 Bonds, such as redemptions, defaults and proposed amendments to the Bond Resolution. For example, Beneficial Owners of Series 2007 Bonds may wish to ascertain that the nominee holding the Series 2007 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 registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2007 Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2007 Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2007 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 2007 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Registrar and Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Registrar and Paying Agent or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and/or the Registrar and Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2007 Bonds at any time by giving reasonable notice to the City or the Registrar and Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained Series 2007 Bond certificates are required to be printed and delivered. Upon compliance with any agreements between the City and DTC, the City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2007 Bond certificates will be printed and delivered to DTC. In the event the book-entry system is terminated, the transfer and exchange of Series 2007 Bonds shall be accomplished as described in APPENDIX D COPY OF RESOLUTION NOS. 7141, 7960 AND Redemption Provisions Series 2007A Bonds Optional Redemption. The Series 2007A Bonds are subject to redemption prior to their stated dates of maturity, at the option of City, in whole or in part on any day on or after October 1, 2017, in such amounts and maturities as the City in its discretion shall select and by lot within a maturity if less than a full maturity, at a 6

13 redemption price equal to the principal amount thereof, together with accrued interest on such principal amount to the redemption date. Mandatory Redemption. The Series 2007A Bonds maturing on October 1, 2033 are subject to mandatory sinking fund redemption prior to maturity in part by lot on October 1, 2031 and on each October 1 thereafter, at a redemption price equal to the principal amount thereof being so redeemed and accrued interest thereon to the date fixed for redemption, without premium, from Amortization Installments in the amounts set forth below: Year Amortization Installment * Maturity, not a redemption 2031 $965, ,005, * 1,055,000 Mandatory Redemption. The Series 2007A Bonds maturing on October 1, 2037 are subject to mandatory sinking fund redemption prior to maturity in part by lot on October 1, 2034 and on each October 1 thereafter, at a redemption price equal to the principal amount thereof being so redeemed and accrued interest thereon to the date fixed for redemption, without premium, from Amortization Installments in the amounts set forth below: Year Amortization Installment * Maturity, not a redemption 2034 $1,105, ,265, ,375, * 2,495,000 Series 2007B Bonds Optional Redemption at Make-Whole Redemption Price. The Series 2007B Bonds are subject to redemption prior to their stated dates of maturity, at the option of City, in whole or in part on any day in such amounts and maturities as the City in its discretion shall select, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Series 2007B Bonds to be redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (including for this purpose mandatory sinking fund redemptions) on the Series 2007B Bonds to be redeemed (exclusive of interest accrued to the date fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (defined below), plus 12.5 basis points and accrued and unpaid interest on the Series 2007B Bonds being redeemed to the date fixed for redemption. "Comparable Treasury Issue" means, with respect to any redemption date for a particular Series 2007B Bond, the US Treasury security or securities selected by the Independent Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the applicable Series 2007B Bond to be redeemed, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Series 2007B Bond to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date for a particular Series 2007B Bond, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Deal Quotations, or (ii) if the financial advisor to the City obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the financial advisor to the City in consultation with the City. 7

14 "Reference Treasury Dealer" means Citigroup Capital Markets Inc. and its respective successor and three other firms, specified by the City from time to time, that are primary U.S. Government securities dealers in the City of New York (each a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date for a particular Series 2007B Bonds, the average, as determined by the financial advisor to the City, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the financial advisor to the City by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business date preceding such redemption date. "Treasury Rate" means, with respect to any redemption date for a particular Series 2007B Bonds, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price. Mandatory Redemption. The Series 2007B Bonds maturing on October 1, 2017 are subject to mandatory sinking fund redemption prior to maturity in part by lot on October 1, 2009 and on each October 1 thereafter, at a redemption price equal to the principal amount thereof being so redeemed and accrued interest thereon to the date fixed for redemption, without premium, from Amortization Installments in the amounts set forth below: Year Amortization Installment * Maturity, not a redemption 2009 $280, , , , , , , , * 430,000 8

15 Mandatory Redemption. The Series 2007B Bonds maturing on October 1, 2031 are subject to mandatory sinking fund redemption prior to maturity in part by lot on October 1, 2018 and on each October 1 thereafter, at a redemption price equal to the principal amount thereof being so redeemed and accrued interest thereon to the date fixed for redemption, without premium, from Amortization Installments in the amounts set forth below: Year Amortization Installment Notice of Redemption * Maturity, not a redemption 2018 $455, , , , , , , , , , , , , * 5,000 Notice of redemption of the Series 2007 Bonds shall be given by the deposit in the U.S. mails of a copy of said redemption notice, postage prepaid, at least thirty and not more than sixty days before the redemption date to all Holders of the Series 2007 Bonds or portions of the Series 2007 Bonds to be redeemed at their addresses as they appear on the registration books to be maintained in accordance with the provisions of the Bond Resolution. Failure to give any such notice to a registered owner of a Series 2007 Bond, or any defect therein, shall not affect the validity of the proceedings for redemption of any Series 2007 Bond or portion thereof with respect to which no failure or defect occurred. Each notice shall set forth the date fixed for redemption for each Series 2007 Bond being redeemed, the redemption price to be paid, the date of publication, if any, of a notice of redemption, the name and address of the Registrar and, if less than all of the Series 2007 Bonds of the applicable series then outstanding shall be called for redemption, the distinctive numbers and letters, including CUSIP numbers, if any, of such Series 2007 Bonds to be redeemed and, in the case of Series 2007 Bonds to be redeemed in part only, the portion of the principal amount thereof to be redeemed. If any Series 2007 Bond is to be redeemed in part only, the notice of redemption which relates to such Series 2007 Bond shall also state that on or after the redemption date, upon surrender of such Series 2007 Bond, new Series 2007 Bond or Series 2007 Bonds of the same series in a principal amount equal to the unredeemed portion of such Series 2007 Bond will be issued. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the owner of such Series 2007 Bond receives such notice. Notwithstanding the foregoing, notice of optional redemption may be conditioned upon the occurrence or non-occurrence of such event or events as shall be specified in such notice of optional redemption and may also be subject to rescission by the City if expressly set forth in such notice. See "Book-Entry Only System" herein for a description of selection of Series 2007 Bonds to be redeemed and conveyance of notices to Beneficial Owners when the Series 2007 Bonds are held by DTC. Effect of Notice of Redemption Notice having been given in the manner and upon satisfaction of any of the conditions set forth in the Bond Resolution and in the redemption notice, the Series 2007 Bonds or portions of Series 2007 Bonds so called for 9

16 redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption of such Series 2007 Bonds or portions of Series 2007 Bonds on such date. On the date so designated for redemption, moneys for payment of the redemption price being held in separate accounts by the Paying Agents in trust for the Holders of the Series 2007 Bonds or portions thereof to be redeemed, all as provided in the Bond Resolution, interest on the Series 2007 Bonds or portions of Series 2007 Bonds so called for redemption shall cease to accrue, such Series 2007 Bonds and portions of Series 2007 Bonds shall cease to be entitled to any lien, benefit or security under the Bond Resolution, and the Holders of such Series 2007 Bonds or portions of Series 2007 Bonds shall have no right in respect thereof except to receive payment of the redemption price thereof and, to the extent provided in the Bond Resolution, to receive Series 2007 Bonds for any unredeemed portions of the Series 2007 Bonds. General SOURCES OF AND SECURITY FOR PAYMENT OF THE SERIES 2007 BONDS The principal of, premium, if any, and interest on the Series 2007 Bonds will be payable from and will be secured solely by a lien upon and a pledge of (i) the Net Revenues derived by the City from the operation of the Electric System, and (ii) until applied in accordance with the provisions of the Bond Resolution, moneys, including income from the investment thereof, held in certain of the funds and accounts established by the Bond Resolution, except any funds held in the Composite Reserve Account and in any account in the Reserve Fund for a specific Series of Bonds (other than the 2007 Reserve Subaccount), which will be held solely for the Series of Bonds for which such account was created, all in the manner, and subject to the terms and provisions, of the Bond Resolution (collectively, the "Pledged Revenues"). The pledge of and lien on the Pledged Revenues in favor of the Series 2007 Bonds are on a parity with the lien on and pledge of the Pledged Revenues in favor of the City's Outstanding Series 2004 Bonds and any Additional Bonds hereafter issued pursuant to the Bond Resolution all in the manner and to the extent provided in the Bond Resolution. Pledged Revenues The term "Net Revenues," with respect to any Fiscal Year, shall be the remainder of the Gross Revenues, after deducting the Cost of Operation and Maintenance for such Fiscal Year. "Cost of Operation and Maintenance" means the current expenses, paid or accrued, of operation, maintenance and repair of the Electric System and its facilities, as calculated in accordance with generally accepted accounting principles for governmental entities, consistently applied, and shall include, without limiting the generality of the foregoing, administrative expenses relating to the Electric System, purchase of electric services (if the same may be treated as an operating cost under generally accepted accounting principles) and insurance premiums and charges for the accumulation of appropriate reserves for self-insurance, not annually recurrent but which are reasonably expected to be incurred on a periodic basis in accordance with generally accepted accounting principles, consistently applied, and payment of the Rebate Amount. The Cost of Operation and Maintenance shall include among other items, payments required to be made to the Florida Municipal Power Agency ("FMPA"), any successor thereto, or any other entity under spot, forward or prepaid power or fuel purchase agreements, including, without limitation, take and pay power and fuel purchase agreements, or similar power or fuel purchase arrangements and related price hedging agreements. The Cost of Operation and Maintenance shall not include (i) any reserve for renewals and replacements, extraordinary repairs or any allowance for depreciation or amortization, (ii) the payment of any principal of, premium, if any and interest on the Bonds and any other notes, bonds and similar obligations of the City, and (iii) payments made by the City under leases that are capitalized in accordance with generally accepted accounting principles. "Electric Revenues" include all rates, fees, charges, income, rents, receipts and earnings derived by the City from or attributable to the ownership, operation, leasing or use of the Electric System, or any part thereof, including, without limitation, the proceeds of any insurance covering business interruption loss related to the Electric System. "Electric System" or "System" means the electric distribution system and all parts and components thereof or interests therein, owned, operated, used or controlled by the City and any leasehold or other interest in any electric generation or distribution plants and facilities which the City owns or acquires, and all such parts and components of any of the foregoing hereafter constructed, contracted for or acquired, the improvements, extensions and additions thereto to be constructed or acquired either from the proceeds of the Bonds authorized by the Bond 10

17 Resolution or from any other sources, together with all land and interests therein, plants, buildings, machinery, franchises, pipes, fixtures, equipment, contract rights and all property, real or personal, tangible or intangible, now or hereafter owned, operated or used by the City in connection therewith and any joint venture or ownership or other interest in any electric generation or distribution plant or facility or any right to use capacity or receive the output or services of any such plant or facility. The System shall also include enterprise related services or functions designated by the City from time to time by subsequent resolution, including, without limitation, chilled water services, telecommunications services or fiber optic transmission services. Notwithstanding the foregoing, the Electric System shall not include Separately Financed Projects. "Gross Revenues" are the Electric Revenues, any income from the investment of funds to be deposited in the Revenue and Operating Fund, or any of the accounts therein as provided in the Bond Resolution, moneys deposited from the Rate Stabilization Fund to the Revenue and Operating Fund in accordance with the terms of the Bond Resolution, and all Hedge Receipts received by the City under a Qualified Swap, but shall not include (i) proceeds from the sale of any Bonds or other obligations of the City and (ii) moneys received by the City from federal, state or local governmental grants or stipends that by their terms are restricted from being used in the manner that Gross Revenues are to be applied under the Bond Resolution. "Hedge Receipts" means net payments, received by the City on a scheduled basis under a Qualified Swap, as a result of the fluctuation in a hedged interest rate or the value of any index relative to another interest rate or the value of another index, in each case multiplied by a specified notional amount; provided that for purposes of determining the Bond Service Requirement, and in determining compliance with the rate covenant and the Additional Bonds provisions under the Bond Resolution, Hedge Receipts shall not include (i) amounts payable by the Qualified Swap Provider to the City upon the execution, renewal, extension, modification or termination (whether optional or mandatory) of any Qualified Swap, including, without limitation, any settlement amount, (ii) any periodic fee payable by the Qualified Swap Provider to keep such Qualified Swap in effect, and (iii) any other non-scheduled amounts required to be paid by the Qualified Swap Provider under the Qualified Swap. Limited Obligations THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, THEREON AND ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION SHALL BE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM AND SECURED SOLELY BY THE PLEDGED REVENUES AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE SERIES 2007 BONDS NOR THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON SHALL CONSTITUTE A GENERAL INDEBTEDNESS OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING WITHIN THE MEANING OF THE CONSTITUTION AND LAWS OF THE STATE. THE SERIES 2007 BONDS AND THE INTEREST AND PREMIUM, IF ANY, PAYABLE THEREON DO NOT CONSTITUTE EITHER A PLEDGE OF THE FULL FAITH AND CREDIT OR TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING OTHER THAN AS PROVIDED IN THE BOND RESOLUTION. NEITHER THE BOND INSURER NOR ANY BONDHOLDER NOR ANY OTHER PERSON SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF THE AD VALOREM TAXING POWER OF THE CITY, THE STATE OR ANY AGENCY, INSTRUMENTALITY OR POLITICAL SUBDIVISION OF ANY OF THE FOREGOING TO PAY THE SERIES 2007 BONDS OR THE INTEREST AND PREMIUM, IF ANY, THEREON OR TO PAY ANY OTHER AMOUNTS REQUIRED TO BE PAID PURSUANT TO THE BOND RESOLUTION. THE BONDHOLDERS DO NOT HAVE A LIEN UPON THE ELECTRIC SYSTEM OR THE ELECTRIC PROJECTS. Creation of Funds and Accounts The Bond Resolution creates and establishes the "Electric System Revenue and Operating Fund" (the "Revenue and Operating Fund"), the "Electric System Reserve Fund" (the "Reserve Fund") and the Composite Reserve Account therein, and the "Electric System Rate Stabilization Fund" (the "Rate Stabilization Fund"). Such funds and accounts constitute trust funds for the purposes provided in the Bond Resolution, and shall be delivered to and held by the Chief Financial Officer (or an Authorized Depository designated by the Finance Director), in each case who shall act as trustee of such funds for the purposes provided in the Bond Resolution, shall be subject to a lien and charge in favor of the Holders of the Bonds and Qualified Swap Providers in the manner and to the extent 11

18 provided in the Bond Resolution, and shall, except as expressly permitted hereby, at all times be kept separate and distinct from all other funds of the City and used only as provided in the Bond Resolution. The Bond Resolution also authorizes the creation of separate accounts within the Reserve Fund for Series of Bonds not secured by the Composite Reserve Account. The Series 2007 Bonds will be secured by the 2007 Reserve Subaccount, created as a separate account in the Reserve Fund for the Series 2007 Bonds and will not be secured by the Composite Reserve Account or any other account established within the Reserve Fund. See "SOURCES OF AND SECURITY FOR PAYMENT OF THE SERIES 2007 BONDS Reserve Fund" herein. The Bond Resolution also creates and establishes the "Electric System Revenue Bonds Construction Fund" (the "Construction Fund"). The City must establish a separate account in the Construction Fund for the Electric Project or Projects to be financed by each Series of Bonds issued under the Bond Resolution. The Bond Resolution establishes the 2007 Project Construction Account in the Construction Fund in connection with the issuance of the Series 2007 Bonds. A portion of the proceeds from the Series 2007A Bonds will be deposited in the 2007 Project Construction Account and together with investment earnings thereon will be sufficient to pay the costs of the 2007 Project. All moneys in the Construction Fund will be and constitute trust funds, and must be delivered to and held by the Chief Financial Officer (or his designated Authorized Depository) who shall act as trustee of such funds for the purposes of the Bond Resolution. The Bond Resolution creates a lien upon such funds in the 2007 Project Construction Account in favor of the Holders of the Series 2007 Bonds until applied as provided in the Bond Resolution. Revenue and Operating Fund All Gross Revenues shall be deposited by the City into the Revenue and Operating Fund promptly upon receipt. Funds in the Revenue and Operating Fund shall be accumulated, paid out, withdrawn and disposed of only in the following order and priority: (1) First, by setting aside to be applied to pay, or by applying the amount necessary to pay, the Cost of Operation and Maintenance. (2) Then, on or before the next succeeding Payment Date, by transfer to the Paying Agents and to each Qualified Swap Provider, an amount sufficient to pay the debt service next coming due on the Bonds and the Hedge Obligations next coming due on any Qualified Swap. If principal, interest or premium payments have been made on behalf of the City by a Bond Insurer or the issuer of a Liquidity Facility or Credit Facility or other entity insuring, guarantying or providing for the payment of Bonds or any Series thereof (including the Bond Insurer for the Series 2007 Bonds), moneys on deposit in the Revenue and Operating Fund and allocable to such Bonds must be paid to such Bond Insurer (including the Bond Insurer for the Series 2007 Bonds) or issuer of the Liquidity Facility or Credit Facility having theretofore made a corresponding payment on the Bonds. (3) Then, by deposit pro rata into the Composite Reserve Account and other special reserve accounts in the Reserve Fund created for separate Series of Bonds (including the subaccount created to secure the Series 2007 Bonds), such amounts that, after taking into account other concurrent deposits made in such accounts pursuant to the provisions of the Bond Resolution, and other funds or Reserve Products then on deposit therein or credited to such accounts, if any, will be sufficient to make the funds on deposit therein and Reserve Products credited thereto equal to the Reserve Requirement for each such account. The City may satisfy the Reserve Requirement for any account in the Reserve Fund, in whole or in part with a Reserve Product in lieu of a cash funded deposit. Such Reserve Product must provide for payment of deficiencies (up to the policy limits of such Reserve Product) on any interest or principal payment date (provided adequate notice is given) on which a deficiency exists (or is expected to exist) in moneys held thereunder for a payment with respect to Bonds secured by the applicable account in the Reserve Fund, which cannot be cured by funds in any other account held pursuant to the Bond Resolution and available for such purpose. Each such Reserve Product shall name as the beneficiary thereof, the Paying Agent or an Authorized Depository who has agreed to serve as trustee for the benefit of such Bondholders. If a disbursement is made from a Reserve Product, the City must reinstate the maximum limits of such Reserve Product promptly following such disbursement or to replace such Reserve Product by depositing into the 12

19 applicable account in the Reserve Fund from the first available Net Revenues for deposit pursuant to this Section, from the first available Net Revenues, funds in the maximum amount originally payable under such Reserve Product, plus amounts necessary to reimburse the Reserve Product Provider for previous disbursements made pursuant to such Reserve Product, or a combination of such alternatives, and for purposes of this clause, amounts necessary to satisfy such reimbursement obligation and other obligations of the City to such a Reserve Product Provider shall be deemed required deposits into the applicable Reserve Fund account, but must be used by the City to satisfy its obligations to the Reserve Product Provider. The City is required to reimburse MBIA for draws on the Reserve Product for the Series 2007 Bonds as described under "DEBT SERVICE RESERVE FUND SURETY BOND" herein and APPENDIX H hereto. If one or more accounts in the Reserve Fund have been funded with cash or Permitted Investments and no event of default shall have occurred and be continuing under the Bond Resolution, the City may, at any time in its discretion, substitute a Reserve Product meeting the requirements of the Bond Resolution for the cash and Permitted Investments in any such account, and the City may then withdraw such cash and Permitted Investments from such account and apply them to any lawful purpose that, in the opinion of Bond Counsel will not result in the interest on the Bonds for which such account in the Reserve Fund was held which are not Taxable Bonds to be includable in the gross income of the Holders thereof for federal income tax purposes. (4) Then by payment of all amounts related to any Subordinate Debt required to be paid by the terms of the ordinance, resolution or other instrument authorizing such Subordinate Debt and the unpaid fees, costs and expenses of any Reserve Product Provider or issuer of a Liquidity Facility or Credit Facility. (5) Then by payment of all Rebate Amounts determined to be due and owing pursuant to the Code. (6) Then, for any lawful purposes of the City, including, without limitation, any deposit to the Rate Stabilization Fund that the City deems appropriate. Reserve Fund Except as otherwise expressly provided in the Bond Resolution, funds on deposit in an account in the Reserve Fund (including, without limitation, the 2007 Reserve Subaccount) may be used only for the purpose of curing deficiencies in the amounts available for such purposes in the Revenue and Operating Fund related to the Series of Bonds with respect to which such account in the Reserve Fund was created and for no other purpose. If funds on deposit in an account in the Reserve Fund exceed, in the aggregate, the applicable Reserve Requirement for such account, such excess shall be paid into the Revenue and Operating Fund. Any proceeds received from a Reserve Product shall be applied immediately to cure deficiencies in the moneys set aside and available in the Revenue and Operating Fund to pay debt service with respect to all Series of Bonds secured by the Composite Reserve Account, or the special account in the Reserve Fund to which such Reserve Product was credited, as the case may be, and for no other purpose. A subaccount has been created in the Reserve Fund for the benefit of the Series 2007 Bonds (the "2007 Reserve Subaccount") and will only secure the Series 2007 Bonds. The Reserve Requirement for the Series 2007 Bonds is $2,016, Pursuant to the Bond Resolution, the Reserve Requirement for the Series 2007 Bonds must not exceed an amount equal to the lesser of (i) the Maximum Bond Service Requirement for the Series 2007 Bonds; (ii) 125% of the average Bond Service Requirement for the Series 2007 Bonds; or (iii) 10% of the aggregate stated original principal amount of all Series 2007 Bonds. Neither the Composite Reserve Account nor any other subaccount created in the Reserve Fund established for any other Series of Bonds will secure the Series 2007 Bonds, and the Series 2007 Bondholders shall have no lien on or right to payment from any such other funds in the Reserve Fund (other than the 2007 Reserve Subaccount therein), the Composite Reserve Account or any subaccount created in the Reserve Fund with respect to any other Series of Bonds. The Reserve Requirement for the 2007 Reserve Subaccount will initially be funded with a Reserve Product provided by the Bond Insurer in a face amount equal to the Reserve Requirement for the Series 2007 Bonds. See "DEBT SERVICE RESERVE FUND POLICY" herein. Rate Stabilization Fund The Bond Resolution provides that the City may transfer any amounts on deposit in the Rate Stabilization Fund to the Revenue and Operating Fund or may use or apply those funds for any other lawful purpose, as it deems appropriate; provided, however, that on each Payment Date for the Bonds, moneys in the Rate Stabilization Fund, if 13

20 any, shall be applied for the payment of debt service when due with respect to Outstanding Bonds when the moneys in the Revenue and Operating Fund are insufficient to pay the principal of, interest on and Amortization Installments with respect to the Bonds coming due, but only to the extent moneys transferred from the Reserve Fund for such purposes shall be inadequate to fully provide for such insufficiency. Rate Covenant The City has covenanted in the Bond Resolution to fix, establish, revise from time to time whenever necessary, maintain and collect fees, rates, rentals and other charges for the use of the products, services and facilities of the Electric System that will always provide Gross Revenues in each Bond Year (excluding for purposes of this section all Hedge Receipts) which will be at least one hundred percent (100%) of the Cost of Operation and Maintenance for such Bond Year, plus one hundred twenty five percent (125%) of the Bond Service Requirement for such Bond Year, plus one hundred percent (100%) of the amounts required to be deposited in such Bond Year into the Reserve Fund (including the various accounts therein). For purposes of the foregoing, the Bond Service Requirement for any Bond Year may be reduced by amounts actually deposited into the Revenue and Operating Fund at the beginning of such Bond Year, from the Rate Stabilization Fund or otherwise, that are not needed to pay Hedge Obligations or debt service then due on the Bonds and that are specifically earmarked to pay debt service on Outstanding Bonds and Hedge Obligations next coming due. Notwithstanding the foregoing, failure of the City to comply with the rate covenant described above will not constitute an event of default if funds are otherwise available to pay all amounts due under the Bond Resolution and the City promptly engages the services of a Qualified Independent Consultant to perform a rate study recommending the rate levels necessary to comply with the rate covenant in the next succeeding Bond Year. Such study must be completed within ninety (90) days after the City becomes aware of such non-compliance and the City must adopt the recommendations of such study within thirty (30) days after the completion of the study. Additional Bonds The City has covenanted in the Bond Resolution not to issue or incur any obligations payable from the Gross Revenues or voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or other charge having priority to or being on a parity with the lien of any Bonds, upon the Gross Revenues, except Additional Bonds and Hedge Obligations under a Qualified Swap all as provided in the Bond Resolution. No series of Additional Bonds may be issued under the Bond Resolution and no Qualified Swap may be entered into unless the City shall have first complied with the following requirements: (a) There shall have been obtained and filed with the City Commission a certificate signed by the Chief Financial Officer, pursuant to which he or she shall state and certify the following: (1) The amount of Gross Revenues (but excluding for this purpose all Hedge Receipts), as determined under standard auditing procedures but adjusted as hereinafter provided (the "Adjusted Gross Revenues"), for, at the option of the City, any twelve (12) consecutive months out of the twenty-four (24) consecutive months immediately preceding the date of issue of the Proposed Additional Bonds or the most recently audited Fiscal Year (the "Audit Period") and amount of the Cost of Operation and Maintenance for the Audit Period, as determined under standard auditing procedures but adjusted as hereinafter provided (the "Adjusted Cost of Operation and Maintenance"); In determining the amount of Adjusted Gross Revenues for the Audit Period, the Chief Financial Officer may take into account the amount by which Gross Revenues would have increased if or as a result of: (i) the number of customers served by the Electric System during the Audit Period had included the number of new customers of the Electric System attributable to an existing electric distribution system to be acquired with the proceeds of such Additional Bonds, had the acquisition occurred at the beginning of the Audit Period, (ii) the number of customers served by the Electric System during the Audit Period that the Qualified Independent Consultant projects will, as a result of the proposed Project, by virtue of their proximity to the service provided by the Project or otherwise, connect to the Electric System during the first full Bond Year following the Bond Year in which such Additional Bonds are issued (the "Applicable Bond Year"), and (iii) any changes in the rate schedules for customers and users of the Electric System which the City shall then have in effect, or has enacted by ordinance 14

21 or resolution on or before the date of such certificate and which the City has covenanted to put into effect during the Applicable Bond Year, had such rate changes been effective on the first day of the Audit Period. If any such adjustments permitted by clause (i) above shall be made, in determining the amount of the Adjusted Costs of Operation and Maintenance, the Chief Financial Officer shall take into account the estimated amount by which the Cost of Operation and Maintenance for the Audit Period would have increased had the Project to be financed with the proceeds of such Additional Bonds been in operation from the beginning of the Audit Period. In projecting numbers of new customers for the purposes of clause (ii) above, there shall be taken into account only dwellings, buildings or other structures in existence on the date of such projections; (2) The aggregate amount of funds, if any, to be transferred from available moneys of the City and from grants, contributions in aid of construction and investment income, if any, that the City reasonably expects to receive or make available to pay the Cost of such Project to be financed with the proceeds of such Additional Bonds; (3) The amount of the Maximum Bond Service Requirement for the Applicable Bond Year on account of all Bonds then Outstanding under the Bond Resolution and the Additional Bonds proposed to be issued thereunder (which, for purposes of this calculation will include a netting of debt service payments and corresponding Hedge Obligations as and to the extent contemplated in the definition of Bond Service Requirement); (4) The amount, if any, required to be deposited from Net Revenues into the Composite Reserve Account or into any subaccount in the Reserve Fund in the Applicable Bond Year pursuant to the terms of a supplemental ordinance or resolution; and (5) Based upon the foregoing, the Chief Financial Officer is of the opinion that the Adjusted Gross Revenues for the Audit Period, less one hundred percent (100%) of the Adjusted Cost of Operation and Maintenance shall equal or exceed the sum of one hundred percent (100%) of the amount to be deposited to the Reserve Fund as described in paragraph (4) above and one hundred twenty five percent (125%) of the Maximum Bond Service Requirement referred to in paragraph (3) above for the Applicable Bond Year. (b) In connection with the issuance of Additional Bonds, there must be obtained and filed with the City Commission a certificate from the engineer, who may be an employee of the City, supervising construction of the Project being financed with proceeds of such Additional Bonds that the balance of the funds in the special account in the Construction Fund created for such Project, together with net proceeds from such Additional Bonds, will be sufficient to pay the Cost of such Project remaining unpaid. (c) The Chief Financial Officer for the City must certify that the City is not in default in the performance of any of the covenants and obligations assumed by it under the Bond Resolution, as the same may have been theretofore amended, and that all payments thereunder required to have been made into the funds and accounts provided therein shall have been made in full. (d) The City Attorney must submit an opinion to the City Commission to the effect that the issuance of such Bonds or entering into such Qualified Swap has been duly authorized and that all conditions precedent to the delivery of such Bonds or Qualified Swap have been fulfilled. (e) Each ordinance, resolution or enabling instrument authorizing the issuance of such Bonds will recite that all of the covenants described in the Bond Resolution will be fully applicable to such Bonds as if originally issued under the Bond Resolution. The City may issue Additional Bonds for the purpose of refunding any Series of Bonds, or any Bonds within a Series, or for the purpose of refunding any Subordinate Debt by complying with the requirements described above. In addition to, and notwithstanding the foregoing, the City may issue Additional Bonds for the purpose of refunding any Series of Bonds, or of Bonds within a Series, without the necessity of complying with the requirements described above, provided that prior to the issuance of such Bonds the Chief Financial Officer shall certify in writing that (i) the net proceeds from such Additional Bonds will be sufficient to cause the lien created by the Bond Resolution with respect to the Bonds to be refunded to be defeased, and (ii) the Bond Service Requirement with respect to such Additional Bonds in each Bond Year from and after the issuance thereof must be equal to or less than the Bond Service Requirement in each such Bond Year with respect to the Bonds being refunded. In addition, prior to the issuance of such Bonds pursuant to the preceding sentence, there must be filed with the City Commission, an opinion of Bond Counsel, given in reliance on factual and financial certificates, to the effect that 15

22 (i) upon the deposit of proceeds from the sale of such Additional Bonds in irrevocable escrow for the payment of the Bonds to be refunded, such Bonds will not be deemed outstanding for purposes of the Bond Resolution, and (ii) the issuance of such Additional Bonds and the use of the proceeds thereof as described above will not, in and of itself have the effect of causing the interest on any Bond that is not a Taxable Bond then Outstanding under the Bond Resolution (including the Bonds to be refunded) to become included in gross income for federal income tax purposes. Bonds issued pursuant to the terms and conditions described above will be deemed to be on a parity with all Bonds then Outstanding, and all of the covenants and other provisions of the Bond Resolution (except as otherwise expressly provided by the Bond Resolution) will be for the equal benefit, protection and security of the holders of any Bonds evidencing additional obligations subsequently created within the limitations of and in compliance with this section. Bonds may be issued only for the purpose of financing one or more Electric Projects, or for the purpose of refunding any obligations issued only for such purpose or for any other lawful purpose of the City, including the reimbursement to the City of Electric Revenues spent for a lawful purpose of the City. Qualified Swaps The Bond Resolution provides that the City may, to the extent permitted pursuant to law, enter into one or more Qualified Swaps concurrently with the issuance of Additional Bonds, provided that the financial tests applicable for the issuance of Additional Bonds are complied with after applying the assumptions and provisions relating to Qualified Swaps set forth in the definition of Bond Service Requirement, applied as of the date the Qualified Swap is entered into. In addition, the City may, to the extent permitted pursuant to law, and upon receipt of a No Adverse Effect Opinion, enter into one or more Qualified Swaps with respect to Bonds previously issued and outstanding; provided that, as estimated by the Chief Financial Officer, entering into such Qualified Swap would be permitted under the financial tests applicable to the issuance of Additional Bonds, applying the assumptions and provisions relating to Qualified Swaps set forth in the definition of Bond Service Requirement. Unless otherwise agreed by a Qualified Swap Provider, Hedge Obligations under any Qualified Swap shall be on parity with payments on the Bonds for purposes of the Revenue and Operating Fund. Hedge Charges under any Qualified Swap shall only be paid from the Revenue and Operating Fund as subordinate obligations. Neither Hedge Obligations nor Hedge Charges under any Qualified Swap shall be secured by funds on deposit in the Reserve Fund or funds on deposit in the Construction Fund. The City has not entered into any Qualified Swaps as of the date of this Official Statement. Separately Financed Projects Pursuant to the Bond Resolution, the City may issue bonds, notes, or other obligations or evidences of indebtedness, for any project authorized by the Act, or for financing or otherwise providing for any such project from other available funds (each such project being referred to as a "Separately Financed Project"), provided that the debt service on such bonds, notes, or other obligations or evidences of indebtedness and the City's share of any operating expenses related to such Separately Financed Project, are payable solely from the revenues or other income derived from the ownership or operation of such Separately Financed Project, from other available funds of the City not constituting part of the Pledged Revenues or from other funds withdrawn by the City from the Revenue and Operating Fund permitted to be used for any lawful purpose. Other Covenants The City has additionally covenanted in the Bond Resolution: (i) to maintain the Electric System and all parts thereof in good condition and to operate the same in an efficient and economical manner, making such expenditures for such equipment, maintenance and repairs and for renewals and replacements thereof as may be proper for its economical operation and maintenance; (ii) before the first day of each Fiscal Year the City Commission must prepare, approve and adopt in the manner prescribed by law, a detailed budget of the Gross Revenues, Bond Service Requirement (including anticipated amortization of Designated Maturity Bonds and Commercial Paper Obligations) and the Cost of Operation and Maintenance for the next succeeding Fiscal Year; (iii) to require that an annual audit of its accounts and records be completed within nine (9) months after the end of 16

23 each Fiscal Year by an independent certified public accountant of recognized standing; (iv) not to mortgage, pledge or otherwise encumber the physical assets of the Electric System and not to sell, lease or dispose of, any properties, parts or portions of the Electric System except in accordance with the provisions of the Bond Resolution; (v) to carry adequate fire, windstorm and explosion insurance on the components of the Electric System that are subject to loss through fire, windstorm or explosion; adequate public liability insurance; other insurance of the kinds and amounts normally carried in the operation of similar facilities and properties in the State; (vi) except as otherwise required by applicable law, not to render or cause to be rendered any free services of any nature by its System, nor to establish preferential rates for users of the same class; (vii) upon the failure of any user to pay for services rendered by the Electric System within sixty (60) days, the City must, to the extent permitted by applicable law, shut off the connection of such user and must not furnish him or permit him to receive from the Electric System further service until all obligations owed by him to the City on account of services shall have been paid in full; (viii) to diligently enforce its right to receive the Gross Revenues and diligently enforce and collect the fees, rates, rentals and other charges for the use of the products, services and facilities of the Electric System; and (ix) to the full extent permitted by law, not to grant, cause, consent to, or allow the granting of, any franchise or permit to any person for the furnishing of electric distribution services to or within the boundaries of the City. Investment of Funds Moneys held for the credit of each of the Funds and Accounts created by the Bond Resolution must be invested and reinvested by the City in Permitted Investments either directly or through broker-dealer deposit agreements or a combination thereof. Such investments or reinvestments must mature not later than the respective dates, as estimated by the City, that the moneys held for the credit of said funds or accounts will be needed for the purposes of such funds or accounts, but in no event will any of the investments of funds in an account in the Reserve Fund have a term to maturity exceeding the final maturity date of the Series of Bonds secured by such account. Obligations so purchased as an investment of moneys in any such Fund or Account shall be deemed at all times to be a part of such Fund or Account, and must at all times, for the purposes of the Bond Resolution, be valued annually as of September 30 of each year at the market value thereof on the date of valuation, as determined by the City, exclusive of accrued interest. Except as otherwise provided in the Bond Resolution, all income and profits derived from the investment of money in the Construction Fund, must be retained in such fund and used for the purposes specified for such fund. All income and profits derived from the investment of moneys in an account in the Reserve Fund must be retained therein until the amount in such account equals the applicable Reserve Requirement, and thereafter all remaining income and profits must be transferred upon receipt into the Revenue and Operating Fund. Except as otherwise provided above, all income and profits derived from the investment of moneys in all other accounts or funds created by the Bond Resolution must be deposited upon receipt in the Revenue and Operating Fund. Rights of Bond Insurer The Bond Resolution provides that in the event that a Credit Facility (including the Bond Insurance Policy) is in full force and effect and the provider of such Credit Facility is not insolvent and no default under the Credit Facility exists on the part of the provider of such Credit Facility, the provider of such Credit Facility, in place of the Registered Owners of such Bonds, will have the power and authority to give any consents and exercise any and all other rights that the Registered Owners of such Bonds insured by it would otherwise have the power and authority to make, give or exercise, including but not limited to, the exercise of remedies provided for in the Bond Resolution, and the giving of consents to supplemental resolutions when required by the Bond Resolution (exclusive of those matters reserved for Bondholders), and such consent will be deemed to constitute the consent of the Registered Owners of all of those Bonds which are secured by such Credit Facility. MUNICIPAL BOND INSURANCE There follows under this caption certain information concerning the terms of the Bond Insurance Policy and the Bond Insurer which has been supplied by the Bond Insurer for inclusion in this Official Statement. No representation is made by the City or the Underwriters as to the accuracy, completeness or adequacy of such information, nor as to the absence of material adverse changes in such information subsequent to the date of this Official Statement. The City has not made any independent investigation of the Bond Insurer or the Bond Insurance Policy, and reference is made to the information set forth below and in APPENDIX G hereto for a description 17

24 thereof. The City has no responsibility whatsoever with respect to the Bond Insurance Policy, including the maintenance or enforcement thereof or collection of amounts payable thereunder. The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to APPENDIX G for a specimen of MBIA's policy (the "Bond Insurance Policy"). MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Bond Insurance Policy and MBIA set forth under the heading "MUNICIPAL BOND INSURANCE" and "DEBT SERVICE RESERVE FUND SURETY BOND" herein. Additionally, MBIA makes no representation regarding the Series 2007 Bonds or the advisability of investing in the Series 2007 Bonds. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Series 2007 Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Series 2007 Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Series 2007 Bonds. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Series 2007 Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the Series 2007 Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Series 2007 Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Series 2007 Bonds the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Series 2007 Bonds or presentment of such other proof of ownership of the Series 2007 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Series 2007 Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Series 2007 Bonds in any legal proceeding related to payment of insured amounts on the Series 2007 Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Series 2007 Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands 18

25 of the United States and the Territory of Guam. MBIA, either directly or through subsidiaries, is licensed to do business in the Republic of France, the United Kingdom and the Kingdom of Spain and is subject to regulation under the laws of those jurisdictions. In February 2007, MBIA Corp. incorporated a new subsidiary, MBIA México, S.A. de C.V. ("MBIA Mexico"), through which it intends to write financial guarantee insurance in Mexico beginning in To date, MBIA Mexico has had no operating activity. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York and the main telephone number at that address is (914) Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Bond Insurance Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." "AAA." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Series 2007 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2007 Bonds. MBIA does not guaranty the market price of the Series 2007 Bonds nor does it guaranty that the ratings on the Series 2007 Bonds will not be revised or withdrawn. MBIA Financial Information As of December 31, 2006, MBIA had admitted assets of $10.9 billion (audited), total liabilities of $6.9 billion (audited), and total capital and surplus of $4.0 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31, 2007, MBIA had admitted assets of $11.2 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $4.2 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2006 and December 31, 2005 and for each of the three years in the period ended December 31, 2006, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2006 and the consolidated financial statements of MBIA and its subsidiaries as of March 31, 2007 and for the three month period ended March 31, 2007 and March 31, 2006 included in the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2007, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. 19

26 Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2006; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Series 2007 Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2006, and (2) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007) are available (i) over the Internet at the SEC's web site at (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at and (iv) at no cost, upon request to MBIA at its principal executive offices. The insurance provided by this policy is not covered by the Florida Insurance Guaranty Association created under chapter 631, Florida Statutes. MBIA Reserve Product DEBT SERVICE RESERVE FUND SURETY BOND There follows under this caption certain information concerning the terms of the MBIA Debt Service Reserve Fund Surety Bond and MBIA which has been furnished by MBIA. No representation is made by the City or the Underwriters as to the accuracy, completeness or adequacy of such information, nor as to the absence of material adverse changes in such information subsequent to the date of this Official Statement. The City has not made any independent investigation of MBIA or the MBIA Debt Service Reserve Fund Surety Bond, and reference is made to the information set forth below and in APPENDIX H hereto for a description thereof. Application has been made to the MBIA for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the Bond Insurer to the effect that insufficient amounts are on deposit in the Revenue and Operating Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the Series 2007 Bonds, the Bond Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the Series 2007 Bonds or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Bond Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Paying Agent; or (ii) the payment date of the Series 2007 Bonds as specified in the Demand for Payment presented by the Paying Agent to the Bond Insurer, the Bond Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of 20

27 amounts which are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the Bond Insurer with the Paying Agent which have not been reimbursed by the City. The City and the Bond Insurer have entered into a Financial Guaranty Agreement (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Bond Insurer, within one year of any deposit, the amount of such deposit made by the Bond Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to pay the cost of operation and payment of debt service next coming due on the Series 2007 Bonds and the Hedge Obligations next coming due on any Qualified Swap have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Bond Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to certain other funds and accounts pursuant to the Bond Resolution. No optional redemption of Series 2007 Bonds may be made until the Bond Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the 2007 Reserve Subaccount and is provided as an alternative to the City depositing funds equal to the Reserve Requirement for the Series 2007 Bonds. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to $ 2,016, and the premium therefor will be fully paid by the City at the time of delivery of the Series 2007 Bonds. For a description of MBIA, see "MUNICIPAL BOND INSURANCE" herein. ENGINEER'S REPORT In connection with the proposed issuance of the Series 2007 Bonds, the City retained R.W. Beck, Inc., as consulting engineers (the "Consulting Engineer") to prepare a report presenting financial projections of operating results of the Electric System and the anticipated ability of the Electric System to meet the rate covenant requirements for the period commencing October 1, 2006 and ending September 30, 2012 (the "Projection Period"). The forecast of operating results includes projections of the Electric System's ability to meet the covenant requirements of the Bond Resolution. The information under the headings "THE ELECTRIC SYSTEM," "CAPITAL IMPROVEMENT PROGRAM," "FUND BALANCE POLICY," "HISTORICAL OPERATING RESULTS," "PROJECTIONS," "CONCLUSIONS OF CONSULTING ENGINEER," and "FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY" below have been extracted from the report of the Consulting Engineer, which report is included as APPENDIX B hereto (the "Engineer's Report"). PROSPECTIVE INVESTORS MUST REVIEW THE ENGINEER'S REPORT IN ITS ENTIRETY, INCLUDING THE FINANCIAL FORECASTS RELATING TO THE ELECTRIC SYSTEM INCLUDED THEREIN AND THE CONSIDERATIONS AND ASSUMPTIONS UPON WHICH THE PROJECTED OPERATING RESULTS ARE BASED, PRIOR TO MAKING AN INVESTMENT DECISION WITH RESPECT TO THE SERIES 2007 BONDS. General THE ELECTRIC SYSTEM The City owns, operates and maintains an electric transmission and distribution system that provides electricity to approximately 21,200 customers in a service area consisting of approximately fifty (50) square miles located within the City and other parts of Lake and Sumter Counties, Florida. The City owns but does not operate a small, less than 1% (approximately 7 MW) undivided ownership interest in and generation entitlement share of a nuclear fueled, steam electric generating unit known as Crystal River Unit No. 3 ("CR-3"). CR-3 is located in Red Level, Florida, which is approximately 85 miles north of Tampa, Florida. Certain services and costs are allocated by the City among the Electric System, the City's other enterprise entities and City departments. 21

28 Operation The operational responsibilities of the Electric System are vested in a Director of Electric. The current Director of Electric is Paul D. Kalv, who carries out the policies established by the City Commission and the City Manager. Mr. Kalv has over thirty-five years of experience in the industry, including nearly twenty years with Florida Power & Light Company and fifteen years with municipal electric utilities. Mr. Kalv holds a Bachelor of Science degree in Electrical Engineering (BSEE) from the University of Florida and a Masters of Business Administration (MBA) from the University of Miami. Mr. Kalv is also active in the community and has served in the U.S. Army. The day-to-day management of the Electric System is under the direction of the Electric Superintendent, Mr. Robert Bruck, Sr. and the Electric Operations Manager, Mr. Rick L. Reichert. Mr. Bruck has a degree from Shorter College in Rome, Georgia and has been employed by the Electric System for over thirty years and has held various positions, including Electric Field Engineer and Electric Engineering/Mapping Manager. Mr. Bruck supervised and participated in the establishment of the Construction Standards Spec Book for the City Overhead Line Construction and designing an underground electric system for the Downtown Beautification project and Palmora Park. Additionally, Mr. Bruck is currently serving as the Chairman of the State Certified Apprentice Lineman Program. Mr. Reichert has over ten years of service with the Electric System. He holds a Bachelor of Science degree in Electrical Engineering from the University of Central Florida and is a Professional Engineer. As of May 2007, the Electric System had fifty-five full time employees. In addition to its direct employees, certain activities common to the City's other utility systems and general government operations, including meter reading; billing and collecting activities; employee relations; data processing; and portions of accounting and finance are performed by employees of other City departments. The costs of these common services are allocated among the various entities, including the Electric System, that receive the benefits of such services. Service Territory The Electric System serves customers within an area which includes the corporate limits of the City, the City of Fruitland Park, Florida ("Fruitland Park") which is situated to the North of the City, and certain adjacent unincorporated areas of Lake and Sumter Counties. Fruitland Park is served by the Electric System under an existing franchise agreement. The City has territorial agreements with Sumter Electric Cooperative, Inc. (the "Cooperative") and Progress Energy Florida, Inc. ("Progress Energy"), a wholly-owned subsidiary of Progress Energy, Inc., a registered holding company. No other utilities provide electric service in or about the area served by the Electric System. Franchise with Fruitland Park On November 1, 1983, the City and Fruitland Park entered into an electric franchise agreement for the provision of electric services by the City to Fruitland Park (the "Electric Franchise Agreement"). The Electric Franchise Agreement has an initial term of twenty-five years, through October 31, 2008 and provides that, at the end of any five year period from its effective date to its expiration date or at any time after the initial period of twenty five years, Fruitland Park has the right to purchase the distribution system, lines, conduits, and other conveyances for distribution of electric energy that are owned by the City, located in Fruitland Park and used in connection with the electric franchise (the "Assets"). In the event Fruitland Park exercises its option to purchase the Assets under the Electric Franchise Agreement, the purchase price is to be based on system appraisals. In the event that Fruitland Park wishes to sell the Assets after purchase from the City, the Electric Franchise Agreement provides that it must first offer to sell the Assets to the City. After receiving notification from Fruitland Park that it wishes to sell the Assets, the City is to give notice of its decision within three months. In the event Fruitland Park does not wish to exercise its option to purchase the Assets at the end of the twenty-five years initial term, the Electric Franchise Agreement will be extended on a year-to-year basis until terminated by either party after four months written notice of such election to terminate has been delivered to the other party. 22

29 The Electric Franchise Agreement provides, among other things, that the City is to charge the same rates for service in Fruitland Park as it charges its other customers for similar service and that the City shall impose a franchise fee equal to 8% of gross receipts, except that revenues received from municipal services shall be exempt. The Franchise Fees collected in providing service to Fruitland Park are then paid to Fruitland Park and therefore they are not revenues of the Electric System. During the fiscal year ended September 30, 2006, the City, pursuant to the Electric Franchise Agreement, provided electric service to 1,760 customers and sold 32,000 MWhs. As of July 12, 2007, Fruitland Park has not given the City notice of its intent to exercise its option to purchase the Assets. The City states it has initiated discussions with Fruitland Park regarding the renewal of the franchise agreement. Progress Energy On January 27, 1983, the Florida Public Service Commission (the "PSC") issued an order approving the territorial agreement between the City and Progress Energy (the "Progress Energy Territorial Agreement"). The term of the Progress Energy Territorial Agreement is thirty years from the date of approval by the PSC. In this agreement, the territorial area allocated to the City as its electric service area is the area located in the corporate limits of the City, Fruitland Park and certain adjacent areas of unincorporated Lake and Sumter Counties. The City's electric service territory abuts the electric service territories of Progress Energy in certain areas and the Cooperative in other areas. The Progress Energy Territorial Agreement provides the following: (i) that neither party is to furnish retail electric service to new customers located within the territorial area of the other party unless requested to do so on an interim basis by the other party; and (ii) for the transfer of existing customers located in the service territory of the other party to the party holding the franchise for that service territory. In the event any portion of the area outside the City territorial area and within the Progress Energy territorial area is subsequently annexed by and into the City, Progress Energy and the City shall enter into good faith negotiations for a franchise agreement with respect to such annexed portion. The City also retains the right to serve any municipal facility of the City, located in Lake or Sumter County, provided that the City shall construct, operate and maintain any required distribution facilities in such a manner as to minimize any interference in the Progress Energy territorial area. The Cooperative The PSC issued an order approving the territorial agreement between the Cooperative and the City on September 18, 1991 (the "Cooperative Territorial Agreement") with an effective date of October 10, The term of the Cooperative Territorial Agreement is twenty years from the effective date and will terminate in September, However, either party may terminate the agreement at the end of the fifteenth year by providing written notice to the other party of such termination not later than the anniversary of the date of the thirteenth year. As of July 12, 2007, neither the Cooperative nor the City has given notice to terminate the agreement. Pursuant to the Cooperative Territorial Agreement, neither party shall serve or offer to serve new electric customers located in the territorial area of the other party except when requested to do so by the other party on an interim basis. This agreement also provides for certain existing City customers located within the Cooperative's territory to remain as City customers until such time as a reconnect is requested at the meter for any reason other than seasonal disconnect or nonpayment of account. A similar provision is included to allow certain existing Cooperative customers located in the City territorial area to remain customers of the Cooperative. In the event any portion of the area within the Cooperative's territorial area is subsequently annexed by and into the City, the City may impose a franchise fee upon Cooperative customers served within the City boundaries. Generating Facilities The City's only ownership of electric power generating facilities is its minority undivided ownership interest in the CR-3 which is operated by Progress Energy on behalf of itself and other minority owners. The City's remaining power supply requirements are provided through contracts between the City and the Florida Municipal Power Agency ("FMPA"). Power from CR-3 and FMPA's generating resources are delivered to the Electric System through its interconnection points with the transmission system of Progress Energy. Crystal River Unit No. 3 ("CR-3") In 1975, the City acquired an undivided % or approximately 7 MW ownership interest in CR-3. CR- 3 is a jointly-owned nominally rated 834 MW, nuclear generating unit located on the West Coast of Florida and 23

30 operated by Progress Energy which holds a 91.78% ownership interest in the unit. The remaining 8.22% ownership interest is shared by other Florida utilities, including the City. CR-3 commenced commercial operation on March 13, The operating license for CR-3 issued by the Nuclear Regulatory Commission (the "NRC") to Florida Power Corporation, now Progress Energy, to the City and to other co-owners of CR-3 expires on December 3, Progress Energy reports that application to extend the CR-3 license for twenty years is anticipated to be submitted in the first quarter of The City's ownership interest in CR-3 will terminate and revert to Progress Energy in 2050 or earlier in the event CR-3 ceases operation for the reason that the cost of energy that could have been generated by CR-3 would have been more expensive than energy from other sources. In the event operation of CR-3 ceases as described above, Progress Energy is obligated until 2008 to make replacement power available to the City at a cost equal to the cost reasonably anticipated to have been the cost had CR-3 continued in operation. Under federal law, the City is responsible for its proportionate share of the future cost to decommission CR-3. The City contributes to a common trust fund, maintained by FMPA for all its members that own a portion of CR-3. The City's liability for accidents/damages occurring at CR-3 is in direct proportion to its ownership interest. Pursuant to the Nuclear Waste Policy Act of 1982, Progress Energy entered into a contract with the U.S. Department of Energy (the "DOE") under which the DOE agreed, among other things, to begin taking spent nuclear fuel by no later than January 31, Following the DOE's failure to begin taking spent nuclear fuel by January 31, 1998, several utilities filed lawsuits against the DOE seeking remedies and damages. On January 14, 2004, Progress Energy, acting on its own behalf and on behalf of the other co-owners, filed suit in the U.S. Court of Federal Claims against the DOE for relief and damages. The DOE and the other parties to the suits agreed to, and the trial court entered, a stay of proceedings in order to allow for possible efficiencies due to the resolution of legal and factual issues in previously filed cases in which similar claims are being pursued by other plaintiffs. Those issues have been or are expected to be presented in the trials or appeals that are currently scheduled to occur during 2006 and It is anticipated that the trial will occur in late The DOE has stated that if legislative changes requested by the President of the United State's administration are enacted, the repository may be able to accept spent nuclear fuel starting in 2017, but 2020 is more probable due to anticipated litigation by the state of Nevada. Progress Energy reports that it has on-site storage facilities to accommodate projected spent nuclear fuel and core reserve requirements through the year 2016 which is the year its operating license expires. The City can not predict the outcome of the DOE's failure to take spent nuclear fuel, any relief or damages that may be awarded by the courts, or any relief that may be afforded by future legislation. Florida Municipal Power Agency ("FMPA"') The City purchases the remainder of its power supply requirements from FMPA. FMPA was formed as a governmental legal entity in 1978, pursuant to Florida law which authorizes local governments to enter into mutually advantageous agreements to create a separate legal entity. FMPA is authorized under Florida law to undertake specific joint projects for its members and to issue tax-exempt bonds and other obligations to finance the cost of such projects. The current FMPA membership is comprised of thirty Florida municipal electric systems, serving approximately 1.9 million Floridians. Each member appoints one representative to FMPA's Board of Directors, which governs its activities. The City is represented on the FMPA's Board of Directors by Mr. Paul D. Kalv. FMPA has five power supply projects of which the City participates in two: the St. Lucie Project and the All-Requirements Project. The City's liability for accidents/damages occurring at FMPA is in direct proportion to its entitlement share of FMPA's ownership interest in the specific power supply project. St. Lucie Project FMPA's St. Lucie Project consists of an 8.806% (approximately 67.5 MW, net summer capacity) undivided ownership interest in the St. Lucie Unit No. 2, a pressurized water nuclear generating unit with a summer seasonal 24

31 net capacity of approximately 838 MW ("St. Lucie Unit No. 2"). Florida Power & Light Company ("FPL") is the majority owner and operator of the St. Lucie Unit No. 2. The St. Lucie Project commenced commercial operation in August, FMPA entered into a reliability exchange agreement with FPL that provides for the exchange of 50% of its share of output from Unit 2 for an equivalent share of output of St. Lucie Unit No. 1, a similar nuclear generating unit owned by FPL with a summer net capacity of approximately 821 MW. The NRC has granted a twenty year extension of the operating license to 2043 for St. Lucie Unit No. 2 and 2036 for St. Lucie Unit No. 1. The capacity factor for the St. Lucie Project for the fiscal years ended September 30, 2005 and 2006 was 90.7% and 81.6%, respectively. Its lifetime capacity factor since 1983 is reported as 83.8 %. The City acquired a 2.326% share (approximately 1.7 MW) of FMPA's 8.806% interest in the St. Lucie Project and related exchange and replacement power and transmission arrangements with FPL pursuant to a Power Sales Contract dated June 1, 1982, as amended, between the City and FMPA (the "Power Sales Contract") and a Project Support Contract dated June 1, 1982, as amended, between the City and FMPA (the "Project Support Contract"). Under the Power Sales Contract, the City is required to pay FMPA for each month in which any electric capacity and energy is made available to the City from the St. Lucie Project. The payments are to equal the City's share of FMPA's costs relating to the St. Lucie Project and are to be considered as a cost of operation and maintenance of the City under the Bond Resolution. For those months when no capacity or energy is made available to the City from the St. Lucie Project, then the City is obligated to make payments to FMPA under the Project Support Contract only. Such payments are to be made, not as a cost of operation and maintenance, but only after the City has made its own debt service payments on its Electric System indebtedness. The amount of the City's payments under the Project Support Contract is the amount the City would have been required to pay under the Power Sales Contract if electric capacity and energy had been made available to the City in such month. These payments are required to be made whether or not the St. Lucie Project is operable or operating and notwithstanding the suspension or interruption of output of the St. Lucie Project. Payments that the City is obligated to make to FMPA under the Power Sales Contract and the Project Support Contract are payable solely from the revenues of the Electric System and are based upon an annual budget prepared by FMPA. FMPA periodically calculates the excess or deficiency of payments compared to actual cost and applies it to the monthly statements. Under the Power Sales Contract, FMPA is authorized to enter into obligations that will increase its costs (and thereby increase the amount of the City's obligations), including the issuance of bonds in an unlimited amount to finance additions, improvements, repairs and modifications to, but only to, the St. Lucie Project and any retirement, decommissioning or disposal of the St. Lucie Project. If any of the other participants in the St. Lucie Project defaults in its obligation to make payments under its power sales or project support contract with FMPA and FMPA is unable to sell such participant's entitlement share, the remaining participants not in default, including the City, are required to assume such entitlement share on a pro rata basis. No participant, including the City, is required to assume an additional entitlement share in excess of 25% of its original entitlement share. Since its inception, no such defaults have occurred and none are contemplated. The City's liability for accidents/damages occurring at St. Lucie Project is in direct proportion to its entitlement share of FMPA's ownership interest. All Requirements Project FMPA's All-Requirements Project (the "AR Project") energy resources consist of generating units located throughout the State that are owned by the AR Project. Capacity and energy is purchased from participants in the AR Project that own generating resources, and interchange and power sales contracts with non AR Project entities. Current generating resources available to the AR Project include (i) coal-fueled steam electric units; (ii) natural gas and oil-fueled steam electric units; (iii) natural gas and oil-fueled combustion turbine units operating in combinedcycle and simple cycle configuration and natural gas and oil-fueled diesel engine driven units. The AR Project consists of fifteen participants, including the City, which participants are governmental entities that operate electric systems. In fiscal year ended September 30, 2006, the non-coincident peak demand of the AR Project was 1,561 MW. On May 24, 1991, FMPA and the City executed the All-Requirements Power Supply Project Contract (the "FMPA Contract") to provide for FMPA to furnish the City's total power supply requirements in excess of that portion of the requirements that is satisfied by the City's ownership interests in CR-3 and the St. Lucie Project. The 25

32 FMPA Contract expires on October 1, The term is subject to an automatic five (5) year extension on each fifth anniversary thereafter unless either party notifies the other party in writing at least two years prior to such automatic extension date, of its decision not to extend the contract. The FMPA Contract contains provisions for the City to withdraw from the AR Project prior to the expiration date upon the provision of written notification three years in advance and the payment of applicable amounts to FMPA. The City is obligated to pay for the services provided by FMPA at rates that are approved by all participants in the AR Project and the FMPA Board of Directors. Such rates are reviewed and adjusted by FMPA at least once each calendar year to ensure revenues meet the estimated costs and expenses associated with its obligations related to the AR Project. Any payments made by FMPA, or which FMPA is required to make, to satisfy any liability associated with the AR Project shall become a part of the revenue requirements. All payments made by the City to FMPA pursuant to the FMPA Contract shall be treated by the City as a Cost of Operation and Maintenance as defined in the Bond Resolution. Interconnection & Distribution Facilities Under the FMPA Contract, FMPA is obligated to deliver the Electric System's total power supply requirements at specified delivery points. 69 kv delivery points are located at the interconnection points between each of the City's five substations and the Progress Energy transmission system. Each of the City's substations is connected to a 69 kv loop circuit. The City does not own any 69 kv transmission line except for two short spans leading into the Picciola Substation and the Airport Substation. At the substations, the power is transformed to the distribution network voltage of kv. The City has a radial distribution system with multiple tie switches that allow system load to be transferred between the 67/13.09 kv transformers, thereby minimizing service interruptions. Remote monitoring and control of the circuit breakers on the electric system is provided by a supervisory control and data acquisition system ("SCADA System"). The City's distribution system includes approximately 228 miles of overhead circuits and approximately 164 miles of underground circuits, which operate at a nominal voltage level of 12.47kv. The City maintains an up-to-date electronic database for the facilities that comprise the Electric System. All of the substations have current Spill Prevention, Control and Countermeasure Plans ("SPCC Plans") which outline the procedures to be followed in the event of an oil spill or leak such as might occur with a transformer failure. General Plant Facilities The City owns and operates general plant facilities and equipment to support the Electric System and other utility services. Included in the Electric System's general plant facilities is the "Joe T. Municipal Operations Center" which houses the control room, the administrative and engineering offices, distribution indoor and outside storage and the transport and heavy equipment fleet. The Control Room coordinates operation and maintenance activities on the Electric System and serves as the call center for reporting emergencies and customer outages for the Electric System and other City-owned utilities. It is staffed on a twenty-four hour a day, seven days a week basis and contains the SCADA System equipment (provided by QEI) that provides remote monitoring and control of equipment located in the field. This system will automatically sound an alarm whenever any equipment item or circuit being monitored enters a nonnormal state. The City utilizes an electronic mapping system developed by Telvent Miner and Miner, in its day to day engineering and operations activities and to assist dispatchers in managing major outage events. All appropriate data for field plant items such as poles, conductor, switches, etc. is maintained in this system's databases. The City intends to expand the mapping systems capabilities to include Trouble Call Analysis and to incorporate customer usage information as time and resources permit. The Consulting Engineer performed a limited general field observation of the City's electrical system on May 15, All five substations and approximately 15 to 20 miles of representative overhead and underground distribution lines were observed. Ancillary systems such as SCADA and mapping were also observed. The Consulting Engineer concluded that Electric System plants observed appeared to be in very good to excellent 26

33 condition and very well maintained. The Consulting Engineer further found that the vegetation management of the overhead line rights of way were observed to be very good, with clearing and trimming currently on a four year cycle. The City reported that it plans to move the clearing and trimming cycle to a three year basis as soon as practicable. An independent inspection company inspects poles and equipment on an eight year cycle which greatly helps the City locate and correct problems before they become detrimental to their service. Historical Customers, Sales and Power Supply Requirements To meet its power supply needs into the future, the City relies on CR-3 and FMPA to provide a reliable, diverse generation resource and fuel mix at reasonable costs. See "PROJECTIONS" herein for projections during the period of October 1, 2006 through September 30, The following table sets forth for the fiscal years ended September 30, 2002 through 2006, the reported number of customers, peak demands, energy requirements and system load factors of the Electric System. CITY OF LEESBURG,FLORIDA Historical Customers, Sales and Power Supply Requirements For Fiscal Year Ending September 30 Fiscal Year Average Annual Number of Customers Peak Demand (MW) Requirements [1] (MWH) Sales (MWH) Losses & Unaccounted For (MWH) Annual Load Factor , , ,512 27, % , , ,507 19, % 2004 [2] 22, , ,622 23, % , , ,394 23, % , , ,143 19, % Notes: [1] Amounts shown include generation from CR-3 and purchases from FMPA. [2] Leap year. During fiscal year ended September 30, 2006, power supply was provided from the following resources: CITY OF LEESBURG,FLORIDA Historical Power Supply and Costs For Fiscal Year Ending September 30, 2006 Description MWh Percent Avg Cost per kwh CR-3 [1]... 56, % $ St. Lucie Project [2]... 14, % AR Project [3] , % Total or Average , % Notes: [1] Amounts shown are nuclear fueled generation and include backup energy supplied during outages. [2] Amounts shown are nuclear fueled generation. [3] Amounts shown include coal, natural gas and oil fueled generation. 27

34 Rates Pursuant to Florida law, the Florida Public Service Commission ("PSC") has jurisdiction over, among other things, the "rate structure" as contrasted to the "rate level" of municipal electric utilities. In addition, the PSC is empowered to approve territorial agreements between utilities, to prescribe accounting systems, and to regulate electric impact fees of municipal electric utilities. The City's existing electric rates recognize seven classes of service: (i) residential; (ii) general service non demand; (iii) general service demand; (iv) municipal; (v) street and security lighting; (vi) standby service; and (vii) load management service applicable to residential and to non demand metered general service. All of the City's electric rate schedules provide for a monthly bulk power cost adjustment. The bulk power cost adjustment (the "BPCA") automatically passes on to the customer all increases or decreases, if any, in cost of power supply. In addition, the City has established an energy conservation cost recovery clause and a tax adjustment clause to pass on to the customers changes in the cost of energy conservation activities and changes in taxes. The City's existing electric rate schedules includes a provision for the application of a 10% surcharge to the City's base rate charges for electric service provided beyond the City's corporate limits and beyond the corporate limits of Fruitland Park. The surcharge is designed to recover, from accounts outside the City only, an amount equivalent to that amount which the City recovers from accounts inside the City through the application of its Public Service Tax, commonly referred to as the City Utility Tax. Pursuant to the City Code, federal, state and all political subdivisions, agencies, boards, commissions and instrumentalities as well as churches and religious organizations, where electricity is used exclusively for church or religious organization purposes, are exempt from the surcharge. During fiscal year ended September 30, 2006, the City received $991,928 through the imposition of the surcharge. The City has a bulk purchased power cost tracker which allows the City to recover as a "pass through" the increases/(decreases) in the cost of bulk purchased power, i.e. increases/(decreases) in the purchased power costs from FMPA related to natural gas, fuel oil #2, coal and nuclear fuel which are utilized in FMPA's production/generation plants. For the fiscal years 2002 through 2006, the operating revenues for the City increased substantially, due in part, to customer growth and rate adjustments. However, the single largest impact on total operating revenues has historically been the result of the increases in the bulk purchased power from FMPA. The City then passed through those bulk purchased power costs directly to the Electric System's retail customers by way of the BPCA as a separate charge per kilowatt-hour sold on their bills. The City has established a schedule of miscellaneous fees and charges associated with various customer requested services, including but not limited to reconnection charges, initial connection fees and charges for surge arrestor equipment. Residential customers of the City paid an average 11.2 cents per kilowatt-hour during the fiscal year ended September 30, The City's average annual use per residential customer was 13,073 kilowatt-hours, or approximately 1,089 kilowatt-hours per month during fiscal year ended September 30, Commercial nondemand-metered and demand-metered customers paid an average of 11.9 cents per kilowatt-hour and 9.2 cents per kilowatt-hour, respectively, during the fiscal year ended September 30, In the spring of 2007, the City authorized the preparation of an electric rate study to ensure that the City's rates recover the cost of providing service from its customers in an equitable manner while maintaining the Electric System's financial condition. Based on the results of the electric rate study, which is in progress, electric rates and rate design are anticipated to be adjusted, if necessary, and presented to the Commission and the PSC, and to be effective on all bills rendered on and after October 1, [Remainder of page intentionally left blank] 28

35 The following table presents the City's inside-city retail electric rates in effect as of the date of the Engineer's Report. These rates do not reflect the 10% surcharge applicable to service provided beyond the City's corporate limits, the franchise fee charged to Fruitland Park for Fruitland Park customers or any other adjustments to the customer bills such as the BPCA. City of Leesburg, Florida Schedule of Electric Rates [1] Customer Charge ($/cust/mo) Energy Charge ($/kwh) Demand Charge ($/kw) Rate Schedule Residential (RS) NA General Service Non-Demand (GSND) NA General Service Demand (GSD) Municipal Service (MS less than 20 kw) NA Municipal Service (MS greater than 20 kw) Notes: [1] Inside-City rates effective as of the date of the Engineer's Report; the City employs a 1.10 outside City rate differential. Ten Largest Customers For fiscal year 2006, sales revenues from the Electric System's ten largest electric customer accounts represented approximately 17.67% of its total revenues from electric charges. The following table identifies the Electric System's ten largest electric customer accounts based on total revenues from electric charges for fiscal year City of Leesburg, Florida Ten Largest Electric Customers for Fiscal Year Ending September 30, 2006 [1] Customer Volumes (kwh) Revenues Percent of Total Cutrale Citrus Juices USA 40,874,400 $3,750, % Leesburg Regional Medical Center 20,416,100 1,914, % Lake County School Board 12,586,650 1,226, % Lake Harris Health Care Systems 7,890, , % Wal-Mart Stores. 5,729, , % Publix Supermarkets Inc 5,274, , % Embarq (Sprint) 5,141, , % Lowes. 4,212, , % Lake Sumter Community College 4,452, , % Home Depot. 3,446, , % Total Ten Largest Electric Customers 110,024,031 $10,638, % Total Electric System Revenues [2] $60,196, % Note: [1] Information provided by the City [2] As presented in the City's audited financial reports for fiscal year

36 Rate Comparison The following table provides a comparison of the rates of the City Electric System with those of neighboring utilities. Comparable Utility Fuel Adj. ($/1000 kwh) Usage Residential Services 500 kwh 1,000 kwh 2,000 kwh 3,000 kwh City of Leesburg, Florida $39.44 $62.70 $ $ $ Florida Municipalities or Cooperatives: City of Gainesville City of Lakeland City of Ocala Orlando Utilities Commission Sumter Electric Cooperative, Inc City of Tallahassee Investor-Owned Utilities: Florida Power and Light Progress Energy Tampa Electric Company Average Minimum Maximum General Service (Nondemand) 500 kwh 1,000 kwh 2,000 kwh 3,000 kwh City of Leesburg, Florida $39.44 $65.81 $ $ $ Florida Municipalities or Cooperatives: City of Gainesville City of Lakeland City of Ocala Orlando Utilities Commission Sumter Electric Cooperative, Inc City of Tallahassee Investor-Owned Utilities Florida Power and Light Progress Energy Tampa Electric Company Average Minimum Max

37 Comparable Utility Fuel Adj. ($/1000 kwh) Usage General Service Demand 50 kw 150 kw 300 kw 500 kw 20,000 40, , ,000 kwh kwh kwh kwh City of Leesburg, Florida $39.44 $1, $4, $11, $19, Florida Municipalities or Cooperatives: City of Gainesville ,633 3,566 9,716 16,182 City of Lakeland ,040 4,297 12,092 20,577 City of Ocala ,674 3,625 9,940 16,552 Orlando Utilities Commission ,433 3,175 8,521 14,191 Sumter Electric Cooperative, Inc ,637 3,499 9,572 15,920 City of Tallahassee ,187 4,696 12,921 21,429 Investor-Owned Utilities Florida Power and Light ,833 3,961 10,840 18,056 Progress Energy ,049 4,259 12,239 20,392 Tampa Electric Company ,854 4,028 10,912 18,159 Average 1,816 3,901 10,750 17,940 Minimum 1,433 3,175 8,521 14,191 Max 2,187 4,696 12,921 21,429 Notes: Amounts shown are based on the rates for single phase service and reflect when applicable, inside City service. In addition, amounts include January 2007 fuel adjustments but do not include taxes or franchise fees. Amounts shown include the energy conservation, capacity and environmental cost recovery charges where appropriate, as filed with the PSC. CAPITAL IMPROVEMENT PROGRAM Each year the City develops and approves a capital budget. As a part of its planning process, the Electric System develops a ten year capital plan which sets forth planned capital expenditures and projected funding sources. The Capital Improvement Program identifies planned improvements, renewals and replacements to the distribution substations, to the existing overhead and underground distribution lines, and to the vehicles and equipment. The City does not include capital improvements to CR-3 in its capital budget or its Capital Improvement Plan, rather the City has elected to report such expenditures as an operating expense. Shown below is an excerpt of the Electric System Capital Improvement Program. During the period fiscal year ending September 30, 2007 through 2012, the City plans to spend approximately $47.6 million on capital improvements. 31

38 CITY OF LEESBURG, FLORIDA Electric System Capital Improvement Plan For Fiscal Years [1] Fiscal Year Ending September 30, Description Total Projected Expenditures [2] ($000) Meters $ 191 $ 160 $ 180 $ 200 $ 220 $ 240 $ 1,191 Transformers ,200 4,229 Distribution Lines 7, ,900 2,000 2,000 14,783 Sectionalizing Equipment 0-1, ,385 Lighting Projects ,670 Vehicles & Equipment Other Equipment ,346 Subdivisions 1, ,758 Reconductoring 1,677 1,200-1, ,050 5,937 Substations ,379 1,698 2,205 2,516 8,298 Structures Land Total Projected Expenditures $12,320 $ 3,908 $ 5,182 $ 7,867 $ 8,760 $ 9,561 $ 47,597 Planned Funding Sources ($000) Operating Reserves $ 2,255 $ 1,777 $ 1,033 $ 1,239 $ 1,400 $ 1,548 $ 9,252 Renewal & Replacement Customer Contributions ,331 Series 2007 Bonds 9,167 1, ,523 Series 2009 Bonds - - 3,439 5,883 6,580 7,216 23,118 Other Sources Total Funding Sources $ 12,320 $ 3,908 $ 5,182 $ 7,867 $ 8,760 $ 9,561 $ 47,597 Projects to be Funded From Series 2007 Bond Proceeds [2] ($000) Meters $ - $ - $ - $ - $ - $ - $ - Transformers Distribution Lines 6, ,790 Sectionalizing Equipment Lighting Projects Vehicles & Equipment Other Equipment Subdivisions 1, ,000 Reconductoring 1,633 1, ,733 Substations Structures Land Total Projects to be Funded From Bond Proceeds $ 9,167 $ 1,356 $ - $ - $ - $ - $ 10,523 Notes: [1] Source: Electric System Ten-Year Capital Improvement Plan and data provided by the City. [2] Estimated direct construction costs provided by the City. Amounts shown do not include financing costs. 32

39 FUND BALANCE POLICY To facilitate cash management, to provide a basis for cash reserves, and to provide for the use of surplus funds, on August 14, 2000 the City Commission adopted three policies that addressed: (i) transfers from its enterprise funds, including, but not limited to, the Electric System; (ii) the establishment of a retained earnings policy; and (iii) transfers from the enterprise funds for the purpose of financing general government special projects. The policies became effective on October 1, The fund balance policies are internal policies adopted by Ordinance of the City and may be waived or amended in the sole discretion of the City. The first policy limits the amount of the annual operating transfer from the various enterprise funds to the City's General Fund to an amount not to exceed 10% of the estimated operating revenues included in the budget for each enterprise fund. The codified policy also provides that such an operating transfer may not be made if such transfer is projected to result in a net loss after the making of such operating transfer. The second policy (the "Reserve Policy") created, among other things, a reserve requirement of retained earnings for the current fiscal year for each enterprise fund equal to 25% of the current fiscal year budget for the respective fund. This reserve requirement is in addition to reserves for debt service. The City is currently considering revising the Reserve Policy with respect to the Electric System to reflect 120 days of operating revenues less the cost of purchased power and including transfers to the general fund. This change is being considered, in part, to allow for the impact of fluctuations in the cost of purchased power. Both the current policy and the proposed policy for the Electric System, allow for the fund balance to fall below the required minimum in a given fiscal year provided the City Manager presents a plan to the City Commission for the replenishment of the reserve balance during the subsequent two fiscal years. The Consulting Engineer has concluded, based on the assumptions utilized in the Engineer's Report, and the proceeds of the Series 2007B Bonds, the Electric System will generate sufficient net revenues during the Projection Period to satisfy the requirements of the City internal policy regarding minimum fund balance. The third policy limits the amount of funds that may be used by the City from each of the various enterprise funds for the purpose of making non-reoccurring transfers to fund the costs associated with non-enterprise fund expenditures. In general, the policy provides that the minimum amount of cash reserves established for each enterprise fund is equal to: (i) funds budgeted for capital improvements that are available or expected to be available; (ii) the additional reserve requirement of the Reserve Policy is satisfied; and (iii) any funds earmarked for contingencies and emergencies. The first reading by the City Commission of the ordinance amending the Reserve Policy and clarifications to the other two transfer policy ordinances occurred on July 13, 2007 and the City expects that the second reading will occur on August 13, 2007 and if enacted by the City Commission at such meeting, the proposed amendments to the Reserve Policy would become effective on October 1, During the fiscal years ended September 30, 2002 through 2006, the Electric System had net transfers out of the system of $4.5 million in 2002, $5.0 million in 2003, $9.6 million in 2004, $5.4 million in 2005 and $1.4 million in The 2004 and 2006 net transfers included a $4.3 million transfer out and a $3.8 million transfer in respectively to/from the Wastewater Fund of the City's Sewer System. [Remainder of page intentionally left blank] 33

40 HISTORICAL OPERATING RESULTS The historical operating results of the Electric System have been prepared pursuant to certain provisions of the Bond Resolution and therefore reflect certain differences from the City's audited financial statements. The historical operating results for the Electric System for each of the five fiscal years ended September 30, 2002 through 2006 are shown in detail in Table 5 of the Engineer's Report. The following table sets forth a summary of the Electric System's historical operating results including debt service coverage of the City's outstanding Electric System debt service for each fiscal year. City of Leesburg, Florida Historical Operating Results Electric System (Dollars in Thousands) Fiscal Year Ended September 30 Description Operating Revenues $36,997 $40,019 $45,347 $49,716 $60,197 Less: Operating Expenses [1] 30,485 33,430 38,285 42,428 52,211 Net Operating Revenue 6,512 6,589 7,062 7,288 7,986 Other Income [2[ 1, Total Available for Debt Service $7,706 $7,278 $7,521 $7,697 $8,232 Debt Service [3] Series 1999A Bonds Series 2004 Bonds [4] Total Electric System Debt Service Capital Contributions ,061 1,158 Amount Available for Working Capital, Transfer to the General Fund & Capital Improvements $6,998 $6,726 $7,338 $9,758 $9,390 Transfers Out (4,447) (4,973) (9,562) (5,355) (1,393) Net Available from Operations $2,551 $1,753 $(2,224) $4,403 $7,997 Debt Service Coverage N/A N/A Notes: [1] Amounts shown exclude depreciation and amortization expense. [2] The amounts shown are as defined in the Bond Resolution and exclude interest earnings on Construction Fund balances. [3] Allocable to the Electric System. Series 1999A Bonds defeased by revenues of the System. [4] Series 2004 Bonds had capitalized interest through October 1, [Remainder of page intentionally left blank] 34

41 PROJECTIONS The following projections are based on certain assumptions and estimates as set forth in the Consulting Engineer's Report attached hereto as APPENDIX B, but no representation is made that any of the assumptions or estimates are valid or that any of such projections will be realized. Among the assumptions made by the Consulting Engineer is that the rate increases reflected in the Consulting Engineer's Report attached hereto as APPENDIX B will be implemented by the City. As stated in the Consulting Engineer's Report, the projected rate increases have been reviewed by the City's staff and found to be reasonable. However, they have not been presented to the City Commission for its consideration nor have they been approved by the PSC. No assurance can be given that the City Commission will adopt or implement the projected rate increases. While the Consulting Engineer believes its assumptions are reasonable, said assumptions are dependent on future events and actual conditions may differ from those assumed. To the extent that actual conditions differ from those assumed by the Consulting Engineer, the actual operating results of the Electric System will vary from the projection set forth below. There can be no assurance that the projections set forth below will be realized. For additional information, see APPENDIX B hereto. Projected Customers, Sales and Power Supply Requirements The following table sets forth the projected number of customers, sales and power supply requirements for the indicated years. CITY OF LEESBURG,FLORIDA Projected Customers, Sales and Power Supply Requirements For Fiscal Year Ending September 30 Fiscal Year Average Annual Number of Customers Peak Demand [1] (MW) Requirements [2] (MWH) Sales (MWH) Losses & Unaccounted For (MWH) Annual Load Factor , , ,595 24, % 2008 [3] 22, , ,848 24, % , , ,338 24, % , , ,382 25, % , , ,726 25, % 2012 [3] 23, , ,989 26, % Notes: [1] Summer peak demands. [2] Amounts shown include generation from CR-3 and purchases from FMPA. [3] Leap year. [Remainder of page intentionally left blank] 35

42 Projected Operating Results and Debt Service Coverage The information in the following table sets forth projected Net Revenues and other Pledged Revenues of the Electric System for the City's fiscal years ended September 30, 2007 through 2012 and the coverage provided by Pledged Revenues of debt service on the Series 2007 Bonds, the Series 2004 Bonds and the anticipated Series 2009 Bonds, for such time period. CITY OF LEESBURG, FLORIDA Electric System Projected Operating Results Fiscal Year Ending September 30, Description Operating Revenues Charges for Services $61,370,765 $63,085,292 $65,552,770 $68,114,225 $70,802,410 $73,594,575 Percent Rate Increase 0.00% 11.00% 3.00% 3.00% 3.00% 3.00% Other Operating Revenues 646, ,541 1,029,429 1,008,845 1,101,309 1,193,773 Total Operating Revenues $62,017,149 $63,834,832 $66,582,199 $69,123,070 $71,903,719 $74,788,348 Operating Expenses Power Generation and Transmission $1,540,202 $1,568,426 $1,596,547 $1,624,547 $1,653,911 $1,683,856 Purchased Energy 42,089,164 42,762,447 43,506,782 44,247,874 45,025,432 45,818,505 Distribution 4,645,338 4,647,070 4,882,672 5,127,385 5,382,357 5,648,920 Customer Accounts 2,647,106 2,700,048 2,754,049 2,809,130 2,865,313 2,922,619 General and Administrative 3,449,585 3,516,542 3,780,855 4,045,641 4,311,065 4,577,020 Total Operating Expenses $54,371,395 $55,194,533 $56,520,906 $57,854,576 $59,238,078 $60,650,919 Net Operating Revenues $7,645,754 $8,640,299 $10,061,293 $11,268,493 $12,665,642 $14,137,429 Interest Income 134, , , , , ,956 Other Income and Deductions 205, , , , , ,017 Total Available for Debt Service $7,985,619 $9,392,125 $10,843,361 $12,104,057 $13,561,623 $15,110,402 Debt Service Series 2004 Bonds 1,104,813 1,100,875 1,100,975 1,105,095 1,103,025 1,104,885 Series 2007A Bonds (1) , , , ,906 Series 2007B Bonds (1) , , , ,799 Series 2009 Bonds (2) ,788 1,726,575 1,727,813 Total Debt Service $1,104,813 $1,100,875 $2,615,594 $3,284,710 $4,341,789 $4,342,403 Capital Contributions $373,374 $525,000 $560,000 $595,000 $630,000 $647,500 Amount Available for Capital Improvements, Working Capital, and Transfer to the General Fund $7,254,180 $8,816,250 $8,787,767 $9,414,348 $9,849,834 $11,415,500 Debt Service Coverage Total Debt Service Net Funds Available Before Transfers $7,254,180 $8,816,250 $8,787,767 $9,414,348 $9,849,834 $11,415,500 Other Financing Sources (Uses) Operating Transfers In $ - $ - $ - $ - $ - $ - Transfer from Wastewater Fund Transfer Out - Renewal and Replacement Fund - (500,000) (500,000) (500,000) (500,000) (500,000) Transfers Out - Public Service Tax/Surcharge (1,005,056) (1,034,290) (1,071,564) (1,110,174) (1,150,775) (1,192,977) Transfers Out - General Fund (5,886,569) (4,728,258) (4,932,893) (5,121,217) (5,327,690) (5,541,871) Total Other Financing Sources (Uses) $(6,891,624) $(6,262,548) $(6,504,457) $(6,731,390) $(6,978,465) $(7,234,848) Net Funds Available From Operations $ 362,556 $ 2,553,702 $ 2,283,310 $ 2,682,957 $ 2,871,369 $ 4,180,652 36

43 Fund Balances Renewal & Replacement Fund Beginning Year Balance $ - $ - $ 250,000 $ 600,000 $ 950,000 $ 1,300,000 Deposit/(Withdrawal) from Operations - 500, , , , ,000 Capital Items paid for from Reserves - (250,000) (150,000) (150,000) (150,000) (150,000) Ending Year Balance $ - $ 250,000 $ 600,000 $ 950,000 $ 1,300,000 $ 1,650,000 Operating Reserve Fund/ Depreciation Fund Beginning Year Balance $ - $ 9,124,683 $ 9,376,705 $10,067,016 $ 10,915,973 $ 11,757,342 Transfer In: Deposit/(Withdrawal) from Operations 362,556 2,553,702 2,283,310 2,682,957 2,871,369 4,180,652 Proceeds from Series 2007B Bonds 10,700, Capital Items paid for from Reserves (2,628,873) (2,301,680) (1,593,000) (1,834,000) (2,030,000) (2,195,000) Other Sources 691, Ending Year Balance $ 9,124,683 $ 9,376,705 $10,067,016 $10,915,973 $11,757,342 $13,742,994 Unrestricted Fund Balance $ 9,124,683 $ 9,626,705 $10,667,016 $11,865,973 $13,057,342 $15,392,994 Targeted Fund Balance $ 8,817,406 $ 8,822,444 $ 9,560,506 $10,226,823 $10,966,603 $11,738,529 Surplus/ (Deficiency) $ 307,277 $ 804,262 $ 1,106,509 $ 1,639,150 $ 2,090,738 $ 3,654,465 Totals may not add due to rounding. (1) Based on estimates prior to final pricing of Series 2007 Bonds. (2) Estimated based on an issuance in April 2009, a principal amount of approximately $25,070,000, a final maturity in October 2039 and an estimated true interest cost of approximately 5.72%. CONCLUSIONS OF CONSULTING ENGINEER The Consulting Engineer concludes in its report attached as APPENDIX B hereto that based upon the assumptions and considerations set forth in its report and upon its analyses and studies as summarized or referred to in its report, which report should be read in its entirety in conjunction with the following, it is of the opinion that: 1. The projected capacity and energy requirements of the City represent reasonable projections based on analyses of historical load growth and form a reasonable basis for the projected operating results set forth in the Engineer's Report. 2. The acquisition, installation and operation of the planned capital improvements, will improve system reliability, will reduce service interruptions, and will provide for the City's customers' increased demand and energy requirements, provided the City continues its operation and maintenance practices. 3. The contractual arrangements with FMPA should provide the City with reliable power supply resources having a diverse generation and fuel mix at reasonable costs. System. 4. The City is in compliance with known applicable regulations pertaining to the Electric 5. For the fiscal years ending September 30, 2007 through September 30, 2012, the City's Gross Revenues from the Electric System are projected to be sufficient under the proposed rates, surcharges and the bulk power cost adjustment clause, described in the Engineer's Report, to pay the projected Costs of Operation and Maintenance, to make the required deposits, if any, into the Reserve Fund, to pay the Bond Service Requirement on the Series 2004 Bonds and the projected Bond Service Requirement on the Series 2007 Bonds and the Series 2009 Bonds, and to provide the required 1.25 times bond service coverage on the annual aggregate Bond Service Requirement on the Series 2004 Bonds, the Series 2007 Bonds and the Series 2009 Bonds, all in accordance with the provisions of the Bond Resolution. 37

44 FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY The electric industry has been, or may in the future be, affected by a number of factors which could have an impact on the financial condition of an electric utility such as the City's Electric System. These factors likely would affect individual utilities in different ways. Such factors include, among others: (i) effects of competition from other suppliers of electricity, (ii) effects of compliance with rapidly changing environmental, licensing and regulatory requirements, (iii) regulatory changes and changes that result from the development and enforcement of a national energy policy; (iv) uncertain access to low cost capital for replacement of aging fixed assets; (v) increases in operating costs; and (vi) availability and cost of fuel supply. The City now has the exclusive right and obligation to serve electric utility customers within its service area at rates that are regulated by the City. However, if some form of customer choice or deregulation legislation is enacted in the State, customers may be able to choose among multiple competing suppliers of electricity rather than being solely dependent on the City, which is commonly referred to as "retail wheeling". Florida has not actively pursued restructuring or retail wheeling. The City does not operate any power generating resources for the Electric System and therefore relies on the Florida Transmission Grid which is comprised of transmission facilities that are owned by various utilities, for the delivery of power to the City from power generating interests located throughout the State. The costs and availability of such transmission services are likely to be impacted by the outcome of any restructuring relating to transmission. Since 1996, the Federal Energy Regulatory Commission ("FERC") has issued several orders to address and implement the transmission access provisions of the Energy Policy Act of 1992 which would restructure transmission services. The formation of GridFlorida as a Regional Transmission Organization ("RTO") for the Florida Transmission Grid was in response of FERC's actions and it was stipulated in a white paper on bulk power market design issued by FERC on April 28, GridFlorida was intended to operate, plan and control regional transmission assets in a neutral manner. During 2006, the PSC and the FERC closed their respective docketed proceedings and GridFlorida was dissolved. The City's electric utility operations are subject to federal, state, regional and local environmental standards and procedures that are subject to change from time to time. Compliance with the new requirements may result in increased costs to the Electric System and, in the case of the City's generating resources (CR-3), reduced operating levels. An inability to comply with the environmental requirements could also lead to the complete shutdown of the CR-3 and FMPA's generating units. The City cannot predict at this time whether any additional laws or regulations will be enacted which will affect the operation of the Electric System, and if such laws or regulations are enacted, what the impacts on the Electric System might be because of such actions. Prospective purchasers of the Series 2007 Bonds should review carefully the provisions of the Bond Resolution attached as APPENDIX D hereto, the Engineer's Report attached as APPENDIX B and the information concerning the bond insurance policy, all of which are included in, or as appendices to, this Official Statement. Series 2007A Bonds TAX MATTERS The Internal Revenue Code of 1986, as amended (the "Code") establishes certain requirements which must be met subsequent to the issuance and delivery of the Series 2007A Bonds for interest thereon to be and remain excludable from gross income for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2007A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issue of the Series 2007A Bonds. Those requirements include, but are not limited to, provisions which prescribe yield and other limits within which the proceeds of the Series 2007A Bonds and other amounts are to be invested and require, under certain circumstances, that certain excess investment earnings on the foregoing must be rebated on a periodic basis to the Treasury Department of the United States. The City has covenanted in the Bond Resolution to comply with each such requirement. In the opinion of Bond Counsel, assuming continuous compliance by the City with the Code and the tax covenants of the City, under existing statutes, regulations, published rulings and judicial decisions, and subject to the 38

45 conditions described below, interest on the Series 2007A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations. Prospective purchasers of the Series 2007A Bonds should be aware that ownerships of the Series 2007A Bonds may result in other federal tax consequences to certain taxpayers. The opinion on federal tax matters will be based on and will assume the accuracy of certain representations and certifications and compliance with certain covenants of the City to be contained in the transcript of proceedings and that are intended to evidence and assure the foregoing, including that the Series 2007A Bonds are and will remain obligations the interest on which is excludable from gross income for federal income tax purposes. Bond Counsel's opinions are based on existing law, which is subject to change. Moreover, Bond Counsel's opinions are not a guarantee of a particular result, and are not binding on the IRS or the courts; rather, such opinions represent Bond Counsel's professional judgment based on its review of existing law, and in reliance on the representations and covenants that it deems relevant to such opinions. Failure by the City to comply subsequent to the issuance of the Series 2007A Bonds with certain requirements of the Code regarding the use, expenditure and investment of Series 2007A Bond proceeds and the timely payment of certain investment earnings to the Treasury of the United States may cause interest on the Series 2007A Bonds to become included in gross income for federal income tax purposes retroactive to their date of issue. The City has covenanted in the Bond Resolution to comply with all provisions of the Code necessary to, among other things, maintain the exclusion from gross income of interest on the Series 2007A Bonds for purposes of federal income taxation. In rendering its opinion, Bond Counsel has assumed continuing compliance with such covenants. During recent years, legislative proposals have been introduced in Congress, and in some cases enacted, that altered certain federal tax consequences resulting from the ownership of obligations that are similar to the Series 2007A Bonds. In some cases these proposals have contained provisions that altered these consequences on a retroactive basis. Such alteration of federal tax consequences may have affected the market value of obligations similar in nature to the Series 2007A Bonds. From time to time, legislative proposals may be introduced which could have an effect on both the federal tax consequences resulting from the ownership of the Series 2007A Bonds and their market value. No assurance can be given that any such legislative proposals, if enacted, would not apply to, or would not have an adverse effect upon, the Series 2007A Bonds. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Series 2007A Bonds may affect the tax status of interest on the Series 2007A Bonds. Moreover, except as stated above, Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Series 2007A Bonds. Prospective purchasers of the Series 2007A Bonds are advised to consult their own tax advisors as to the applicability of other federal tax consequences. Tax Treatment of Original Issue Discount Under the Code, the difference between the stated redemption price at maturity of the Series 2007A Bonds maturing on October 1, 2033 (the "Discount Bonds") and the initial offering prices to the public, excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers, at which a substantial amount of the Discount Bonds of the same maturity was sold is "original issue discount." Under Section 1288 of the Code original issue discount on tax-exempt bonds accrues on a compound basis. The amount of original issue discount that accrues to an owner of a Discount Bond during any accrual period generally equals (i) the issue price of such Discount Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Discount Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), minus (iii) any interest payable on such Discount Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excludable from gross income for federal income tax purposes as provided above, and will increase the owner's tax basis in such Discount Bond. The federal income tax consequences of the purchase, ownership and sale or other disposition of the Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined 39

46 according to rules which differ from above. Owners of the Discount Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of interest accrued upon sale, redemption or other disposition of Discount Bonds and with respect to the state and local tax consequences of owning and disposing of such Discount Bonds. Tax Treatment of Original Issue Premium The Series 2007A Bonds maturing on October 1, 2037 (the "Premium Bonds") are being offered to the initial purchasers at a price in excess of the principal amount thereof. Under the Code, the excess of the cost basis of a bond over the principal amount of the bond (other than for a bondholder who holds a bond as inventory, stock in trade, or for sale to customers in the ordinary course of business) is generally characterized as "bond premium." Amortizable bond premium is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium in each taxable year is determined actuarially on a constant basis over the term of such Premium Bond which term ends on the earlier of the maturity date or call date for each Premium Bond which minimizes the yield of a Premium Bond to the purchaser. For purposes of determining gain or loss on the sale or disposition of such a Premium Bond, an initial purchaser who acquires such obligation in the initial offering to the public at the initial offering price is required to decrease such purchaser's adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Premium Bonds. Owners of such Premium Bonds are advised that they should consult their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. Series 2007B Bonds The interest on the Series 2007B Bonds is not excluded from gross income of the owners of the Series 2007B Bonds for federal income tax purposes. ADDITIONAL FINANCING Simultaneously with the issuance of the Series 2007 Bonds, the City is issuing its $22,425,000 Utility System Revenue Bonds, Series 2007A and its $1,070,000 Taxable Utility System Revenue Bonds, Series 2007B (collectively, the "Utility Bonds") to finance certain improvements to the City's Water System, Gas System and Sewer System and funding a deposit to the Utility System Fund. The Utility Bonds do not have a lien on the Pledged Revenues. PROPERTY TAX REFORMS The Florida Legislature completed its special session on June 14, During the session the legislature passed legislation which would reduce ad valorem taxes that may be levied by local governments in Fiscal Year , other than school districts, to a level, with certain adjustments and exceptions, that will generate the same level of ad valorem tax revenues as in fiscal year , reduced by a factor of 0 to nine percent, depending upon the relative growth of the particular local government's ad valorem tax revenues from 2001 to The legislation also limits the growth of ad valorem tax levies in future years (except those levied by school districts) to the growth in a jurisdiction's population as measured by new construction and the statewide growth in per capita personal income. However, local government governing bodies may increase ad valorem tax levies beyond those permitted by the legislation by extraordinary votes or by referenda. Any local government that levies in excess of the amount permitted under the legislation, without the required extraordinary votes or referenda, will forfeit its right to receive the local government half-cent sales tax revenues for a twelve-month period. Ad valorem taxes levied for the payment of debt when authorized by a vote of the electors are not subject to the millage limitations. The legislation does not include any limitations on the Electric System revenues securing the Series 2007 Bonds. The legislation also authorizes several constitutional amendments to be voted on during a referendum to be held on January 29, 2008, which amendments will only become effective if at least 60% of the electors voting in such referendum election approve the amendments. Under current Florida law the first $25,000 of the just value of permanent homestead property is exempt from taxation. Florida law also currently limits the increases in the taxable value of homestead property to the lesser of 3% of the assessment for the prior year or the percentage change in the Consumer Price Index (the "Save Our Homes Exemption"). The proposed amendments include: (i) a new homestead exemption equal to 75% of the first $200,000 in value and 15% of the next $300,000 (subject to 40

47 adjustment annually based on the percentage change in per capita Florida personal income), with a minimum homestead exemption of $50,000 (increased to $100,000 for low income seniors); (ii) assessment methods for affordable housing real property; (iii) a "grandfather" clause that will allow existing homeowners to elect to continue to receive the benefits of the existing $25,000 homestead exemption and the Save Our Homes Exemption; and (iv) a $25,000 property tax exemption for tangible personal property. If the proposed constitutional amendments are approved, they will take effect for the 2008 tax year ( Fiscal Year). Various analyses indicate that the aggregate taxable values of real property in the State are likely to be reduced significantly if the proposed constitutional amendments become effective. The City has estimated that as a result of the recently enacted legislation its ad valorem tax revenues will be decreased by approximately $400,000 and expects to balance its budget through expenditure reductions. The City has not estimated the financial impact if the proposed constitutional amendments were enacted. It is impossible to predict whether certain of the amendments will be approved by voters and what effect, if any, such approval will have on the City's finances. FINANCIAL STATEMENTS The financial statements of the City as of September 30, 2006 for the Fiscal Year then ended included as APPENDIX C to this Official Statement, have been audited by Purvis Gray and Company (the "Independent Auditors"), independent auditors, as stated in their report appearing therein. The Independent Auditor's have consented to the inclusion of their report herein. RATINGS Moody's Investor's Service, Inc. ("Moody's"), Fitch Ratings ("Fitch"), and Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. ("S&P") are expected to assign ratings of "Aaa," "AAA" and "AAA," respectively, to the Series 2007 Bonds, conditioned upon the delivery of the Bond Insurance Policy by the Bond Insurer, simultaneously with the delivery of the Series 2007 Bonds. The City has received underlying ratings of "A2," "BBB+" and "A-" from Moody's, Fitch and S&P, respectively, based solely upon their respective estimations of the ability of the City to pay the debt service on the Series 2007 Bonds on a stand-alone basis without giving effect to the Bond Insurance Policy. The above described ratings are not recommendations to buy, sell or hold the Series 2007 Bonds. There is no assurance that each such rating will continue for any given period of time or that it will not be lowered or withdrawn entirely by the rating agencies, or any of them, if in their judgment, circumstances so warrant. A downward change in or withdrawal of such ratings may have an adverse effect on the market price of the Series 2007 Bonds. An explanation of the significance of the rating can be received from the applicable rating agency. UNDERWRITING The Series 2007 Bonds are being purchased by Citigroup Global Markets Inc. and Jackson Securities, LLC (jointly, the "Underwriters") at an aggregate purchase price of $22,976, (which represents the $22,975,000 principal amount of the Series 2007 Bonds, less an Underwriters' discount of $134, and plus net original issue premium of $136,332.10). The Underwriters' obligations are subject to certain conditions precedent, and they will be obligated to purchase all of the Series 2007 Bonds if any Series 2007 Bonds are purchased. The Series 2007 Bonds may be offered and sold to certain dealers (including dealers depositing such Series 2007 Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have reviewed the information in this Official Statement in accordance with and, as part of their responsibilities 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. CONTINUING DISCLOSURE The City will agree, pursuant to the terms of the Disclosure Dissemination Agent Agreement, a proposed form of which is included as APPENDIX F hereto (the "Disclosure Dissemination Agent Agreement") in accordance with the provisions of Rule 15c2-12 (the "Rule"), as promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, in effect from time to time and applicable to the 41

48 Series 2007 Bonds, to provide or cause to be provided, to each nationally recognized municipal securities information repository ("NRMSIR") and to the State of Florida information depository ("SID"), if any, (a) on or before June 30 of each year for the fiscal year ending September 30 of the preceding calendar year, beginning June 30, 2008, certain financial information and operating data relating to the City and to provide notices of the occurrence of certain enumerated material events. The specific nature of the financial information, operating data, and of the type of events which trigger a disclosure obligation, and other details of the undertaking are described in "APPENDIX F FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT" attached hereto. The Disclosure Dissemination Agent Agreement shall be executed by the City prior to the issuance of the Series 2007 Bonds. The covenants in the Disclosure Dissemination Agent Agreement have been made in order to assist the Underwriters in complying with the continuing disclosure requirements of the Rule. The City will reserve the right to terminate its obligation to provide annual financial information and notices of material events if and when the City no longer remains an obligated person with respect to the Series 2007 Bonds within the meaning of the applicable rule or rules. The City agrees that its undertaking pursuant to the Rule described in the Disclosure Dissemination Agent Agreement is intended to be for the benefit of the holders and beneficial owners of the Series 2007 Bonds and shall be enforceable by such holders and beneficial owners; provided that the right to enforce the provisions of this undertaking shall be limited to a right to seek mandamus or specific performance to cause the City to comply with its obligations. Any failure by the City to comply with the provisions of the undertaking shall not be an event of default with respect to the Series 2007 Bonds under the Bond Resolution. The undertakings described above may be amended or modified from time to time in accordance with the terms of the Disclosure Dissemination Agent Agreement. See "APPENDIX F FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT." The City has appointed Digital Assurance Certification, L.L.C. as initial Disclosure Dissemination Agent (the "Disclosure Dissemination Agent") under the Disclosure Dissemination Agent Agreement. The Disclosure Dissemination Agent was previously appointed by the City to act as dissemination agent for the City's continuing disclosure undertakings with respect to the Series 2004 Bonds. The Disclosure Dissemination Agent has only the duties specifically set forth in the Disclosure Dissemination Agent Agreement. The Disclosure Dissemination Agent's obligation to deliver the information at the times and with the contents described in the Disclosure Dissemination Agent Agreement is limited to the extent the City has provided such information to the Disclosure Dissemination Agent as required by the Disclosure Dissemination Agent Agreement. The Disclosure Dissemination Agent has no duty with respect to the contents of any disclosures or notice made pursuant to the terms of the Disclosure Dissemination Agent Agreement. The Disclosure Dissemination Agent has no duty or obligation to review or verify any information in the Annual Report, Audited Financial Statements, notice of Notice Event, or Voluntary Report (as such terms are defined in the Disclosure Dissemination Agent Agreement) or any other information, disclosures, or notices provided to it by the City and shall not be deemed to be acting in any fiduciary capacity for the City, the Holders of the Series 2007 Bonds or any other party. The Disclosure Dissemination Agent has no responsibility for the City's failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the City has complied with the Disclosure Dissemination Agent Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the City at all times. Upon the termination of services with the Disclosure Dissemination Agent or the resignation of the Disclosure Dissemination Agent and upon the City assuming the responsibilities of the Disclosure Dissemination Agent, the City will be in compliance with the filing requirements of the Disclosure Dissemination Agent Agreement if the required information is provided to the "Central Post Office" or any other entity serving a similar purpose which satisfies the Rule, who will then be responsible for forwarding the filing information to any NRMSIR or SID, if any. The Central Post Office is the internet-based electronic filing system operated by the Texas Municipal Advisory Council under the name of "Disclosure USA" at the following internet address: Information provided to the Central Post Office or any other entity serving a similar purpose which satisfies the Rule, shall not have to also be separately filed with any NRMSIR or SID, if any. 42

49 The City is currently in compliance with all previous continuing disclosure reports into which it has entered and has not failed to comply with its previous continuing disclosure obligations in the past five years. Legal Opinions LEGAL MATTERS Certain legal matters incident to the validity of the Series 2007 Bonds including their authorization, issuance and sale by the City, are subject to the unqualified approving legal opinion of Akerman Senterfitt, Orlando, Florida, in its capacity as Bond Counsel. Certain legal matters will be passed upon for the City by McLin & Burnsed, P.A., Leesburg, Florida, in its capacity as City Counsel, and by Holland & Knight LLP, Lakeland, Florida, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel Bryant Miller Olive P.A., Orlando, Florida. The form of Bond Counsel's opinion appears as APPENDIX E to this Official Statement. Bond Counsel has not been engaged to, nor has it undertaken to, review the accuracy, completeness or sufficiency of the Official Statement or any other offering material relating to the Series 2007 Bonds; provided, however, that Bond Counsel will render an opinion to the City and the Underwriters (upon which only the City and the Underwriters may rely) relating to the accuracy of statements contained herein under the heading "TAX MATTERS" and certain summaries of the Bond Resolution and the Series 2007 Bonds contained herein and will issue an opinion addressed to certain parties (upon which only those certain parties may rely) in its capacity as Bond Counsel to the City. Except as expressly provided in such opinions, Bond Counsel will express no opinion as to the accuracy, completeness or fairness of any statements in this Official Statement, or in any other reports, financial information, offering or disclosure documents or other information pertaining to the City, the Electric System or the Series 2007 Bonds that may be prepared or made available by the City, the Underwriters or others to the holders of the Series 2007 Bonds or other parties. The opinions delivered by counsel are based on existing law, which is subject to change. Such opinions are further based on factual representations made to such counsel as of the date thereof. Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances, including changes in law, that may thereafter occur or become effective. The legal opinions to be delivered concurrently with the delivery of the Series 2007 Bonds express the professional judgment of the attorneys rendering the opinions regarding the legal issues expressly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. LITIGATION In the view of City's Counsel, McLin & Burnsed, P.A., there is no pending or, to the knowledge of the City's Counsel, any threatened litigation against the City of any nature whatsoever which in any way questions or affects the validity of the Series 2007 Bonds or any proceedings or transactions relating to the issuance, sale, execution, or delivery of the Series 2007 Bonds, or the adoption of the Bond Resolution, or the pledge of the Pledged Revenues. Neither the creation, organization or existence, nor the title of the present members of the City Commission, or other officers of the City is being contested. The City experiences routine litigation and claims incidental to the conduct of its affairs. The City carries substantial insurance for most of these exposures, and many pending claims are defended by and, if necessary, are anticipated to be paid by the insurance carriers less the applicable insurance deductible amounts. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Florida law requires the City to make a full and fair disclosure of any bonds or other debt obligations which it has issued or guaranteed and which are or have been in default as to principal or interest at any time after December 31, 1975, as provided by rule of the Florida Department of Financial Services (the "Department"). The Department has required that such disclosure include information concerning the dates, amounts and types of 43

50 defaults, any legal proceedings resulting from such, whether a trustee or receiver has been appointed over the assets of the City, and certain additional defaults and financial information, unless the City believes in good faith that such information would not be considered material by a reasonable investor. The City is not and has not, since December 31, 1975, been in default as to principal of and interest on bonds or other debt obligations to which revenues of the City are pledged. Although the City is not aware of any payment defaults with respect to bonds or other debt obligations as to which it has served only as a conduit issuer and for which City revenues were or are not pledged as a source of payment, it has not undertaken an independent review or investigation of such bonds or other obligations. The City does not believe that any information about any default would be considered material by a reasonable investor in the Series 2007 Bonds because the City was and is not liable to pay the principal of, premium, if any, or interest on any such bonds except from payments made to it by the private companies on whose behalf such bonds were issued and no funds of the City were or are pledged to pay such bonds or the interest thereon. FORWARD LOOKING STATEMENTS This Official Statement contains certain "forward-looking statements" concerning the City's operations, performance and financial condition, including its future economic performance, plans and objectives and the likelihood of success in developing and expanding. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond the control of the City. The words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate" and similar expressions are meant to identify these forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. ADVISORS AND CONSULTANTS The City has retained advisors and consultants referred to below in connection with the issuance of the Series 2007 Bonds. These advisors and consultants are compensated from a portion of the proceeds of the Series 2007 Bonds, included in "Costs of Issuance" under the heading "ESTIMATED SOURCES AND USES OF FUNDS" herein; their compensation is contingent upon the issuance of the Series 2007 Bonds and the receipt of the proceeds thereof. Financial Advisor. D.A. Davidson & Co., Orlando, Florida, serves as financial advisor (the "Financial Advisor") to the City and, in that capacity, has provided advice in connection with the planning, structuring and issuance of the Series 2007 Bonds. The Financial Advisor will not engage in any underwriting activities with regard to the issuance and sale of the Series 2007 Bonds. The Financial Advisor is not obligated to undertake and has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in the Official Statement and is not obligated to review or ensure compliance with the undertaking by the City to provide continuing secondary market disclosure. Bond Counsel and Disclosure Counsel. Akerman Senterfitt, Orlando, Florida, represents the City as Bond Counsel and Holland & Knight LLP, Lakeland, Florida represents the City as Disclosure Counsel, with respect to the issuance of the Series 2007 Bonds. Holland & Knight LLP has assisted the City in the preparation of this Official Statement and in reviewing its contents for accuracy and completeness. Holland & Knight LLP has not undertaken to make an independent verification of, and does not assume responsibility for, the accuracy, completeness, or fairness of the information contained in the Official Statement or the appendices attached thereto. EXPERTS AND CONSULTANTS The references herein to R.W. Beck, Inc., as Consulting Engineer, have been approved by said firm. The Report of the Consulting Engineer has been included as "APPENDIX B CONSULTING ENGINEER'S REPORT" attached to this Official Statement with the consent of the Consulting Engineer. References to and excerpts herein from such report do not purport to be an adequate summary of the Engineer's Report or complete in all respects. The Engineer's Report is an integral part of this Official Statement and should be read in its entirety for complete information with respect to the subjects discussed therein. 44

51 INVESTMENT POLICY The City has adopted a written investment policy which satisfies Florida law. The City's investment policy applies to all the investment activity of the City except for pension funds and trust funds. The City's current investment policy includes a list of authorized investments with maturity and portfolio limitations. The City's investment policy does not permit investment in any derivative or reverse repurchase agreements. The foremost objective of the City's investment policy is safety of principal with a second priority of liquidity and a third priority of attaining a market rate of return. The City's Finance Director or his designated representative is the City's investment officer responsible for investment decisions and activities. The City is currently in the process of reviewing its investment policy to determine whether any changes are necessary. ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Series 2007 Bonds upon an event of default under the Bond Resolution and any policy of insurance referred to herein are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically the federal bankruptcy code, the remedies specified in the Bond Resolution, the Series 2007 Bonds and any policy of insurance referred to herein may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2007 Bonds (including Bond Counsel's approving opinion) will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before or after such delivery. ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT The references, excerpts, and summaries of all documents, statutes, and information concerning the City and certain reports and statistical data referred to herein do not purport to be complete, comprehensive and definitive and each such summary and reference is qualified in its entirety by reference to each such document for full and complete statements of all matters of fact relating to the Series 2007 Bonds, the security for the payment of the Series 2007 Bonds and the rights and obligations of the owners thereof and to each such statute, report or instrument. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the owners of the Series 2007 Bonds. This Official Statement is submitted in connection with the sale of the securities referred to herein and may not be reproduced or used, as a whole or in part, for any other purpose. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder is to create, under any circumstances, any implication that there has been no change in the affairs of the City from the date hereof. The appendices attached hereto are integral parts of this Official Statement and must be read in their entirety together with all foregoing statements. 45

52 AUTHORIZATION OF OFFICIAL STATEMENT The execution and delivery of this Official Statement has been duly authorized and approved by the City Commission. At the time of delivery of the Series 2007 Bonds, an official of the City will furnish a certificate to the effect that nothing has come to his or her attention which would lead that person to believe that the Official Statement (other than information herein related to MBIA, the Bond Insurer, the Bond Insurance Policy, the Reserve Product, DTC or its book-entry only system of registration as to which no certification shall be expressed), as of its date and as of the date of delivery of the Series 2007 Bonds, contains an untrue statement of a material fact or omits to state a material fact which should be included therein for the purposes for which the Official Statement is intended to be used, or which is necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. CITY OF LEESBURG, FLORIDA By: /s/ Sanna Henderson Mayor By: /s/ Jay Evans Interim City Manager By: /s/ William Pfeilsticker Finance Director 46

53 APPENDIX A GENERAL INFORMATION PERTAINING TO THE CITY OF LEESBURG

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55 APPENDIX A GENERAL INFORMATION PERTAINING TO THE CITY OF LEESBURG About Leesburg: Leesburg is a city located in Lake County, Florida. As of the 2000 census, the city had a total population of 15,956. According to the Florida Bureau of Economic and Business Research, as of 2006, the estimated population of the City is 18,842. Leesburg is located in central Florida, between Lake Harris and Lake Griffin, at the head of the Oklawaha River system. Leesburg is the home of Lake-Sumter Community College (LSCC) with campuses also located in Clermont, Florida and Sumterville, Florida. Leesburg History: Leesburg was first settled in 1857 by Evander McIver Lee. Several of Evander Lee's brothers followed him to the area. The city of Leesburg was first incorporated in 1875, and was the county seat of Sumter County for a time until Lake County was formed in The City has been a part of Lake County since then and is the oldest and second highest populated of the fourteen (14) incorporated municipalities in Lake County, which include Astatula, Clermont, Eustis, Fruitland Park, Groveland, Howey-in-the-Hills, Lady Lake, Mascotte, Minneola, Montverde, Mount Dora, Tavares and Umatilla. In the early 20th century, Leesburg was an important center for watermelon production. In 1930, Leesburg held its first Watermelon Festival, an annual tradition that would last until watermelon production in the area dwindled to the point that watermelons for the last festival had to be brought in from outside the area. The citrus industry was the principal business in Leesburg for many years, until devastating freezes in December 1983 and January 1985 persuaded growers to move their groves further down the Florida peninsula. Today, most of Leesburg's growth and economic development is the result of the increasing popularity of the area as a retirement destination and the rapid growth of nearby Orlando. Government: The City operates under a commission/manager form of government, with a governing body consisting of five City Commissioners, elected to staggered four-year terms. Three of the commission members must meet district residency requirements. The remaining two commissioners are elected at-large without a district residency requirement. One of the Commissioners is selected by the other four as Mayor on an annual basis. The City Commission is responsible for, among other things, passing ordinances and resolutions, adopting the budget, appointing committees, and hiring the City Manager and the City Attorney. The City Manager is responsible for carrying out the policies and ordinances adopted by the City Commission for overseeing day-to-day operations of the City, appointing the department heads and approving the hiring of all employees. Leesburg Geography: Leesburg is located at 28 48'38"N, 81 53'0"W ( , ). According to the United States Census Bureau, the city has a total area of 63.3 km 2 (24.4 mi) km (18.7 mi) of it is land and 15.0 km (5.8 mi) of it is water. The total area is 23.65% water. Several major highways pass through Leesburg, including U.S. Highway 27 and U.S. Highway 441. Florida's Turnpike passes just to the south and west of Leesburg. Leesburg was on the Western leg of the historic Dixie Highway. A-1

56 Leesburg Demographics: As of the census of 2000, there are 15,956 people, 6,775 households, and 4,078 families residing in the city. The population density is 330.0/km 2 (854.8/mi 2 ). There are 7,742 housing units at an average density of 160.1/km 2 (414.8/mi 2 ). The racial makeup of the city is 66.60% White, 29.12% African American, 0.27% Native American, 1.33% Asian, 0.01% Pacific Islander, 1.26% from other races, and 1.41% from two or more races. 4.12% of the population are Hispanic or Latino of any race. There are 6,775 households out of which 24.5% have children under the age of 18 living with them, 39.6% are married couples living together, 16.8% have a female householder with no husband present, and 39.8% are nonfamilies. 33.9% of all households are made up of individuals and 18.1% have someone living alone who is 65 years of age or older. The average household size is 2.26 and the average family size is The age of the City's population is spread out with 23.5% under the age of 18, 7.8% from 18 to 24, 22.7% from 25 to 44, 19.7% from 45 to 64, and 26.2% who are 65 years of age or older. The median age is 42 years. For every 100 females there are 83.8 males. For every 100 females age 18 and over, there are 78.2 males. The median income for a household in the city is $25,988, and the median income for a family is $33,250. Males have a median income of $25,840 versus $20,888 for females. The per capita income for the city is $15, % of the population and 16.2% of families are below the poverty line. Out of the total population, 35.3% of those under the age of 18 and 11.9% of those 65 and older are living below the poverty line. Airport: Leesburg Regional Airport is a 750-acre general aviation airport that houses fixed wing aircraft and helicopters. The airport has been designated an international airport which provides customs inspection services for international travelers. The airport is experiencing significant growth in corporate jet type aircraft. Businesses on airport property employ over 350 people. The airport features a 5,000 foot main runway and a 4,950 foot secondary runway, 3 non-precision instrument approaches for landing, tie downs, hangar facilities, flight schools, maintenance shops, restaurants, and a motel within 1/2 mile. The Fixed Base Operator offers fuel sales, both Jet A and 100LL AVGAS, car rental, and a courtesy vehicle. The City has committed to an aggressive improvement program and has obtained grant funding for a tower, fire station and line service building. Pension: The City utilizes three pension trust funds to account for three defined benefit pension plans operated by the City: the General Employees' Pension Fund, the Municipal Police Officers' Retirement Trust Fund and the Municipal Firemen's Retirement Trust Fund. Every year, an independent actuary engaged by the pension board calculates the amount of the annual contribution the City must make to the pension plan to ensure that the plan will be able to fully meet its obligations to retired employees on a timely basis. All investments are managed by outside fund managers. The General Employees Retirement Plan (the "GERP") is a 100% contributory defined benefit plan and covers all fulltime employees except firemen. Plan members do not contribute to the GERP plan. The City funds the Fire and General pension plans each year in an amount equal to the percentage of covered payroll as determined by the actuary for the General Employees Pension Plan. Sworn police officers and firefighters are covered by a defined benefit plan established pursuant to Chapters 175 and 185, Florida Statutes. The fire employees make a 6.5% contribution and the police officers contribute 7.65% to their respective plans, and the State contributes funds collected from insurance premium excise taxes. The General Employees Pension Fund was 105.4% funded as of October 1, The Municipal Police Officers' Retirement Trust Fund was 98.12% funded as October 1, Additional information on the City's pension plan can be found in Note 11 of the Financial Statements. A-2

57 Other (than pension) Post Employment Benefits: The City provides health insurance coverage to its active and retired employees (the "OPEB Plan"). The City is required under Section , Florida Statutes to offer retired City employees the option of continuing to participate in the City's group health insurance plan with identical provisions to that offered its active employees. The City is also required by Section , Florida Statutes to charge active and retired employees the same premium. Because the true cost of health insurance provided to retired employees is generally significantly higher than that for active employees, the City, as required by Florida law, is providing an indirect subsidy to the retired employees (the "Implicit Subsidy"). Like most governments, the City funds the OPEB Plan on a pay-as-you-go basis as a current operating expense, and reflects that expenses on its financial statements in the Fiscal Year in which payments are made. During, Fiscal Year 2006, expenses of $660,835 were recognized for the OPEB Plan, which were offset by contributions of $174,294 and $287,892 made by the retirees and the City, respectively. As of September 30, 2006 there were 135 retirees that the City continues to pay health insurance premiums for and 47 who are responsible for all or a portion of their premiums. The City, by no later than its Fiscal Year ending September 30, 2009, is required by the Governmental Accounting Standards Board ("GASB") to begin complying with GASB Statement No. 45 ("GASB 45"). Under GASB 45, local governments which provide other post employment benefits ("OPEB"), which include retiree health, will be required to begin showing all or a portion of the liabilities associated with their plans on their financial statements and whether, and to what extent, progress is being made in funding the liability. The City has not completed its actuarial valuation to determine its unfunded actuarially accrued liability and Annual Required Contribution but fully expects to be in compliance with the requirements of GASB 45 on or before its applicable effective date. Additional information on the City's OPEB Plans can be found in Note 16 of the Financial Statements. [Remainder of page intentionally left blank] A-3

58 City of Leesburg Assessed Value of Taxable Property Last Ten Fiscal Years Fiscal Total Year Centrally Less: Net Taxable Direct Ended Real Personal Assessed Tax-Exempt Property Assessed Tax Sept 30 Property Property Property Real Personal Value Rate A $ 575,494,848 $ 226,483,687 $ 452,036 $ 176,003,721 $ 73,807,290 $ 552,619, ,277, ,305, , ,972, ,742, ,285, ,711, ,573, , ,938,530 49,239, ,524, ,575, ,027, , ,427,103 84,022, ,475, ,086, ,285, , ,538,253 75,293, ,873, ,445, ,355, , ,877,608 71,494, ,798, ,313, ,968, , ,112,625 94,724, ,773, ,334, ,356, , ,212,863 52,179, ,634, ,323, ,462, , ,575,429 83,290, ,270, ,084,329, ,381, , ,752, ,674,899 1,015,691, Source: Lake County Property Appraiser Recapitulation of Taxes as extended on the Fiscal Tax Years Tax Roll for Leesburg (DR 403) Note: Centrally assessed property consists of railroad and telegraph system which are assessed by the State of Florida.

59 City of Leesburg Principal Property Taxpayers Current Year and Previous Fiscal Years Percentage Percentage 2005 of Total City 2004 of Total City Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Type of Business Value Rank Value Value Rank Value A-5 Sprint Telecommunication $ 47,174, % $ 47,462, % Cutrale Citrus Juices, U.S.A., Inc. Citrus Processing 42,260, % 43,680, % SDG Macerich Properties LP Shopping Mall 26,734, % 26,402, % Lake Port Properties Retirement Community 23,100, % 22,937, % Lowe's Home Centers, Inc. Home Improvement Center 10,053, % 9,290, % Sun Trust Banks of Central Florida Banking 9,525, % 9,058, % Colonial Bank Banking 8,165, % Shoppes of Lake Village,LTD Shopping Center 8,053, % 6,146, % Publix Super Markets, Inc. Grocery Store 7,960, % 7,899, % CHPC Leesburg, LTD Housing Complex 6,852, % Total $ 189,880, % $ 172,877, % Source: Lake County Property Appraiser Note: Taxable Values (Florida Statutes Section ) are as of January 1, 2004 and 2005, and represent total property values including real property, personal property and centrally assessed property.

60 City of Leesburg Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Taxes Levied Collections for the Collections Ended for the Fiscal Year of the Levy for Previous Total Collections to Date Sept 30 Fiscal Year Amount Percentage of Levy Years of Levy Amount Percentage of Levy A $ 2,486,788 $ 2,336, % $ 29,880 $ 2,365, % ,543,785 2,328, % 68,795 2,397, % ,657,361 2,426, % 232,817 2,659, % ,697,639 2,605, % 7,935 2,613, % ,888,432 2,772, % 16,364 2,789, % ,009,591 2,791, % 42,742 2,834, % ,081,481 2,958, % 36,530 2,995, % ,683,854 3,505, % 29,223 3,534, % ,010,716 3,849, % 22,379 3,871, % ,570,613 4,413, % 51,957 4,465, % Source: Lake County Property Appraiser

61 City of Leesburg Principal Employers Current Year and Previous Fiscal Year 2006 Percentage City of Total County Employer Type of Business Employees Rank Employment A-7 Leesburg Regional Medical Center Hospital 2, % Lake County School Board Educational Institution % City of Leesburg City Governmental Services % Lifestream Behavioral Center Mental Health Services Provider % Embarq Florida Inc Telecommunications % Wal-Mart Stores,Inc Retail Sales % Publix Grocery Stores % Lake Port Properties Retirement Community % Cutrale Citrus Juices USA, Inc Citrus Processing % Interim Healthcare Healthcare Provider % Total 6, % Lake County Labor Force 122,031 Source: Labor Force data obtained from July 2006 Florida Labor Market Statistics,

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63 APPENDIX B CONSULTING ENGINEER'S REPORT

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65 APPENDIX B August 1, 2007 Honorable Mayor and City Commissioners of the City of Leesburg 501 West Meadow Street Leesburg, Florida Subject: Consultant s Report on the City s Electric System and its Financing and Capital Improvement Program Honorable Mayor and Commissioners: Presented herein is a summary of our analyses, investigations and studies concerning the financing and capital improvement program of the Electric System of the City of Leesburg, Florida (the City ) to accompany its Official Statement (the Official Statement ), which is anticipated to be released on August 1, 2007, regarding the issuance by the City of Utility System Revenue Bonds, Series 2007A, (the Series 2007A Bonds ) and the Taxable Electric System Revenue Bonds, Series 2007B (the "Series 2007B Bonds" and together with the Series 2007A Bonds, the "Series 2007 Bonds") in the aggregate principal amount of $22,975,000 *. The Series 2007A Bonds are being issued to provide funds for the purpose of (i) paying the cost of acquiring and constructing additions, extensions and making improvements and repairs to and replacements of various components to the Electric System, (ii) capitalizing a portion of the interest accruing on the Series 2007A Bonds through October 1, 2008, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007A Bonds including the premiums for a municipal bond insurance policy and Reserve Product. The Series 2007B Bonds are being issued to provide funds for the purpose of (i) funding a deposit to the City's Electric Utility Fund for $10,700,000 reimbursing the Electric System for prior years capital expenditures related to certain Florida Department of Transportation ( FDOT ) mandated State Road 441 projects, (ii) capitalizing a portion of the interest accruing on the Series 2007B Bonds through October 1, 2008, and (iii) paying certain expenses allocable to the issuance and sale of the Series 2007B Bonds including the premiums for a municipal bond insurance policy and Reserve Product. * Final July 31, R:\Orlando\ LEESBURG\2007\Electric\Report\Electric Report doc Copyright 2007 R. W. Beck, Inc. All Rights Reserved -1-

66 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B The Series 2007 Bonds are proposed to be issued by the City in accordance with the provisions of Resolution No. 7141, as supplemented by Resolution No. 7142, adopted by the City Commission on June 14, 2004, which is anticipated to be amended and supplemented by resolutions of the City were adopted on July 23, 2007 (the 2007 General Resolution ), as may be amended and supplemented from time to time (the Series Resolution ; collectively with the 2007 General Resolution, the Bond Resolution ). Pursuant to the City s financing plan, it also plans to issue Utility System Revenue Bonds, Series 2007 (the Utility Bonds ), to fund certain capital expenditures associated with its municipal water system (the Water System ), wastewater system (the Sewer System ) and gas distribution system (the Gas System ) simultaneously with the issuance of the Series 2007 Bonds. The Utility Bonds will be secured in part by a claim on revenues of the City s Water System, Sewer System and Gas System. The Electric System has no claim on revenues received by the City s Water System, Wastewater System and Gas System, and the Water System, Wastewater System and Gas System have no claim on Electric System Revenues. For a more complete discussion on the City s plan of finance, the 2007 Bond Resolution, the Series 2007 Bonds, and the security for the Series 2007 Bonds, see the applicable sections and appendices in the respective Official Statements. The firm has been retained by the City to prepare this Consultant s Report and to act as its Qualified Independent Consultant in accordance with the 2007 General Resolution. In the preparation of this report, the firm has performed limited general field observations of the above ground facilities of selected Electric System facilities and has relied upon financial, statistical, and operating data regarding the City s Electric System which have been taken from the books of record and accounts prepared by or for the City, information provided by the management and staff of the City and others, and certified statements of the independent auditors for the City. The principal purposes of this report are to present a summary description of the physical assets and historical operating results of the Electric System and to present projections of financial operating results. The information contained in this report regarding the facilities and operations of the Electric System, including availability and cost of power supply and description of such facilities, has been summarized from estimates, data, reports, and records furnished by the management and staff of the City, its consultants and advisors, and other sources. The firm has utilized and relied upon such information in the preparation of this report, including the projections of operating results. While the firm believes such sources to be reliable, it has not verified the accuracy of any of the information furnished by and obtained from such sources and offers no assurances with respect thereto. To the firm s knowledge, the summaries presented herein accurately reflect the information obtained from such sources. The projections set forth herein are subject to change based upon indeterminate future events that could include increases in operating, capital, financing, and other costs of the Electric System. Any such adverse changes would likely result in an increase in the projected costs of operation of the Electric System. -2-

67 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B The scope of the firm's engagement by the City with regard to the Electric System did not include, among other things, a detailed internal or external physical inspection of any of the facilities, detailed reviews of matters related to regulation, safety, security, insurance, design, or operation and maintenance, or detailed reviews of any of the proposed capital improvements with regard to cost, schedule, or any other factors. Accordingly, except as specifically noted herein, nothing contained in this report is intended to indicate conditions with respect to the complete internal and external physical conditions of the facilities, as to safety, or as to conformance of the Electric System with agreements, codes, permits, rules or regulations of any party having jurisdiction with respect to construction, security, operation and maintenance of the City s Electric System. Further information regarding such matters is available from the City. This report summarizes the firm s work as of its date. As used in this report, the capitalization of any word not normally capitalized indicates that such word is defined in the particular agreement or other document discussed, or is defined in the Bond Resolution or the Official Statement. Reference to and descriptions of such agreement or documents in this report represent our understanding of certain general principles thereof, but do not purport to be complete and are qualified in their entirety by reference to such agreements or documents. For a more complete discussion, see the applicable section in the Official Statement for summaries of certain provisions of the agreements or documents referred to herein or contact the City. THE CITY The City is located in the north central region of the State of Florida ( State ), approximately forty (40) miles northwest of Orlando, Florida, and is the oldest and most populated of the fourteen (14) municipalities in Lake County ( County ). The corporate limits of the City encompass approximately square miles. According to estimates prepared by the Florida Bureau of Economic and Business Research, the City had a 2006 population of 18,842. The City is a municipal corporation of the State which was created by the State Legislature in 1875 and is governed by and derives its operating authority from the constitution and laws of the State. Under Florida law, the City has full home rule powers enabling it to conduct municipal government and exercise any power for municipal purposes, except when expressly prohibited by law. Pursuant to its municipal charter, the City operates under a commission/manager form of government. The City Commission ( Commission ) acts as the governing board, with the power to enact ordinances and adopt resolutions, and consists of five City Commissioners, elected to staggered fouryear terms. Three of the Commission members must meet district residency requirements. The remaining two Commissioners are elected at-large without a district residency requirement. The Commissioners annually select from the Commission a Mayor and a Mayor pro-tempore. -3-

68 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B There is one charter officer of the City, the City Manager, currently the interim City Manager is Mr. Jay Evans. The City Manager acts as chief administrative officer and is responsible for the administration of all City departments. The City Manager is appointed by, and serves at the pleasure of, the Commission. The operational aspects of the Electric System are vested in a Director of Electric. The current Director of Electric is Paul D. Kalv, who carries out the policies established by the Commission and the City Manager. Mr. Kalv has over thirty-five years of experience in the industry, including nearly twenty years with Florida Power & Light Company and fifteen years with municipal electric utilities. Mr. Kalv is a strong leader and manager with a record of broad vision and customer focused organizational innovation. Additionally, Mr. Kalv holds a Bachelor of Science degree in Electrical Engineering (BSEE) from the University of Florida and a Masters of Business Administration (MBA) from the University of Miami. Mr. Kalv is also active in the community and has served in the U.S. Army. The day-to-day management of the Electric System is under the direction of the Electric Superintendent, Mr. Robert Bruck, Sr. and the Electric Operations Manager, Mr. Rick L. Reichert. Mr. Bruck has a degree from Shorter College in Rome, Georgia and has been employed by the Electric System for over thirty years and has held various positions, including Electric Field Engineer and Electric Engineering/Mapping Manager. Mr. Bruck supervised and participated in the establishment of the Construction Standards Spec Book for the City Overhead Line Construction and designing an underground electric system for the Downtown Beautification project and Palmora Park. Additionally, Mr. Bruck is currently serving as the Chairman of the State Certified Apprentice Lineman Program. Mr. Reichert has over ten years of service with the Electric System. He holds a Bachelor of Science degree in Electrical Engineering from the University of Central Florida and is a Professional Engineer. As of May 2007, the Electric System had fifty-five full time employees. In addition to its direct employees, certain activities common to the City s other utility systems and general government operations, including meter reading; billing and collecting activities; employee relations; data processing; and portions of accounting and finance are performed by employees of other City departments. The costs of these common services are allocated among the various entities, including the Electric System, that receive the benefits of such services. The City owns, operates and maintains an electric transmission and distribution system that provides electricity to approximately 21,200 customers in a service area consisting of approximately fifty (50) square miles located within the City and other parts of Lake and Sumter Counties, Florida. The City owns but does not operate a small, less than one percent (approximately 7 MW) undivided ownership -4-

69 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B interest in and generation entitlement share of a nuclear fueled, steam electric generating unit known as Crystal River Unit No. 3 ( CR-3 ). CR-3 is located in Red Level, Florida, which is approximately 85 miles north of Tampa, Florida. The City also owns and operates five other enterprise entities, including a Water System, a Wastewater System, a Gas System, a Solid Waste System and a Communication System. At this time, for purposes of accounting and certain management activities, the City maintains separate and distinct enterprise systems. Certain services and costs are allocated by the City among the Electric System, the City s other enterprise entities and City departments. ELECTRIC SYSTEM Service Territory The Electric System serves customers within an area which includes the corporate limits of the City, the City of Fruitland Park, Florida ( Fruitland Park ) which is situated to the North of the City, and certain adjacent unincorporated areas of Lake and Sumter Counties. Fruitland Park is served by the Electric System under an existing franchise agreement. The City has territorial agreements with Sumter Electric Cooperative, Inc. (the Cooperative ) and Progress Energy Florida, Inc. ( Progress Energy ), a wholly-owned subsidiary of Progress Energy, Inc., a registered holding company. No other utilities provide electric service in or about the area served by the Electric System. Franchise with Fruitland Park On November 1, 1983, the City and Fruitland Park entered into an electric franchise agreement for the provision of electric services by the City to Fruitland Park (the Electric Franchise Agreement ). The Electric Franchise Agreement has an initial term of twenty-five years, through October 31, 2008 and provides that, at the end of any five year period from its effective date to its expiration date or at any time after the initial period of twenty five years, Fruitland Park has the right to purchase the distribution system, lines, conduits, and other conveyances for distribution of electric energy that are owned by the City, located in Fruitland Park and used in connection with the electric franchise (the Assets ). In the event Fruitland Park exercises its option to purchase the Assets under the Electric Franchise Agreement, the purchase price is to be based on system appraisals. In the event that Fruitland Park wishes to sell the Assets after purchase from the City, the Electric Franchise Agreement provides that it shall first offer to sell the Assets to the City. After receiving notification from Fruitland Park that it wishes to sell the Assets, the City is to give notice of its decision within three months. In the event Fruitland Park does not wish to exercise its option to purchase the Assets at the end of the twenty-five years initial term, the Electric Franchise Agreement will be extended on a year-to-year basis until terminated by either party after four months written notice of such election to terminate has been delivered to the other party. -5-

70 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B The Electric Franchise Agreement provides, among other things, that the City is to charge the same rates for service in Fruitland Park as it charges its other customers for similar service and that the City shall impose a franchise fee equal to eight percent of gross receipts, except that revenues received from municipal services shall be exempt. The Franchise Fees collected in providing service to Fruitland Park are then paid to Fruitland Park and therefore they are not revenues of the Electric System. During the fiscal year ended September 30, 2006, the City, pursuant to the Electric Franchise Agreement, provided electric service to 1,760 customers and sold 32,000 MWhs. As of July , Fruitland Park has not given the City notice of its intent to exercise its option to purchase the Assets. The City states it has initiated discussions with the Fruitland Park City Manager, Mr. Ralph Bowers, regarding the renewal of the franchise agreement. Progress Energy On January 27, 1983, the Florida Public Service Commission (the PSC ) issued an order approving the territorial agreement between the City and Progress Energy (the Progress Energy Territorial Agreement ). The term of the Progress Energy Territorial Agreement is thirty years from the date of approval by the PSC. In this agreement, the territorial area allocated to the City as its electric service area is the area located in the corporate limits of the City, Fruitland Park and certain adjacent areas of unincorporated Lake and Sumter Counties. The City s electric service territory abuts the electric service territories of Progress Energy in certain areas and the Cooperative in other areas. The Progress Energy Territorial Agreement provides the following: (i) that neither party is to furnish retail electric service to new customers located within the territorial area of the other party unless requested to do so on an interim basis by the other party; and (ii) for the transfer of existing customers located in the service territory of the other party to the party holding the franchise for that service territory. In the event any portion of the area outside the City territorial area and within the Progress Energy territorial area is subsequently annexed by and into the City, Progress Energy and the City shall enter into good faith negotiations for a franchise agreement with respect to such annexed portion. The City also retains the right to serve any municipal facility of the City, located in Lake or Sumter County, provided that the City shall construct, operate and maintain any required distribution facilities in such a manner as to minimize any interference in the Progress Energy territorial area. The Cooperative The PSC issued an order approving the territorial agreement between the Cooperative and the City on September 18, 1991 (the Cooperative Territorial Agreement ) with an effective date of October 10, The term of the Cooperative Territorial Agreement is twenty years from the effective date and will terminate in September, However, either party may terminate the agreement at -6-

71 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B the end of the fifteenth year by providing written notice to the other party of such termination not later than the anniversary of the date of the thirteenth year. As of July 12, 2007, neither the Cooperative nor the City has given notice to terminate the agreement. Pursuant to the Cooperative Territorial Agreement, neither party shall serve or offer to serve new electric customers located in the territorial area of the other party except when requested to do so by the other party on an interim basis. This agreement also provides for certain existing City customers located within the Cooperative s territory to remain as City customers until such time as a reconnect is requested at the meter for any reason other than seasonal disconnect or nonpayment of account. A similar provision is included to allow certain existing Cooperative customers located in the City territorial area to remain customers of the Cooperative. In the event any portion of the area within the Cooperative s territorial area is subsequently annexed by and into the City, the City may impose a franchise fee upon Cooperative customers served within the City boundaries. Electric System Facilities Generating Facilities The City s only ownership of electric power generating facilities is its minority undivided ownership interest in the CR-3 which is operated by Progress Energy on behalf of itself and other minority owners. The City s remaining power supply requirements are provided through contracts between the City and the Florida Municipal Power Agency ( FMPA ). Power from CR-3 and FMPA s generating resources are delivered to the Electric System through its interconnection points with the transmission system of Progress Energy. Crystal River Unit No. 3 In 1975, the City acquired an undivided percent or approximately 7 MW ownership interest in CR-3. CR-3 is a jointly-owned nominally rated 834 MW, nuclear generating unit located on the West Coast of Florida and operated by Progress Energy which holds a percent ownership interest in the unit. The remaining 8.22 percent ownership interest is shared by other Florida utilities, including the City. CR-3 commenced commercial operation on March 13, The operating license for CR-3 issued by the Nuclear Regulatory Commission (the NRC ) to Florida Power Corporation, now Progress Energy, to the City and to other co-owners of CR-3 expires on December 3, Progress Energy reports that application to extend the CR-3 license for twenty years is anticipated to be submitted in the first quarter of The City s ownership interest in CR-3 will terminate and revert to Progress Energy in 2050 or earlier in the event CR-3 ceases operation for the reason that the cost of energy that could have been generated by CR-3 would have been more expensive than energy from other sources. In the event -7-

72 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B operation of CR-3 ceases as described above, Progress Energy is obligated until 2008 to make replacement power available to the City at a cost equal to the cost reasonably anticipated to have been the cost had CR-3 continued in operation. Under federal law, the City is responsible for its proportionate share of the future cost to decommission CR-3. The City contributes to a common trust fund, maintained by FMPA for all its members that own a portion of CR-3. The City s liability for accidents/damages occurring at CR-3 is in direct proportion to its ownership interest. Pursuant to the Nuclear Waste Policy Act of 1982, Progress Energy entered into a contract with the U.S. Department of Energy (the DOE ) under which the DOE agreed, among other things, to begin taking spent nuclear fuel by no later than January 31, Following the DOE s failure to begin taking spent nuclear fuel by January 31, 1998, several utilities filed lawsuits against the DOE seeking remedies and damages. On January 14, 2004, Progress Energy, acting on its own behalf and on the behalf of the other co-owners, filed suit in the U.S. Court of Federal Claims against the DOE for relief and damages. The DOE and the Utilities agreed to, and the trial court entered, a stay of proceedings, in order to allow for possible efficiencies due to the resolution of legal and factual issues in previously filed cases in which similar claims are being pursued by other plaintiffs. Those issues have been or are expected to be presented in the trials or appeals that are currently scheduled to occur during 2006 and It is anticipated that the trial will occur in late The DOE has stated that if legislative changes requested by the Bush administration are enacted, the repository may be able to accept spent nuclear fuel starting in 2017, but 2020 is more probable due to anticipated litigation by the state of Nevada. Progress Energy reports that it has on-site storage facilities to accommodate projected spent nuclear fuel and core reserve requirements through the year 2016 which is the year its operating license expires. The City can not predict the outcome of the DOE s failure to take spent nuclear fuel, any relief or damages that may be awarded by the courts, or any relief that may be afforded by future legislation. Florida Municipal Power Agency The City purchases the remainder of its power supply requirements from FMPA. FMPA was formed as a governmental legal entity in 1978, pursuant to Florida law which authorizes local governments to enter into mutually advantageous agreements to create a separate legal entity. FMPA is authorized under Florida law to undertake specific joint projects for its members and to issue tax-exempt bonds and other obligations to finance the cost of such projects. The current FMPA membership is comprised of thirty Florida municipal electric systems, serving -8-

73 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B approximately 1.9 million Floridians. Each member appoints one representative to FMPA s Board of Directors, which governs its activities. The City is represented on the FMPA s Board of Directors by Mr. Paul D. Kalv. FMPA has five power supply projects of which the City participates in two: the St. Lucie Project and the All-Requirements Project. The City s liability for accidents/damages occurring at FMPA is in direct proportion to its entitlement share of FMPA s ownership interest in the specific power supply project. St. Lucie Project The St. Lucie Project consists of an percent (approximately 67.5 MW, net summer capacity) undivided ownership interest in St. Lucie Unit No. 2, a pressurized water nuclear generating unit with a summer seasonal net capacity of approximately 838 MW ( St. Lucie Unit No. 2 ). Florida Power & Light Company ( FPL ) is the majority owner and operator of the St. Lucie Unit No. 2. The St. Lucie Project commenced commercial operation in August, FMPA entered into a reliability exchange agreement with FPL that provides for the exchange of 50 percent of its share of output from Unit 2 for an equivalent share of output of St. Lucie Unit No. 1, a similar nuclear generating unit owned by FPL with a summer net capacity of approximately 821 MW. The NRC has granted a twenty year extension of the operating license to 2043 for St. Lucie Unit No. 2 and 2036 for St. Lucie Unit No. 1. The capacity factor for the St. Lucie Project for the fiscal years ended September 30, 2005 and 2006 was 90.7 percent and 81.6 percent, respectively. Its lifetime capacity factor since 1983 is reported as 83.8 percent. The City acquired a percent share (approximately 1.7 MW) of FMPA s percent interest in the St. Lucie Project and related exchange and replacement power and transmission arrangements with FPL pursuant to a Power Sales Contract dated June 1, 1982, as amended, between the City and FMPA (the Power Sales Contract ) and a Project Support Contract dated June 1, 1982, as amended, between the City and FMPA (the Project Support Contract ). Under the Power Sales Contract, the City is required to pay FMPA for each month in which any electric capacity and energy is made available to the City from the St. Lucie Project. The payments are to equal the City s share of FMPA s costs relating to the St. Lucie Project and are to be considered as a cost of operation and maintenance of the City under the Bond Resolution. For those months when no capacity or energy is made available to the City from the St. Lucie Project, then the City is obligated to make payments to FMPA under the Project Support Contract only. Such payments are to be made, not as a cost of operation and maintenance, but only after the City has made its own debt service payments on its Electric System indebtedness. The amount of the City s payments under the Project Support Contract is the amount the City would have been required to pay under the Power Sales Contract if electric capacity and energy had been made available to the City in such month. These payments are required to be made whether or not the St. Lucie Project is operable or -9-

74 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B operating and notwithstanding the suspension or interruption of output of the St. Lucie Project. Payments that the City is obligated to make to FMPA under the Power Sales Contract and the Project Support Contract are payable solely from the revenues of the Electric System and are based upon an annual budget prepared by FMPA. FMPA periodically calculates the excess or deficiency of payments compared to actual cost and applies it to the monthly statements. Under the Power Sales Contract, FMPA is authorized to enter into obligations that will increase its costs (and thereby increase the amount of the City s obligations), including the issuance of bonds in an unlimited amount to finance additions, improvements, repairs and modifications to, but only to, the St. Lucie Project and any retirement, decommissioning or disposal of the St. Lucie Project. If any of the other participants in the St. Lucie Project defaults in its obligation to make payments under its power sales or project support contract with FMPA and FMPA is unable to sell such participant s entitlement share, the remaining participants not in default, including the City, are required to assume such entitlement share on a pro rata basis. No participant, including the City, is required to assume an additional entitlement share in excess of 25 percent of its original entitlement share. Since its inception, no such defaults have occurred and none are contemplated. The City s liability for accidents/damages occurring at St. Lucie is in direct proportion to its entitlement share of FMPA s ownership interest. All Requirements Project The All-Requirements Project (the AR Project ) energy resources consist of generating units located throughout the State that are owned by the AR Project. Capacity and energy is purchased from participants in the AR Project that own generating resources, and interchange and power sales contracts with non AR Project entities. Current generating resources available to the AR Project include (i) coal-fueled steam electric units; (ii) natural gas and oil-fueled steam electric units; (iii) natural gas and oil-fueled combustion turbine units operating in combined-cycle and simple cycle configuration and natural gas and oil-fueled diesel engine driven units. The AR Project consists of fifteen participants, including the City, which participants are governmental entities that operate electric systems. In fiscal year ended September 30, 2006, the non-coincident peak demand of the AR Project was 1,561 MW. On May 24, 1991, FMPA and the City executed the All-Requirements Power Supply Project Contract (the FMPA Contract ) to provide for FMPA to furnish the City s total power supply requirements in excess of that portion of the requirements that is satisfied by the City s ownership interests in CR-3 and the St. Lucie Project. The FMPA Contract expires on October 1, The term is subject to an automatic five (5) year extension on each fifth anniversary thereafter unless either party notifies the other party in writing at least two years prior to such automatic extension -10-

75 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B date, of its decision not to extend the contract. The FMPA Contract contains provisions for the City to withdraw from the AR Project prior to the expiration date upon the provision of written notification three years in advance and the payment of applicable amounts to FMPA. The City is obligated to pay for the services provided by FMPA at rates that are approved by all participants in the AR Project and the FMPA Board of Directors. Such rates are reviewed and adjusted by FMPA at least once each calendar year to ensure revenues meet the estimated costs and expenses associated with its obligations related to the AR Project. Any payments made by FMPA, or which FMPA is required to make, to satisfy any liability associated with the AR Project shall become a part of the revenue requirements. All payments made by the City to FMPA pursuant to the FMPA Contract shall be treated by the City as a Cost of Operation and Maintenance as defined in the Bond Resolution. Interconnection & Distribution Facilities Under the FMPA Contract, FMPA is obligated to deliver the Electric System s total power supply requirements at specified delivery points. 69 kv delivery points are located at the interconnection points between each of the City s five substations and the Progress Energy transmission system. Each of the City s substations is connected to a 69 kv loop circuit. The City does not own any 69 kv transmission line except for two short spans leading into the Picciola Substation and the Airport Substation. At the substations, the power is transformed to the distribution network voltage of kv. The City has a radial distribution system with multiple tie switches that allow system load to be transferred between the 67/13.09 kv transformers, thereby minimizing service interruptions. Remote monitoring and control of the circuit breakers on the electric system is provided by a supervisory control and data acquisition system ( SCADA System ). The City s distribution system includes approximately 228 miles of overhead circuits and approximately 164 miles of underground circuits, which operate at a nominal voltage level of 12.47kv. The City maintains an up-to-date electronic database for the facilities that comprise the Electric System. All of the substations have current Spill Prevention, Control and Countermeasure Plans ( SPCC Plans ) which outline the procedures to be followed in the event of an oil spill or leak such as might occur with a transformer failure. However, none have an oil retention system to contain any spilled oil in order to minimize the cleanup activities. In the past, the City had planned to install containment vessels at all substations for this purpose. However, based on recent rulings by the Florida Department of Environmental Protection ( FDEP ) and the advent of vegetable based transformer oils, the City has decided not to proceed with this major expenditure. They are currently conducting a test of one of the major vegetable oils to determine if it will perform acceptably in their transformer load tap changers. -11-

76 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B General Plant Facilities The City owns and operates general plant facilities and equipment to support the Electric System and other utility services. Included in the Electric System s general plant facilities is the Joe T. Municipal Operations Center which houses the control room, the administrative and engineering offices, distribution indoor and outside storage and the transport and heavy equipment fleet. The Control Room coordinates operation and maintenance activities on the Electric System and serves as the call center for reporting emergencies and customer outages for the Electric System and other City-owned utilities. It is staffed on a twenty-four hour a day, seven days a week basis and contains the SCADA System equipment (provided by QEI) that provides remote monitoring and control of equipment located in the field. This system will automatically sound an alarm whenever any equipment item or circuit being monitored enters a non-normal state. The City utilizes an electronic mapping system developed by Telvent Miner and Miner, in its day to day engineering and operations activities and to assist dispatchers in managing major outage events. All appropriate data for field plant items such as poles, conductor, switches, etc. is maintained in this system s databases. The City intends to expand the mapping systems capabilities to include Trouble Call Analysis and to incorporate customer usage information as time and resources permit. R.W. Beck performed a limited general field observation of the City s electrical system on May 15, All five substations and approximately 15 to 20 miles of representative overhead and underground distribution lines were observed. Ancillary systems such as SCADA and mapping were also observed. All Electric System plant observed appeared to be in very good to excellent condition and very well maintained. The vegetation management of the overhead line rights of way were observed to be very good with clearing and trimming currently on a four (4) year cycle. The City reported that they plan to move the clearing and trimming cycle to a three (3) year basis as soon as practicable. An independent inspection company inspects poles and equipment on an eight (8) year cycle which greatly helps the City locate and correct problems before they become detrimental to their service. Other general plant facilities and equipment include transportation and heavy equipment, computer hardware and software, office furnishings and communications equipment. Over the years, the City has purchased new transportation and heavy equipment to replace the aging items of equipment in its fleet. The following tabulation sets forth the reported plant account balances, by function, at September 30,

77 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B CITY OF LEESBURG,FLORIDA Electric System Reported Plant Account Balance [1] At September 30, 2006 (Dollars in Thousands) Description Gross Plant Accumulated Provision for Depreciation Net Plant Intangible... $97 $55 $42 Production Nuclear... 7,498 6, Transmission Distribution... 61,959 19,154 42,805 General... 4,274 2,429 1,845 Total... $73,846 $28,233 $45,613 Note: [1] Information provided by the City. In addition, at September 30, 2006, the City had $12,237,000 of construction-work-in-progress. Power Supply To meet its power supply needs into the future, the City relies on CR-3 and FMPA to provide a reliable, diverse generation resource and fuel mix at reasonable costs. During the projected period, no power supply resources other than CR-3 and FMPA are contemplated. Historical Customers, Sales and Power Supply Requirements The following tabulation summarized from Table 1 sets forth for the fiscal years ended September 30, 2002 through 2006, the reported number of customers, peak demands, energy requirements and system load factors. -13-

78 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B CITY OF LEESBURG,FLORIDA Historical Customers, Sales and Power Supply Requirements For Fiscal Year Ending September 30 Fiscal Year Average Annual Number of Customers Peak Demand (MW) Requirements [1] (MWH) Sales (MWH) Losses & Unaccounted For (MWH) Annual Load Factor , , ,512 27, % , , ,507 19, % 2004 [2] 22, , ,622 23, % , , ,394 23, % , , ,143 19, % Notes: [1] Amounts shown include generation from CR-3 and purchases from FMPA. [2] Leap year. During fiscal year ended September 30, 2006, power supply was provided from the following resources: CITY OF LEESBURG,FLORIDA Historical Power Supply and Costs For Fiscal Year Ending September 30, 2006 Description MWh Percent Avg Cost per kwh CR-3 [1]... 56, % $ St. Lucie Project [2]... 14, % AR Project [3] , % Total or Average , % Notes: [1] Amounts shown are nuclear fueled generation and include backup energy supplied during outages. [2] Amounts shown are nuclear fueled generation. [3] Amounts shown include coal, natural gas and oil fueled generation. -14-

79 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Projected Customers, Sales and Power Supply Requirements Each year the City has FMPA prepare a forecast of its projected power supply requirements and sales. From this forecast, using a heuristic analysis of historical customers, sales, customer usage patterns and other factors, a projection of sales by major customer class is developed. The following tabulation summarized from Table 2 sets forth the projected number of customers, sales and power supply requirements for the indicated years. CITY OF LEESBURG,FLORIDA Projected Customers, Sales and Power Supply Requirements For Fiscal Year Ending September 30 Fiscal Year Customers Peak Demand [1] (MW) Requirements [2] (MWH) Sales (MWH) Losses & Unaccounted For (MWH) Annual Load Factor , , ,595 24, % 2008 [3] 22, , ,848 24, % , , ,338 24, % , , ,382 25, % , , ,726 25, % 2012 [3] 23, , ,989 26, % Notes: [1] Summer peak demands. [2] Amounts shown include generation from CR-3 and purchases from FMPA. [3] Leap year. FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY The electric industry has been, or may in the future be, affected by a number of factors which could have an impact on the financial condition of an electric utility such as the City s Electric System. These factors likely would affect individual utilities in different ways. Such factors include, among others: (i) effects of competition from other suppliers of electricity, (ii) effects of compliance with rapidly changing environmental, licensing and regulatory requirements, (iii) regulatory changes and changes that result from the development and enforcement of a national energy policy; (iv) uncertain access to low cost capital for replacement of aging fixed assets; (v) increases in operating costs; and (vi) availability and cost of fuel supply. -15-

80 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B The City now has the exclusive right and obligation to serve electric utility customers within its service area at rates that are regulated by the City. However, if some form of customer choice or deregulation legislation is enacted in Florida, customers may be able to choose among multiple competing suppliers of electricity rather than being solely dependent on the City which is commonly referred to as retail wheeling. Florida has not actively pursued restructuring or retail wheeling. The City does not operate any power generating resources on the Electric System and therefore relies on the Florida Transmission Grid which is comprised of transmission facilities that are owned by various utilities, for the delivery of power to the City from power generating interests located throughout the State. The costs and availability of such transmission services are likely to be impacted by the outcome of any restructuring relating to transmission. Since 1996, the Federal Energy Regulatory Commission ( FERC ) has issued several orders to address and implement the transmission access provisions of the Energy Policy Act of 1992 which would restructure transmission services. The formation of GridFlorida as a Regional Transmission Organization ( RTO ) for the Florida Transmission Grid was in response of FERC s actions and it was stipulated in a white paper on bulk power market design issued by FERC on April 28, GridFlorida was intended to operate, plan and control regional transmission assets in a neutral manner. During 2006, the PSC and the FERC closed their respective docketed proceedings and GridFlorida was dissolved. The City s electric utility operations are subject to federal, state, regional and local environmental standards and procedures that are subject to change from time to time. Compliance with the new requirements may result in increased costs to the Electric System and, in the case of the City s generating resources (CR-3), reduced operating levels. An inability to comply with the environmental requirements could also lead to the complete shutdown of the CR-3 and FMPA s generating units. The City cannot predict at this time whether any additional laws or regulations will be enacted which will affect the operation of the Electric System, and if such laws or regulations are enacted, what the impacts on the Electric System might be because of such actions. RATES Pursuant to the Bond Resolution, the City has covenanted to establish rates and charges for electric service in any fiscal year so as to provide Gross Revenues in amounts at least sufficient to pay 100 percent of the Operation and Maintenance Costs of the facilities in such year, plus 125 percent of the total Bond Service Requirement on all outstanding bonds, plus 100 percent of the amounts required to be deposited in such Bond Year into the Reserve Fund. In addition, in the Bond Resolution, the City has covenanted not to render or cause to be rendered free electric service and that it will not establish any preferential electric rates. The City does not knowingly provide free -16-

81 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B electric service. In addition, the City has authorized the preparation of an electric rate study to ensure that the cost of providing electric service is recovered in an equitable manner. Pursuant to Chapter 366, Florida Statues, the PSC has jurisdiction over, among other things, the rate structure as contrasted to the rate level of municipal electric utilities. In addition, the PSC is empowered to approve territorial agreements between utilities, to prescribe accounting systems, and to regulate electric impact fees of municipal electric utilities. The City s existing electric rates recognize seven classes of service: (i) residential; (ii) general service non demand; (iii) general service demand; (iv) municipal; (v) street and security lighting; (vi) standby service; and (vii) load management service applicable to residential and to non demand metered general service. All of the City s electric rate schedules provide for a monthly bulk power cost adjustment. The bulk power cost adjustment (the BPCA ) automatically passes on to the customer all increases or decreases, if any, in the cost of power supply. In addition, the City has established an energy conservation cost recovery clause and a tax adjustment clause to pass, on to the customers, changes in the cost of energy conservation activities and changes in taxes. The following table presents the City s inside-city retail electric rates in effect as of the date of this analysis. These rates do not reflect the ten percent surcharge applicable to service provided beyond the City s corporate limits, the franchise fee charged to Fruitland Park for Fruitland Park customers or any other adjustments to the customer bills such as the BCPA. CITY OF LEESBURG,FLORIDA Schedule of Electric Rates [1] Rate Schedule Customer Charge ($/cust/mo) Energy Charge ($/kwh) Demand Charge ($/kw) Residential (RS) NA General Service Non-Demand (GSND) NA General Service Demand (GSD) Municipal Service (MS - less than 20 kw) NA Municipal Service (MS - greater than 20 kw) Notes: [1] Inside-City rates effective as of the date of this Report; the City employs a 1.10 outside City rate differential. -17-

82 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Bulk Power Cost Adjustment BPCA The City has a bulk purchased power cost tracker which allows the City to recover as a pass through the increases/(decreases) in the cost of bulk purchased power, i.e. increases/(decreases) in the purchased power costs from FMPA related to natural gas, fuel oil #2, coal and nuclear fuel which are utilized in FMPA s production/generation plants. For the fiscal years 2002 through 2006, the operating revenues for the City increased substantially, due in part, to customer growth and rate adjustments. However, the single largest impact on total operating revenues has historically been the result of the increases in the bulk purchased power from FMPA. The City then passed through those bulk purchased power costs directly to the Electric System s retail customers by way of the BPCA as a separate charge per kilowatt-hour sold on their bills. Other Charges, Fees, Surcharges and Taxes The City has established a ten percent surcharge on electric service provided outside the corporate limits of Fruitland Park and the City. Pursuant to the City Code, federal, state and all political subdivisions, agencies, boards, commissions and instrumentalities as well as churches and religious organizations, where electricity is used exclusively for church or religious organization purposes, are exempt from the surcharge. During fiscal year ended September 30, 2006, the City received $991,928 through the imposition of the surcharge. The City has established a schedule of miscellaneous fees and charges associated with various customer requested services, including but not limited to reconnection charges, initial connection fees and charges for surge arrestor equipment. With the exception of municipal service, customer deposits are required to be paid at the time of application for electrical service and the City pays interest on cash customer deposits. Customers may satisfy in whole or in part the deposit requirements by providing a letter of credit, by securing a bond, by making a cash payment and by having a good payment history. Interest is paid by the City on all cash deposits. Rate Comparisons As shown in the Comparisons of Typical Monthly Electric Bills for Selected Florida Utilities on Table 3, the City s current charges for electric service are generally competitive with those charged by Progress Energy and the Cooperative, the City s two neighboring electric utilities. The fuel adjustment charges, as reported by the electric utilities included in these comparisons for the month of January 2007, vary according to the terms of the individual fuel adjustment clauses and the purchased power and fuel mix of the electric utilities. Except as indicated, the amounts shown exclude franchise fees, public service taxes (municipal utility taxes) and surcharges. Many, if not most of the larger cities served by an investor-owned utility impose a franchise fee on electric -18-

83 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B service provided. In Florida, franchise fees generally range from zero to approximately six percent of the electric utility bill. Fruitland Park imposes a franchise fee of eight percent, which is added to the customer s bills, is collected by the City and is remitted to Fruitland Park. The City s existing electric rate schedules include a provision for the application of a ten percent surcharge to the City s base rate charges for electric service provided beyond the City s corporate limits and beyond the corporate limits of Fruitland Park. The surcharge is designed to recover, from accounts outside the City only, an amount equivalent to that amount which the City recovers from accounts inside the City through the application of its Public Service Tax commonly referred to as the City Utility Tax. Residential customers of the City paid an average 11.2 cents per kilowatt-hour during the fiscal year ended September 30, The City s average annual use per residential customer was 13,073 kilowatt-hours, or approximately 1,089 kilowatt-hours per month during fiscal year ended September 30, Commercial non-demand-metered and demand-metered customers paid an average of 11.9 cents per kilowatt-hour and 9.2 cents per kilowatt-hour, respectively, during the fiscal year ended September 30, In the spring of 2007, the City authorized the preparation of an electric rate study to ensure that the City s rates recover the cost of providing service from its customers in an equitable manner while maintaining the Electric System s financial condition. Based on the results of the electric rate study, which is in progress, electric rates and rate design are anticipated to be adjusted, if necessary, and presented to the Commission and the PSC, and to be effective on all bills rendered on and after October 1, This report reflects a preliminary estimated eight percent across the board rate increase for all electric customers. This report also includes the inclusion of a three percent inflation index projected increase for each year through the Projection Period. CAPITAL IMPROVEMENT PLAN Each year the City develops and approves a capital budget. As a part of its planning process, the Electric System develops a ten year capital plan which sets forth planned capital expenditures and projected funding sources. The Capital Improvement Plan identifies planned improvements, renewals and replacements to the distribution substations, to the existing overhead and underground distribution lines, and to the vehicles and equipment. It should be recognized that the City does not include capital improvements to CR-3 in its capital budget or its Capital Improvement Plan, rather the City has elected to report such expenditures as an operating expense. Shown on Table 4 is an excerpt of the Electric System Capital Improvement Plan. As can be seen on this table, during the period fiscal year ending September 30, 2007 through 2012 (the Projection -19-

84 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Period ), the City plans to spend approximately $47.6 million on capital improvements. To fund these improvements, the City estimates that approximately $9.4 million will be funded from operating revenues and from monies on hand or expected to be on hand; that approximately $0.7 million will be funded from FMPA refund credit; that approximately $10.5 million will be funded from a portion of the proceeds of the Series 2007 Bonds; that approximately $23.1 million will be funded from the Series 2009 Bonds; that approximately $0.5 million will be funded from FDOT and that approximately $3.4 million will be funded from contributions in aid of construction. The Capital Improvement Plan does not envision the issuance of any long term indebtedness other than the Series 2007 Bonds and the Series 2009 Bonds. The planned projects to be funded from a portion of the proceeds of the Series 2007 Bonds are set forth on Table 4 and include converting existing electric metering to an automated meter reading system, acquiring additional transformers, substation improvements, extending distribution lines, reconductoring distribution lines, and placing existing distribution lines underground. To improve its quality of service to its customers, the City is in its sixth year of a major conductor replacement program. The City is replacing deteriorated underground conductors and is replacing existing overhead copper conductors with aluminum conductors. During the three fiscal years ending September 30, 2005 through 2007, the Electric System planned to replace approximately fifteen miles of underground conductor and planned to re-conductor approximately seventeen miles of existing overhead small wire copper conductor. HISTORICAL OPERATING RESULTS The historical operating results for the Electric System for each of the five fiscal years ended September 30, 2002 through 2006 are shown in detail in Table 5. In general, the historical operating results have been prepared pursuant to certain provisions of the then governing bond resolution, as amended and supplemented, and therefore reflect certain differences from the City's audited financial statements. The debt service and coverage shown on the table reflect the allocable amount of principal and interest due and payable on the then outstanding bonds in each fiscal year from Electric System revenues. Further, prior to the issuance of the Series 2007 Bonds, the Series 2004 Bonds were the only bond issuance secured by a pledge of revenues from the Electric System. To facilitate cash management, to provide a basis for cash reserves, and to provide for the use of surplus funds, on August 14, 2000 the Commission adopted three policies that addressed: (i) transfers from its enterprise funds, including, but not limited to, the Electric System, the Gas System, the Water System and the Wastewater System; (ii) the establishment of a retained earnings policy; and (iii) transfers from the enterprise funds for the purpose of financing general government special projects. Those codified policies became effective on October 1,

85 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B The first policy limited the amount of the annual operating transfer from the various enterprise funds to the City s General Fund to an amount not to exceed ten percent of the estimated operating revenues included in the budget. The codified policy also provided that such an operating transfer may not be made if such transfer is projected to result in a net loss after the making of such operating transfer. The second policy (the Reserve Policy ) created, among other things, a reserve requirement of retained earnings for the current fiscal year for each enterprise fund equal to 25 percent of the current fiscal year budget for the respective fund. This reserve requirement is in addition to reserves for debt service. The first reading by the Commission of the ordinance amending the Reserve Policy and clarifications to the other two transfer policy ordinances occurred on July 13, 2007 and the City expects that the second reading will occur on August 13, 2007 and if enacted by the Commission at such meeting, the proposed amendments to the Reserve Policy would become effective on October 1, The City is currently considering revising the Reserve Policy with respect to the Electric System to reflect one hundred and twenty (120) days of operating revenues less the cost of purchased power and including transfers to the general fund. This change is being considered, in part, to allow for the impact of fluctuations in the cost of purchased power. The City feels this reserve requirement is more appropriate for the Electric System. The third policy limits the amount of funds that may be used by the City from each of the various enterprise funds for the purpose of making non-reoccurring transfers to fund the costs associated with non-enterprise fund expenditures. In general, the policy provides that the minimum amount of cash reserves established for each enterprise fund is equal to: (i) funds budgeted for capital improvements that are available or expected to be available; (ii) the additional reserve requirement of the Reserve Policy is satisfied; and (iii) any funds earmarked for contingencies and emergencies. The following tabulation sets forth a summary of the Electric System s historical operating results. CITY OF LEESBURG,FLORIDA Historical Operating Results [1] Electric System (Dollars in Thousands) Fiscal Year Ended September 30 Description Operating Revenues... $36,997 $40,019 $45,347 $49,716 $60,197 Less: Operating Expenses [2]... 30,485 33,430 38,285 42,428 52,211 Net Operating Revenue... 6,512 6,589 7,062 7,288 7,986 Other Income [3]... 1, Total Available for Debt Service... $7,706 $7,278 $7,521 $7,697 $8,232 Debt Service [4] : Series 1999A Bonds

86 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B CITY OF LEESBURG,FLORIDA Historical Operating Results [1] Electric System (Dollars in Thousands) Fiscal Year Ended September 30 Description Series 2004 Bonds [5] Total Debt Service Capital Contributions ,061 1,158 Amount Available for Working Capital, Transfer to the General Fund & Capital Improvements... $6,998 $6,726 $7,338 $9,758 $9,390 Transfers Out... (4,447) (4,973) (9,562) (5,355) (1,393) Net Available from Operations... $2,551 $1,753 $(2,224) $4,403 $7,997 Debt Service Coverage N/A N/A Notes: [1] See footnotes to Table 5. [2] Amounts shown exclude depreciation and amortization expense. [3] The amounts shown are as defined in the bond resolution and exclude interest earnings on Construction Fund balances. [4] Allocable to the Electric System; Series 1999A Bonds defeased by revenues of the System. [5] Series 2004 Bonds had capitalized interest through October 1, As noted above, during the fiscal years ended September 30, 2002 through 2006, the Electric System had net transfers out of the system of $4.5 million in 2002, $5.0 million in 2003, $9.6 million in 2004, $5.4 million in 2005 and $1.4 million in The 2004 and 2006 net transfers included a $4.3 million transfer out and a $3.8 million transfer in respectively to/from the Wastewater Fund of the Wastewater System. -22-

87 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Ten Largest Customers For fiscal year 2006, sales revenues from the Electric System s ten largest electric customer accounts represented approximately 17.67% of its total revenues from electric charges. The following table identifies the Electric System s ten largest electric customer accounts based on total revenues from electric charges for fiscal year CITY OF LEESBURG,FLORIDA Ten Largest Electric Customers for Fiscal Year Ending September 30, 2006 [1] Customer -23- Volumes (kwh) Revenues Percent of Total Cutrale Citrus Juices USA... 40,874,400 $3,750, % Leesburg Regional Medical Center... 20,416,100 1,914, % Lake County School Board... 12,586,650 1,226, % Lake Harris Health Care Systems.... 7,890, , % Wal-Mart Stores... 5,729, , % Publix Supermarkets Inc... 5,274, , % Embarq (Sprint)... 5,141, , % Lowes... 4,212, , % Lake Sumter Community College... 4,452, , % Home Depot... 3,446, , % Total Ten Largest Electric Customers ,024,031 $10,638, % Total Electric System Revenues [2]... $60,196, % Note: [1] Information provided by the City. [2] As presented in the City s audited financial reports for fiscal year 2006.

88 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B PROJECTED OPERATING RESULTS The projected operating results for fiscal years 2007 through 2012 are set forth in Table 6. The following is a discussion of the methodologies utilized in developing the projected operating results as well as the findings and conclusions of the analysis. General The annual revenue requirement to be generated by the Electric System consists of the expenditures and coverages required by the Bond Resolution plus other expenditures that are anticipated and budgeted by the City but not required by the Bond Resolution. Customer Accounts and Sales The projected number of customer accounts and sales for the Projection Period were utilized in the development of estimated Electric System operating revenues. Customer account and consumption growth rates for the Projection Period were determined based on a historical analysis of the number of customer accounts and sales and discussions with City staff concerning the permitting of new developments. For the period 2002 through 2006, the number of Electric System customer accounts increased approximately 2.00 percent, adding on average 424 new customers each year. During this same period, sales of electricity increased approximately 3.28 percent. For the Projection Period it was assumed the Electric System would, on average, add approximately 266 new customers annually. Projected volume sales were based on projections provided by FMPA and reflect annual growth of approximately 1.62 percent. Historical and projected customer information is provided in Tables 1 and 2, respectively. Rate and Revenue Increases The City plans to adopt an annual rate adjustment to reflect inflationary pressures on normal operating expenses. The projected revenues presented in this analysis include this inflationary rate adjustment and any additional rate increase deemed necessary to satisfy the revenue requirements of the Electric System, including the City s internal minimum fund balance policy. The following table presents the annual inflationary rate adjustment and the projected total annual increase in system operating revenues. These proposed rate adjustments have been reviewed by City staff and found to be reasonable. However, as of the date of this report, the rate adjustments presented herein have not been formally reviewed or adopted by the Commission. -24-

89 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Debt Service CITY OF LEESBURG,FLORIDA Projected Rate Adjustments Fiscal Year Inflationary Adjustment [1] Total Required Increase in Revenues [2] % 11.00% % 3.00% % 3.00% % 3.00% % 3.00% Notes: [1] Based on an analysis of the City s Electric System Operation and Maintenance expenses over the last five fiscal years, it was determined that utilizing a 3.00% Inflationary Adjustment was more representative of the overall increase in costs than the GDP Implicit Price Deflator as published by the Department of Energy in its 2007 Annual Energy Outlook. [2] City is in the process of conducting a comprehensive rate and cost-of-service analysis. The amounts shown here reflect the projected amount of additional revenue required by the Electric System and not necessarily uniformly applied rate increases. It is anticipated the current rate and cost-of-service analysis will result in the reallocation of system costs and possibly the redesign of the Electric System s existing rate structure. Parity Indebtedness We have been informed by the City and the Financial Advisor that the City will issue the following bonds: Series 2007A Electric System Revenue Bonds in the estimated principal amount of $11,265,000 * with a final maturity in October 2037 at an estimated true interest cost of approximately 4.92 percent; Series 2007B Taxable Electric System Revenue Bonds in the estimated principal amount of $11,710,000 * with a final maturity in October 2031 at an estimated true interest cost of approximately 5.99 percent; and * Final, July 31,

90 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Series 2009 Electric System Revenue Bonds (the Series 2009 Bonds ) in the estimated principal amount of $25,070,000 with a final maturity in October 2039 at an estimated true interest cost of 5.72 percent and are expected to be issued in or about April At present, the City s Series 2004 Bonds, the Series 2007A Bonds, the Series 2007B Bonds and the proposed Series 2009 Bonds (collectively, the Parity Bonds ) are currently the only parity indebtedness of the City. The annual debt service amounts on these revenue bonds were provided by the Financial Advisor. The following table summarizes the projected annual debt service on the Bonds, as defined in the Bond Resolution, throughout the Projection Period: CITY OF LEESBURG,FLORIDA Electric System Projected Parity Indebtedness (Dollars in Thousands) [1] Fiscal Year Ended September 30 Description Series 2004 Bonds... $1,105 $1,101 $1,101 $1,105 $1,103 $1,105 Series 2007A Bonds [2] Series 2007B Bonds [2] Series 2009 Bonds [3] ,727 1,728 Total Parity Indebtedness... $1,105 $1,101 $2,616 $3,285 $4,342 $4,343 Notes: [1] Provided by the Senior Managing Underwriter. [2] City anticipates capitalizing interest through October 1, [3] Anticipated to be issued by the City during July Subordinated Indebtedness As of the date of this report, there is no subordinate debt of the Electric System and the City does not currently anticipate issuing any subordinate debt of the Electric System. In addition to the ability of the Electric System gross revenues to meet the rate covenant requirements of the Bond Resolution, it is further estimated based on the assumptions as delineated in this report that the gross revenues will be sufficient to fund 100% of the Cost of Operation and Maintenance for the Projection Period, plus 125% of the Bond Service Requirements for the projection, plus 100% of the amounts, if any, required to be deposited into the Reserve Fund (including the various accounts therein) for the Projection Period. -26-

91 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B Debt Service Coverage The Bond Resolution provides that the City will: fix, establish, revise from time to time whenever necessary, maintain and collect fees, rates, rentals, and other charges for the use of the products, services and facilities of the Electric System that will always provide Gross Revenues in each Bond Year which will be at least one hundred percent (100%) of the Cost of Operation and Maintenance for such Bond Year, plus one hundred twenty five percent (125%) of the Bond Service Requirement for such Bond Year, plus one hundred percent (100%) of the amounts required to be deposited in such Bond Year into the Reserve Fund (including the various accounts therein). Based on our analysis, the following table presents the projected debt service coverage for the Parity Bonds: CITY OF LEESBURG, FLORIDA Projected Debt Service Coverage on the Parity Bonds Fiscal Year Debt Service Coverage on the 2004, 2007 and 2009 Bonds Fund Balance Note: [1] [1] [1] [1] City is utilizing capitalized interest in fiscal years 2008, 2009 and The City maintains an unrestricted cash reserve which is utilized for any lawful purpose including the capital expenditures identified in the capital improvement program section of this report. The City implemented a fund balance policy in 2000 that required a minimum of 25% of annual operating revenues to be maintained in an operating reserve account. As discussed elsewhere herein, the City is considering modifying the fund balance policy for the Electric System to be based on one hundred and -27-

92 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B twenty (120) days of operating revenues less purchased power and including transfers to the general fund. These policies, both the current policy and the proposed policy for the Electric System, allow for the fund balance to fall below the required minimum in a given fiscal year provided the City Manager presents a plan to the Commission for the replenishment of the reserve balance during the subsequent two fiscal years. The analysis indicates that, given the assumptions utilized herein, and the proceeds of the Series 2007B Bonds, the Electric System will generate sufficient net revenues during the Projection Period to satisfy the requirements of the City internal policy regarding minimum fund balance. Summary of Projected Operating Results Projections of the operating results of the City's Electric System for the fiscal years ending September 30, 2007 through 2012 have been prepared on the basis of the principal considerations and assumptions which follow hereinafter. The projections are summarized in the table below based on the information included in Table 6 attached hereto. The projected operating results for the fiscal years ending September 30, 2007 through 2012 were prepared in accordance with the flow of funds and provisions prescribed by the Bond Resolution, and our understanding of the manner in which the City maintains its books and accounts on an accrual basis. The projections of accrued revenues and expenditures are based on the Electric System s operating budget for fiscal year ending September 30, 2007, adjusted for known changes, and do not reflect the effects of any material change in the recognition of revenues and the payment of expenditures. CITY OF LEESBURG,FLORIDA Electric System Projected Operating Results [1] (Dollars in Thousands) Fiscal Year Ended September 30 Description Operating Revenues [2]... $62,017 $63,835 $66,582 $69,123 $71,904 $74,788 Less: Operating Expenses [3]... 54,371 55,195 56,521 57,855 59,238 60,651 Net Operating Revenue... 7,646 8,640 10,061 11,268 12,666 14,137 Other Income Total Available for Debt Service... $7,986 $9,392 $10,843 $12,104 $13,562 $15,110 Debt Service [4] : Series 2004 Bonds... $1,105 $1,101 $1,101 $1,105 $1,103 $1,105 Series 2007A Bonds

93 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B CITY OF LEESBURG,FLORIDA Electric System Projected Operating Results [1] (Dollars in Thousands) Fiscal Year Ended September 30 Description Series 2007B Bonds Series 2009 Bonds ,727 1,728 Total Debt Service... $1,105 $1,101 $2,616 $3,285 $4,342 $4,343 Capital Contributions Amount Available for Working Capital, Transfer to the General Fund & Capital Improvements... $7,254 $8,816 $8,787 $9,414 $9,850 $11,415 Transfers Out [6]... (6,892) (6,263) (6,504) (6,731) (6,978) (7,235) Net Available from Operations... $362 $2,553 $2,283 $2,683 $2,872 $4,180 Debt Service Coverage Notes: [1] See section captioned Principal Considerations and Assumptions Regarding Projected Operating Results, and the footnotes to Table 6. [2] Assumes revenue increases, surcharges and the provisions of the bulk power cost adjustment clause presented herein. [3] The amounts shown exclude depreciation and amortization expenses. [4] Provided by the City s financial advisor. [5] The amount transferred out of the system includes anticipated transfers to the general fund. PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS The studies, analyses, estimates, and projections summarized in this report have been based upon our understanding of certain contracts, agreements, regulations, statutory requirements and planned operations. In the preparation of this report and the opinions that follow, we have made certain assumptions with respect to conditions which may exist or to events which may occur in the future. While we believe these assumptions are reasonable for the purpose of this report, they are dependent on future events and actual conditions that may differ from those assumed. In addition, we have used and relied upon certain information and assumptions provided to us by the City and its auditors, -29-

94 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B financial advisors, and others. While we believe the use of such information and assumptions to be reasonable for the purpose of this report, we have not independently verified the accuracy or validity of the information and offer no assurances with respect thereto, and some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that actual conditions differ from those assumed by us herein or provided to us by others, the actual results will vary from those projected herein. The report summarizes our work up to the date of this report. Thus, changed conditions occurring or becoming known, after such date, could affect the material presented to the extent of such changes. In making the projections and estimates for the period covering the fiscal years ending September 30, 2007 through September 30, 2012, summarized in this report and shown on Table 6, the principal considerations and assumptions made by us and the principal information and assumptions provided to us by others include the following: 1. We have assumed that the forecast of demand and energy requirements for the fiscal year ending September 30, 2007, which is contained, in part, in FMPA s forecast of the City s power supply requirements will be realized. Projections of sales by customer class through the fiscal year ending September 30, 2012 have been based on the results of a heuristic analysis of historical growth in customers, sales and usage patterns. No assumptions or provisions have been made or included in the load projections utilized herein to reflect unforeseen load changes or changes in customer consumption characteristics which may be the result of, but not limited to, increased competition for customers brought about by existing and potential changes in legislation, deviations from normal weather conditions, including natural disasters, such as hurricanes and earthquakes, modifications to or limitations on existing generation or distribution facilities, generation station or unit failures, significant increases in the cost of fuel, or other unforeseen events. 2. Projected Revenues from the sale of electricity to ultimate customers have been based on the following criteria, including in each case the continuation of the BPCA clause: (a) For bills rendered during the period October 1, 2006 through September 30, 2007, Revenues have been based on actual existing rates, surcharges, and the BPCA clause factors; and (b) For bills rendered during the period October 1, 2007 through September 30, 2012, revenues from user rates have been projected based on the current rates, surcharges and BPCA clause factors for each respective year of the Projection Period, including the rate adjustments as presented herein. -30-

95 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B (c) To meet the commitments and policies of the City, projected rate increases have been assumed to be adopted as indicated. While the rate adjustments presented herein have been reviewed by City staff and found to be reasonable, as of the date of this report, they have not been formally reviewed or adopted by the Commission or approved by the PSC. No assurances are intended or implied that the Commission will adopt or implement such indicated increases. (d) Future rate increases will occur as estimated in this analysis but may require further adjustments as the result of the current rate and cost-of-service analysis. 3. Power supply costs projected herein are predicated in part on the availability of CR-3, on the availability of the St. Lucie Project and on the continued availability of purchases from FMPA. In addition, power supply costs have been projected on the assumption that the City and FMPA will receive and/or renew all necessary permits and authorizations to operate its existing generating facilities at each facility s design capability and within existing emission requirements. Pursuant to the provisions of the BPCA clause and in keeping with the City s historical actions, to the extent fuel and purchased power costs differ from those assumed herein, the BPCA factor will be adjusted from time to time by the City to recover the actual cost of fuel and purchased power. Such adjustments should not result in any material changes in the projected Net Revenues available for debt service on the Parity Bonds and other purposes. 4. Operation and maintenance expenses, exclusive of nuclear fuel and purchased power, have been projected based on the City's budget estimate for fiscal year ending September 30, The budget estimates, in general, have been increased each year thereafter to reflect (a) no material change in service levels; (b) planned maintenance programs; and (c) increased expenses required to meet projected growth and escalation, and for materials and supplies for fiscal years ending September 30, 2007 through Projections of the Series 2009 Bonds, future indebtedness have been based on the estimated construction costs and schedules contained in the City s Capital Improvement Plan. Should actual costs exceed the estimated costs, the City may be required to revise its Capital Improvement Plan or to issue additional indebtedness to finance the remainder of the Capital Improvement Plan. 6. The Aggregate Bond Service Requirements for the Projection Period shown have been reflected in the projections as follows: (a) principal and interest on the Series 2004 Bonds; (b) the estimated aggregate principal amount of Series 2007A Tax Exempt Bonds of $11,265,000 and the estimated principal and interest payments on the Series 2007A Bonds are -31-

96 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B based upon essentially level debt service for a 30 year term with an estimated true interest cost of 4.92 percent, which have been estimated and provided by the City s Financial Advisor upon the closing of the Series 2007A Bonds; (c) the estimated aggregate principal amount of Series 2007B Taxable Bonds of $11,710,000 and the estimated principal and interest payments on the Series 2007B Bonds are based upon essentially level debt service for a 24 year term with an estimated true interest cost of 5.99 percent, which have been estimated and provided by the City s Financial Advisor upon the closing of the Series 2007B Bonds; and (d) the estimated aggregate principal amount of Series 2009 Bonds of $25,070,000 and the estimated principal and interest payments on the Series 2009 Bonds are based upon essentially level debt service for a 30 year term with an estimated true interest cost of 5.72 percent, which have been estimated and provided by the City s Underwriter. 7. For the fiscal years ending September 30, 2007 through September 30, 2012, investment income has been projected on the basis of projected balances in the Revenue Fund, and an annual reinvestment rate of 3.0 percent applied to projected fund balances. Pursuant to the City s plan of finance, no investment income is assumed to be available from estimated sinking fund balances and Bond Service Reserve Fund balances. Other interest expense on customer deposits, and other miscellaneous interest expense amounts, has been developed based on projected average balances, historical expense relationships, and other information provided by the City. 8. Other operating revenues have been projected on the basis of the estimated fiscal year ending September 30, 2007 budget amounts and are increased annually thereafter in proportion to projected customer growth or inflation. 9. The projections of accrued revenues and expenditures do not reflect the effects of any material adverse change in the receipt of Revenues and the payment of expenditures. 10. No assumption has been made to reflect any changes in existing federal or State laws and/or regulations to reflect, among other things, more stringent environmental requirements, increased competition for electric service and customers, and changes in tax laws. 11. This report has been prepared on the assumption that all contracts, agreements, statutes, rules and regulations which have been relied upon by us in preparing this report will be fully enforced and enforceable in accordance with their terms and conditions and will not be changed in any material way. We make no representations or warranties, and provide no opinion concerning the enforceability or legal interpretation of contracts, statutes, rules and regulation. -32-

97 Honorable Mayor and City Commissioners of the City of Leesburg August 1, 2007 APPENDIX B CONCLUSIONS Based upon the foregoing assumptions and considerations and upon our analyses and studies as summarized or referred to in this report, which report should be read in its entirety in conjunction with the following, we are of the opinion that: 1. The projected capacity and energy requirements of the City represent reasonable projections based on analyses of historical load growth and form a reasonable basis for the projected operating results set forth in this report. 2. The acquisition, installation and operation of the planned capital improvements, will improve system reliability, will reduce service interruptions, and will provide for the City's customers' increased demand and energy requirements, provided the City continues its operation and maintenance practices. 3. The contractual arrangements with FMPA should provide the City with reliable power supply resources having a diverse generation and fuel mix at reasonable costs. 4. The City is in compliance with known applicable regulations pertaining to the Electric System. 5. For the fiscal years ending September 30, 2007 through September 30, 2012, the City s Gross Revenues from the Electric System are projected to be sufficient under the herein proposed rates, surcharges and the bulk power cost adjustment clause to pay the projected Costs of Operation and Maintenance, to make the required deposits, if any, into the Reserve Fund, to pay the Bond Service Requirement on the Series 2004 Bonds and the projected Bond Service Requirement on the Series 2007 Bonds and the Series 2009 Bonds, and to provide the required 1.25 times bond service coverage on the annual aggregate Bond Service Requirement on the Series 2004 Bonds, and the projected Bond Service Requirements on the Series 2007 Bonds and the Series 2009 Bonds, all in accordance with the provisions of the Bond Resolution. Respectfully submitted, /s/ R. W. BECK, INC. -33-

98 CITY OF LEESBURG, FLORIDA Electric System Service Territory Map

99 IJ466B IJ466A IJ466A IJ 468 IJ 44 IJ 473 IJ 44C IJ 44A QR TPK IJ 470 IJ 33 IJ 48 IJ 48 City of Leesburg Electric Utility Service Area Map IJ TPK Legend QR 19 Major Roads City Boundary Electric Service Area IJ Miles IJ 455 City of Leesburg GIS Division Compiled by: J. Meier Date: 6/15/07 Sheet: 1 of 1 File: LSBG Util ServArea.mxd

100 CITY OF LEESBURG, FLORIDA Electric System Tables Table 1 - Historical Electric System Customers, Sales and Requirements Table 2 - Projected Electric System Customers, Sales and Requirements Table 3 - Inter-Utility Comparison of Typical Monthly Electric Bills Table 4 - Capital Improvement Plan for Fiscal Years Table 5 - Historical Operating Results Table 6 Projected Operating Results

101 CITY OF LEESBURG, FLORIDA Table 1 Electric System 1-Aug-07 Historical Electric System Customers, Sales and Requirements [1] Line Fiscal Year Ended September 30 No. Description (a) (b) (c) (d) (e) (f) Average Number of Customers 1 Residential 15,809 16,294 17,551 17,562 17,407 2 General Service Non Demand 2,532 2,564 2,554 2,582 2,596 3 General Service Demand Fruitland Park Non Demand Fruitland Park Demand Municipal and Public Non Demand Municipal and Public Demand Subtotal 18,923 19,465 20,727 20,790 20,668 9 Area Lighting 1,664 1,670 1,643 1,621 1, Traffic Lights Total Lighting 1,665 1,671 1,644 1,622 1, Total Customers 20,588 21,136 22,371 22,412 22,284 Sales (MWh) 13 Residential 197, , , , , General Service Non Demand 53,970 55,369 53,206 50,863 54, General Service Demand 190, , , , , Fruitland Park Non Demand Fruitland Park Demand Municipal and Public Non Demand 2,667 2,653 2,846 2,699 3, Municipal and Public Demand 9,910 10,450 10,808 11,425 10, Area Lighting 5,691 6,251 6,523 6,921 7, Traffic Lights Total Sales 461, , , , ,143 Requirements 23 Crystal River Generation (MWh) 51,856 60,506 56,000 52,800 56, St. Lucie Generation (MWh) 13,259 13,422 14,000 13,200 14, Purchases (MWh) 423, , , , , Total Generation and Purchases (MWh) 488, , , , , Peak Demand (MW) Notes: [1] Based on information provided by the City. 8/6/2007 Electric Model Table 1 Page 1 of 8

102 CITY OF LEESBURG, FLORIDA Table 2 Electric System 1-Aug-07 Projected Electric System Customers, Sales and Requirements [1] Line Fiscal Year Ended September 30 No. Description (a) (b) (c) (d) (e) (f) (g) Average Number of Customers 1 Residential 17,589 17,836 18,084 18,348 18,616 18,881 2 General Service Non Demand 2,676 2,705 2,735 2,766 2,798 2,830 3 General Service Demand Fruitland Park Non Demand Fruitland Park Demand Municipal and Public Non Demand Municipal and Public Demand Subtotal 20,921 21,201 21,481 21,779 22,081 22,381 9 Area Lighting 1,599 1,585 1,571 1,557 1,543 1, Traffic Lights Total Lighting 1,600 1,586 1,572 1,558 1,544 1, Total Customers 22,521 22,787 23,053 23,337 23,625 23,911 Sales (MWh) 13 Residential 221, , , , , , General Service Non Demand 55,526 56,577 57,662 58,820 60,019 61, General Service Demand 227, , , , , , Fruitland Park Non Demand Fruitland Park Demand Municipal and Public Non Demand 3,692 3,752 3,814 3,880 3,948 4, Municipal and Public Demand 11,347 11,533 11,723 11,926 12,136 12, Area Lighting 6,969 6,970 6,970 6,970 6,970 6, Traffic Lights Total Sales 527, , , , , ,989 Requirements 23 Crystal River Generation (MWh) 52,400 56,480 52,800 52,800 52,800 52, St. Lucie Generation (MWh) 13,100 14,120 13,200 13,200 13,200 13, Purchases (MWh) 486, , , , , , Total Generation and Purchases (MWh) 551, , , , , , Peak Demand (MW) Notes: [1] Based on FMPA 2006 Forecast. 8/6/2007 Electric Model Table 2 Page 2 of 8

103 CITY OF LEESBURG, FLORIDA Table 3 Electric System 1-Aug-07 Inter-Utility Comparison of Typical Monthly Electric Bills [1] Line Fuel Adj. No. Comparable Utility ($/1000 kwh) Usage Residential Service 500 kwh 1,000 kwh 2,000 kwh 3,000 kwh 1 City of Leesburg, Florida $39.44 $ $ $ $ Florida Municipalities or Cooperatives: 2 City of Gainesville City of Lakeland City of Ocala Orlando Utilities Commission Sumter Electric Cooperative, Inc City of Tallahassee Investor-Owned Utilities [2]: 8 Florida Power and Light Progress Energy Tampa Electric Company Average Minimum Max General Service (Nondemand) 500 kwh 1,000 kwh 2,000 kwh 3,000 kwh 14 City of Leesburg, Florida $39.44 $ $ $ $ Florida Municipalities or Cooperatives: 15 City of Gainesville City of Lakeland City of Ocala Orlando Utilities Commission Sumter Electric Cooperative, Inc City of Tallahassee Investor-Owned Utilities [2]: 21 Florida Power and Light Progress Energy Tampa Electric Company Average Minimum Max /6/2007 Electric Model Table 3 Page 3 of 8

104 CITY OF LEESBURG, FLORIDA Table 3 Electric System 1-Aug-07 Inter-Utility Comparison of Typical Monthly Electric Bills [1] Line Fuel Adj. No. Comparable Utility ($/1000 kwh) Usage General Service Demand 50 kw 150 kw 300 kw 500 kw 20,000 40, , ,000 kwh kwh kwh kwh 27 City of Leesburg, Florida $39.44 $ 1, $ 4, $ 11, $ 19, Florida Municipalities or Cooperatives: 28 City of Gainesville ,633 3,566 9,716 16, City of Lakeland ,040 4,297 12,092 20, City of Ocala ,674 3,625 9,940 16, Orlando Utilities Commission ,433 3,175 8,521 14, Sumter Electric Cooperative, Inc ,637 3,499 9,572 15, City of Tallahassee ,187 4,696 12,921 21,429 Investor-Owned Utilities [2]: 34 Florida Power and Light ,833 3,961 10,840 18, Progress Energy ,049 4,259 12,239 20, Tampa Electric Company ,854 4,028 10,912 18, Average 1,816 3,901 10,750 17, Minimum 1,433 3,175 8,521 14, Max 2,187 4,696 12,921 21,429 Notes: [1] Amounts shown are based on the rates for single phase service and reflect when applicable, inside city service. In addition, amounts include January 2007 fuel adjustments but do not include taxes or franchise fees. [2] Amounts shown include the energy conservation, capacity and environmental cost recovery charges where appropriate, as filed with the Florida Public Service Commission (FPSC). 8/6/2007 Electric Model Table 3 Page 4 of 8

105 Projected Expenditures [2] ($000) CITY OF LEESBURG, FLORIDA Table 4 Electric System 1-Aug-07 Capital Improvement Plan For Fiscal Years [1] Line Fiscal Year Ending September 30, No. Description Total (a) (b) (c) (d) (e) (f) (g) (h) 1 Meters $ 191 $ 160 $ 180 $ 200 $ 220 $ 240 $ 1,191 2 Transformers ,200 4,229 3 Distribution Lines 7, ,900 2,000 2,000 14,783 4 Sectionalizing Equipment 0-1, ,385 5 Lighting Projects ,670 6 Vehicles & Equipment Other Equipment ,346 8 Subdivisions 1, ,758 9 Reconductoring 1,677 1,200-1, ,050 5, Substations ,379 1,698 2,205 2,516 8, Structures Land Total Projected Expenditures $ 12,320 $ 3,908 $ 5,182 $ 7,867 $ 8,760 $ 9,561 $ 47,597 Planned Funding Sources ($000) 14 Operating Reserves $ 2,255 $ 1,777 $ 1,033 $ 1,239 $ 1,400 $ 1,548 $ 9, Renewal & Replacement Customer Contributions , Series 2007 Bonds 9,167 1, , Series 2009 Bonds - - 3,439 5,883 6,580 7,216 23, Other Sources Total Funding Sources $ 12,320 $ 3,908 $ 5,182 $ 7,867 $ 8,760 $ 9,561 $ 47,597 Projects to be Funded From Series 2007 Bond Proceeds [2] ($000) 21 Meters $ - $ - $ - $ - $ - $ - $ - 22 Transformers Distribution Lines 6, , Sectionalizing Equipment Lighting Projects Vehicles & Equipment Other Equipment Subdivisions 1, , Reconductoring 1,633 1, , Substations Structures Land Total Projects to be Funded 33 From Bond Proceeds $ 9,167 $ 1,356 $ - $ - $ - $ - $ 10,523 Notes: [1] Source: Electric System Ten-Year Capital Improvement Plan and data provided by the City. [2] Estimated direct construction costs provided by the City. Amounts shown do not include financing costs. 8/6/2007 Electric Model Table 4 Page 5 of 8

106 CITY OF LEESBURG, FLORIDA Table 5 Electric System 1-Aug-07 Historical Operating Results [1] Line Fiscal Year Ended September 30, No. Description (a) (b) (c) (d) (e) (f) Operating Revenues 1 Charges for Services $ 36,442,513 $ 39,500,479 $ 44,352,667 $ 48,966,154 $ 59,167,487 2 Other Operating Revenues 554, , , ,541 1,029,429 3 Total Operating Revenues $ 36,997,082 $ 40,018,906 $ 45,347,288 $ 49,715,695 $ 60,196,916 Operating Expenses 4 Power Generation and Transmission $ 1,322,803 $ 1,473,051 $ 1,440,408 $ 1,410,693 $ 1,806,002 5 Purchased Capacity and Energy 23,599,737 26,247,788 30,248,643 33,682,434 42,471,962 6 Distribution 2,775,782 2,663,414 2,900,728 2,899,530 3,069,096 7 Customer Accounts 972,198 1,102,623 1,548,433 1,399,152 2,308,706 8 General and Administrative 1,814,971 1,943,168 2,146,779 3,036,414 2,555,124 9 Total Operating Expenses $ 30,485,491 $ 33,430,044 $ 38,284,991 $ 42,428,223 $ 52,210, Net Operating Revenues $ 6,511,591 $ 6,588,862 $ 7,062,297 $ 7,287,472 $ 7,986, Interest Income [2] 1,042, , , , , Other Income and Deductions 151,944 80,773 18, ,747 99, Total Available For Debt Service $ 7,705,841 $ 7,277,812 $ 7,520,923 $ 7,697,081 $ 8,231,927 Debt Service [3] 14 Series 1984 and 1989 Bonds $ - $ - $ - $ - $ - 15 Series 1999A Bonds 708, , , Series 2004 Bonds Other Subtotal Debt Service $ 708,243 $ 710,462 $ 478,746 $ - $ - 19 FMPA Pooled Loan Total Debt Service $ 708,243 $ 710,462 $ 478,746 $ - $ - 21 Capital Contributions $ - $ 157,647 $ 295,961 $ 2,060,499 $ 1,157,783 Amount Available for Capital Improvements, Working Capital, and 22 Transfer to the General Fund $ 6,997,598 $ 6,724,997 $ 7,338,138 $ 9,757,580 $ 9,389,710 Debt Service Coverage 23 Series 1984, 1989, and 1999A Bonds NA NA 24 Total Debt Service NA NA Other Financing Sources (Uses) 25 Operating Transfers In $ - $ - $ 3,594,145 $ - $ 51, Transfer (to) from Wastewater Fund - - (4,300,000) 430,000 3,870, Transfers Out - Streetscape Transfers Out - Capital Projects (333,084) (740,402) (1,094,015) (309,824) (57,196) 29 Transfers Out - Communications (106,951) - (3,117,720) (503,702) - 30 Transfers Out - General Fund (4,006,749) (4,232,027) (4,644,628) (4,971,224) (5,256,572) 31 Total Other Financing Sources (Uses) $ (4,446,784) $ (4,972,429) $ (9,562,218) $ (5,354,750) $ (1,392,766) 32 Net Funds Available From Operations $ 2,550,814 $ 1,752,568 $ (2,224,080) $ 4,402,830 $ 7,996,944 Notes: [1] Amounts shown are presented in accordance with the provisions of the bond resolution and therefore are not presented in the same format as the City's audited Financial Statements. [2] Amounts shown exclude investment income associated with Construction Fund balances. [3] Amounts shown reflect debt service requirements paid from Revenues and allocable to the Electric System. The debt service on the Series 1999 B Bonds is allocable to the City's Wastewater System. 8/6/2007 Electric Model Table 5 Page 6 of 8

107 CITY OF LEESBURG, FLORIDA Table 6 Electric System 1-Aug-07 Projected Operating Results [1] Line Fiscal Year Ending September 30, No. Description (a) (b) (c) (d) (e) (f) (g) Operating Revenues 1 Charges for Services $ 61,370,765 $ 63,085,292 $ 65,552,770 $ 68,114,225 $ 70,802,410 $ 73,594,575 2 Percent Rate Increase [2] 0.00% 11.00% 3.00% 3.00% 3.00% 3.00% 3 Other Operating Revenues 646, ,541 1,029,429 1,008,845 1,101,309 1,193,773 4 Total Operating Revenues $ 62,017,149 $ 63,834,832 $ 66,582,199 $ 69,123,070 $ 71,903,719 $ 74,788,348 Operating Expenses 5 Power Generation and Transmission $ 1,540,202 $ 1,568,426 $ 1,596,547 $ 1,624,547 $ 1,653,911 $ 1,683,856 6 Purchased Energy 42,089,164 42,762,447 43,506,782 44,247,874 45,025,432 45,818,505 7 Distribution 4,645,338 4,647,070 4,882,672 5,127,385 5,382,357 5,648,920 8 Customer Accounts 2,647,106 2,700,048 2,754,049 2,809,130 2,865,313 2,922,619 9 General and Administrative 3,449,585 3,516,542 3,780,855 4,045,641 4,311,065 4,577, Total Operating Expenses $ 54,371,395 $ 55,194,533 $ 56,520,906 $ 57,854,576 $ 59,238,078 $ 60,650, Net Operating Revenues $ 7,645,754 $ 8,640,299 $ 10,061,293 $ 11,268,493 $ 12,665,642 $ 14,137, Interest Income [3] 134, , , , , , Other Income and Deductions 205, , , , , , Total Available For Debt Service $ 7,985,619 $ 9,392,125 $ 10,843,361 $ 12,104,057 $ 13,561,623 $ 15,110,402 Debt Service 15 Series 2004 Revenue Bonds [4] 1,104,813 1,100,875 1,100,975 1,105,095 1,103,025 1,104, Series 2007A Revenue Bonds [5] , , , , Series 2007B Revenue Bonds [6] , , , , Series 2009 Revenue Bonds [7] ,788 1,726,575 1,727, Total Debt Service $ 1,104,813 $ 1,100,875 $ 2,615,594 $ 3,284,710 $ 4,341,789 $ 4,342, Capital Contributions [8] $ 373,374 $ 525,000 $ 560,000 $ 595,000 $ 630,000 $ 647,500 Amount Available for Capital Improvements, Working Capital, and 21 Transfer to the General Fund $ 7,254,180 $ 8,816,250 $ 8,787,767 $ 9,414,348 $ 9,849,834 $ 11,415,500 Debt Service Coverage 22 Total Debt Service Net Funds Available Before Transfers $ 7,254,180 $ 8,816,250 $ 8,787,767 $ 9,414,348 $ 9,849,834 $ 11,415,500 Other Financing Sources (Uses) 24 Operating Transfers In $ - $ - $ - $ - $ - $ - 25 Transfer from Wastewater Fund [9] Transfer Out - Renewal & Replacement Fund [10] - (500,000) (500,000) (500,000) (500,000) (500,000) 27 Transfers Out - Public Service Tax/Surcharge [11] (1,005,056) (1,034,290) (1,071,564) (1,110,174) (1,150,775) (1,192,977) 28 Transfers Out - General Fund [12] (5,886,569) (4,728,258) (4,932,893) (5,121,217) (5,327,690) (5,541,871) 29 Total Other Financing Sources (Uses) $ (6,891,624) $ (6,262,548) $ (6,504,457) $ (6,731,390) $ (6,978,465) $ (7,234,848) 30 Net Funds Available From Operations $ 362,556 $ 2,553,702 $ 2,283,310 $ 2,682,957 $ 2,871,369 $ 4,180,652 8/6/2007 Electric Model Table 6 Page 7 of 8

108 CITY OF LEESBURG, FLORIDA Table 6 Electric System 1-Aug-07 Projected Operating Results [1] Line Fiscal Year Ending September 30, No. Description (a) (b) (c) (d) (e) (f) (g) Fund Balances Renewal & Replacement Fund 31 Beginning Year Balance [13] $ - $ - $ 250,000 $ 600,000 $ 950,000 $ 1,300, Deposit/(Withdrawal) from Operations [14] - 500, , , , , Capital Items paid for from Reserves [15] - (250,000) (150,000) (150,000) (150,000) (150,000) 34 Ending Year Balance $ - $ 250,000 $ 600,000 $ 950,000 $ 1,300,000 $ 1,650,000 Operating Reserve Fund/Depreciation Fund 35 Beginning Year Balance [16] $ - $ 9,124,683 $ 9,376,705 $ 10,067,016 $ 10,915,973 $ 11,757,342 Transfer In: 36 Deposit/(Withdrawal) from Operations [17] 362,556 2,553,702 2,283,310 2,682,957 2,871,369 4,180, Proceeds from Series 2007B Bonds [18] 10,700, Capital Items paid for from Reserves [19] (2,628,873) (2,301,680) (1,593,000) (1,834,000) (2,030,000) (2,195,000) 39 Other Sources 691, Ending Year Balance $ 9,124,683 $ 9,376,705 $ 10,067,016 $ 10,915,973 $ 11,757,342 $ 13,742, Unrestricted Fund Balance [20] $ 9,124,683 $ 9,626,705 $ 10,667,016 $ 11,865,973 $ 13,057,342 $ 15,392, Targeted Fund Balance [21] $ 8,817,406 $ 8,822,444 $ 9,560,506 $ 10,226,823 $ 10,966,603 $ 11,738, Surplus/(Deficiency) [22] $ 307,277 $ 804,262 $ 1,106,509 $ 1,639,150 $ 2,090,738 $ 3,654,465 8/6/2007 Electric Model Table 6 Page 8 of 8

109 CITY OF LEESBURG, FLORIDA Table 6 Electric System Projected Operating Results Footnotes 1. Amounts shown are presented in accordance with the provisions of the Bond Resolution and therefore are not presented in the same format as the City's audited Financial Statements. 2. The City has adopted an annual rate adjustment to reflect inflationary pressures on normal operating expenses. Historically, this adjustment has been based on the GDP Implicit Price Deflator ( GDP ) as developed by the Energy Information Administration and presented in their Annual Energy Outlook ( AEO ). However, the City has recognized that this general inflationary index does not sufficiently reflect the Electric System s increase in operating expenses. The City has commissioned a study to develop a more appropriate annual inflationary rate adjustment for the Electric System. However, this study is not complete at the time of this report. For purposes of this report, the City has advised the firm to assume an annual three percent (3.0%) inflationary rate adjustment. In addition to these proposed annual inflationary rate adjustments, it is projected the Electric System will require rate adjustments that result in increased annual revenues as presented in this analysis. These increases may come from a redesign of the City s existing rate structure, a rate increase to all or select customer classes or a combination of these two. As mentioned in the text portion of this analysis, the City has retained a qualified consultant to perform comprehensive rate analyses and a cost-of-service study for the Electric System. It is anticipated this rate study will provide the City with direction as to how to recover the additional revenues. The rate adjustments presented herein have been reviewed by City staff and found to be reasonable. However, as of the date of this report, these rate adjustments have not been formally adopted by the Commission. The total annual rate adjustments, including the inflationary adjustment, are projected to be as follows: Year Revenue Increase % % % % % 3. Based on average annual cash balance and an interest earnings rate of 3% per annum. 4. Annual debt service payments associated with the Series 2004 Electric System Revenue Bonds; provided by the City. 5. Estimated annual debt service payments associated with the Series 2007 Taxable Electric System Revenue Bonds; the City anticipates capitalizing interest through October 1, 2008; provided by the City s Financial Advisor.

110 CITY OF LEESBURG, FLORIDA Table 6 Electric System Projected Operating Results Footnotes - continued 6. Estimated annual debt service payments associated with the Series 2007 Tax Exempt Electric System Revenue Bonds; the City anticipates capitalizing interest through October 1, 2008; provided by the City s Financial Advisor. 7. Estimated annual debt service payments associated with anticipated Series 2009 Electric System Revenue Bonds; provided by the City s Financial Advisor. 8. Provided by the City based on their anticipated revenues realized from capital contributions from customers. 9. According to the City, in fiscal year 2006 the wastewater system repaid in full an inter-fund loan made in association with the defeasance of certain wastewater debt obligations during fiscal year 2004; therefore, no additional transfers from the wastewater fund to the electric fund are anticipated during the projection period. 10. Represents amount to be transferred to the Renewal and Replacement fund to pay for certain budgeted capital expenditures associated with the maintenance and upkeep of the system; information provided by the City. 11. Residents inside the City pay a 10% Public Service Tax. This amount is transferred out of the utility fund to the general fund. 12. The City's current transfer policy allows for transfer from the utility fund to the general fund up to 10.0% of Total Operating Revenues. Historically, the City has transferred approximately 8.8% to 10.8%. Based on discussions with the City staff, for each year of the Projection Period the transfer is assumed to be 7.75% of Total Operating Revenues (line 4) less surcharge, gross receipts tax and franchise fees. 13. Beginning balance provided by the City; Renewal and Replacement Fund was closed during fiscal year 2004; however, the City has indicated that it will reestablish this account beginning in fiscal year From line From Table 4, line Beginning balance provided by the City. 17. From line Proceeds from the Series 2007B Bonds; provided by the City s Financial Advisor. 19. From Table 4, line Sum of line 34 and line Represents the minimum fund balance requirement in accordance with the revised fund balance policy being considered by the City. The proposed Fund Balance Policy would require the Electric System to maintain a minimum fund balance equal to one hundred twenty (120) days of operating revenues less the cost of purchased energy but including transfers to the General Fund. While, as of the date of this report, this policy has yet to be formally adopted by the City, the firm has been advised by the City that the Commission has responded favorably to the concept and is expected to adopt the new policy in near future. 22. Line 41 less line 42; represents the projected amount of surplus or deficiency held in cash reserves as compared to the fund balance policy described above in footnote 22.

111 APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE CITY OF LEESBURG FOR YEAR ENDED SEPTEMBER 30, 2006

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123 CITY OF LEESBURG, FLORIDA MANAGEMENT S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2006 The expenses and program revenues depicted in the following graph are from the statement of activities. Please note that expenses precede revenues as governments seek to identify the needs of citizens and then raise the resources needed to meet those needs. The excess of expenditures over program revenues are then funded by the remaining general revenues of the government. The pie chart depicting revenues by source-governmental activities reflects the percentage of individual revenue sources to total revenue sources for governmental activities. Expenses and Program Revenues - Governmental Activities 14,000,000 Expenses Program Revenues 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - General Government Public Safety Physical Environment Transportation Economic Environment Culture/ Recreation Interest on long-term debt Revenues by Source - Governmental Activities Shared Revenues 7.4% Other Taxes 15.7% Charges for Services 28.1% Utility Service Taxes 11.2% Investment Income 2.9% Operating Grants and Contributions 14.6% Property Taxes 18.0% Capital Grants and Contributions 2.1% 9

124 CITY OF LEESBURG, FLORIDA MANAGEMENT S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2006 Business-type Activities - Business-type activities increased the City s net assets by $8,579,435. This increase is primarily due to the recovery of energy costs incurred during the previous year. The expenses and program revenues depicted in the following graph are from the statement of activities. Please note that expenses precede revenues in this presentation. Business-type activities differ from governmental-type activities in that charges for services revenues are designed specifically to recover the cost of providing those services, including capital costs such as depreciation or debt service. The pie chart reflecting revenues by source-business-type activities presents charges for services as 93.6% of overall business-type activities. Expenses and Program Revenues - Business-type Activities 70,000,000 Expenses Program Revenues 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - Electric Gas Water Wastewater Solid Waste Communications Revenues by Source - Business-type Activities Charges for Services 93.6% Capital Grants and Contributions 5.8% Investment Income 0.6% 10

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185 APPENDIX D COPY OF RESOLUTION NOS. 7141, 7960 AND 7964

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277 APPENDIX E FORM OF BOND COUNSEL OPINION

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279 Fort Lauderdale Jacksonville Los Angeles Madison Miami New York Orlando Tallahassee Tampa Tysons Corner Washington, DC West Palm Beach 420 South Orange Avenue Suite 1200 Orlando, Florida Post Office Box 231 mail Orlando, Florida tel fax City Commission City of Leesburg, Florida Upon delivery of the 2007 Bonds in definitive form, Akerman Senterfitt, Bond Counsel, proposes to render its opinion with respect to such 2007 Bonds in substantially the following form: [Date of Delivery] $11,265,000 CITY OF LEESBURG, FLORIDA ELECTRIC SYSTEM REVENUE BONDS, SERIES 2007A AND $11,710,000 CITY OF LEESBURG, FLORIDA TAXABLE ELECTRIC SYSTEM REVENUE BONDS, SERIES 2007B Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance by the City of Leesburg, Florida (the "Issuer") of its $11,265,000 Electric System Revenue Bonds, Series 2007A (the "2007A Bonds") and its $11,710,000 Taxable Electric System Revenue Bonds Series 2007B (the 2007B Bonds collectively with the 2007A Bonds, the Series 2007 Bonds ), pursuant to the Constitution and laws of the State of Florida, including particularly Section , Florida Statutes, Chapter 166, Florida Statutes, Article VIII, Section 2, Constitution State of Florida and with respect to the 2007B Bonds, Chapter 159, Part VII, Florida Statutes and other applicable provisions of law (collectively the "Act"), and Resolution No of the Issuer, as amended and supplemented and particularly as amended and supplemented by Issuer Resolution Nos and 7964 adopted on July 23, 2007, as supplemented (collectively, the "Resolution"). Any capitalized undefined terms used herein shall have the same meaning as such term has under the Resolution. As to questions of fact material to our opinion, we have relied upon representations of the Issuer contained in the Resolution and in the certified proceedings and other certifications of E-1