Financial Statements, Supplementary & Bond Disclosure Information. Fiscal Year Ending 2011 Kissimmee, Florida

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1 Financial Statements, Supplementary & Bond Disclosure Information Fiscal Year Ending 2011 Kissimmee, Florida

2 Board of Directors Fred Cumbie, Chairman Reginald Hardee, Vice-Chairman George Gant, Secretary Kathleen Thacker, Assistant Secretary Jeanne Van Meter, Director Jim Swan, Mayor/Ex-Officio President & General Manager James C. Welsh Vice Presidents Grant Lacerte, General Counsel Larry Mattern, Power Supply Jef Gray, Information Technology Greg Woessner, System Compliance & Operations Kenneth Davis, Engineering & Operations Susan Postans, Customer Service Joseph Hostetler, Finance & Risk Management Wilbur Hill, Human Resources Chris Gent, Corporate Communications ii

3 Bond Compliance Information: Management Disclosure Message Summary of Outstanding Debt Service Debt Service Payments and Coverage Graphs Description of the Authority KUA Service Area & Surrounding Vicinity Historical Revenues/Expenses and Debt Service Coverage Bonds Financial Highlights Operating Highlights Power Supply Resources Fuel Mix Base Rate Change History Electric Rate Comparison Historical Customers, Energy Sales and Peak Loads Ten Largest Electric Customers iii Title Page i Management Team ii Table of Contents iii Letter of Transmittal iv Organizational Chart vii Report of Independent Certified Public Accountants Management s Discussion & Analysis Financial Statements: Statement of Net Assets Statements of Revenues, Expenses & Changes in Net Assets Statements of Cash Flows Agency Fund Financial Statements Pension Trust Fund Financial Statements Notes to the Financial Statements Required Supplementary Information Supplementary Information: Combining Financial Statements: Statement of Net Assets Statements of Revenues, Expenses & Changes in Net Assets Statements of Cash Flows Operating Revenues by Source/Operating Expenses by Dept Listing of Insurance

4 P.O. BOX KISSIMMEE, FLORIDA / March 13, 2012 The Annual Financial Reportofthe Kissimmee Utility Authority (KUA), for the fiscal year ended September 30,2011 is submitted herewith pursuant to Section 10 of the KUA Charter, Florida Statutes Chapter (1) and Chapter of the Rules of the Auditor General of the State of Florida. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the KUA. This Annual Financial Report was prepared by the staff of the KUA 's Department of Finance and Risk Management. We believe the data, as presented, is accurate in all material respects; that it is presented in a manner designed to fairly set forth the fmancial position, changes in financial position, and cash flows of the KUA; and that all disclosures necessary to enable the readers to gain the maximum understanding of the KUA's financial activity have been included. The KUA's financial statements have been audited by Purvis Gray & Company, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the KUA for the fiscal year ended September 30, 20 II, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Authority's financial statements for the fiscal year ended September 30, 2011, are fairly presented in conformity with accounting principles generally accepted in the United States (GAAP). The independent certified public accountant's report is presented in this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form ofmanagement's Discussion and Analysis (MD&A). This letter oftransmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the repmi of the independent ceitified public accountants. THE REPORTING UNIT In 1983, the City Commission of the City of Kissinunee established a Utility Study Committee. The report of this committee recommended establishing a separate authority. In February 1985, the City Commission adopted Ordinance #1285 establishing the KUA, subject to approval by a majority of qualified voters. In March 1985, the voters of Kissimmee did approve establishing the KUA effective October I, The KUA Charter (Ordinance# 1285) states that the KUA shall be responsible for the development, production, purchase and distribution of all electricity and such other utility services as may be designated by resolution ofthe City Commission. The KUA currently provides electric services in an 85 square mile service territory in the Kissimmee area. All of the service territory is within Osceola County. This repmi includes all funds of the KUA. This report does not include the financial activities of the City of Kissimmee. Reference should be made to their repmi published separately. Management of the KUA is responsible for establishing and maintaining a system of internal controls designed to ensure that the assets of the KUA are protected from loss, theft or misuse and to ensure that adequate accounting data is iv Serving the Kissimmee Area Since 1901

5 compiled to allow for the preparation of financial statements in conformity with accounting principles generally accepted in the United States. The KUA's accounting controls are designed to provide reasonable, but not absolute, assurance regarding: l. The safeguarding of assets against loss from unauthorized use or disposition; and 2. The reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: l. The costs of a control should not exceed the benefits likely to be derived; and 2. The evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the KUA's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. ECONOMIC CONDITION AND OUTLOOK The KUA service tenitmy is located approximately 18 miles south of Orlando and 7 miles east of Walt Disney World. During Fiscal Year 2012, the system will serve approximately 64, l 00 customers. As we look to the future, it seems possible that some fonn of increased competition may become a reality in spite ofthe problems experienced in other markets. We believe that competition will first occur in the states with the highest utility rates. Since Florida has low to moderate utility rates, we believe KUA is insulated from the effects of competition, at least in the near future. LONG TERM CAPITAL PLANNING Over the next five years, the KUA has identified major projects that will help meet the needs of projected customer and energy sales growth. The key projects and their estimated costs, per the FY 2012 adopted budget, during the five-year planning period include line extensions and upgrades, generation equipment work and inspections, equipment replacement and upgrades at substations, and customer service technology and facilities replacements, upgrades, and additions. ANNUAL BUDGET The KUA is required by Charter to adopt an annual budget. The KUA follows these procedures in establishing the annual budget: I. The President & General Manager submits to the Board of Directors a proposed operating and capital budget for the ensuing fiscal year. The operating budget includes proposed sources and the uses of funds to finance them. 2. During several workshops, which are open to the public, the staff and Board of Directors discuss and revise the submitted budget. A public hearing is conducted to obtain ratepayer conunents. 3. The budget is approved by the Board of Directors and becomes the basis for operations for the ensuing fiscal year. Budgetary control is provided by quarterly revenue, expense and financial analysis reports. These interim reports are provided to the Board of Directors for review before a fmmal verbal presentation of financial activity at each quarterly Board meeting. CASH MANAGEMENT The KUA has a banking service agreement with a local depositmy bank that provides that all funds will earn interest at the Federal Funds Target Rate. The KUA also participates in the State of Florida State Board of Administration's program for pooled investment oflocal government surplus funds. During FY 20 l 0, the KUA maintained investments v

6 for certain restricted and designated funds in accordance with established policies and procedures. The cash management program involves a theory of keeping principal and earnings free fi om unreasonable risk, maintaining reasonable liquidity to meet maturing obligations and maximizing returns through the use of competitive rate comparisons from various investment sources. RISK MANAGEMENT During the current fiscal year the KUA has continued to accumulate resources in the Self Insurance Fund. The accumulated fund was approximately $15,400,000 and $15,739,000 at September 30, 2011 and 2010, respectively. Management is continuing to review the Insurance Program to determine the appropriate amount of risk in terms of higher deductibles that can be assumed by the KUA. In addition, various risk control techniques including employee accident prevention training have been continued during the year to minimize accident related losses. DEBT MANAGEMENT At September 30,2011, the KUA had outstanding revenue bonds in the amount of$137,285,000 and commercial paper notes of$43,200,000. Interest rates range fi om 3% to 5.25% on the bonds. Commercial paper variable rates averaged.35%. The KUA maintains an A and Al underlying rating from Fitch and Moody's respectively for its senior revenue backed outstanding bond issues and an AA- and A2 underlying rating, respectively, on its subordinate bonds. Debt service schedules extend to 2018, with principal payments due October 1 of each year. The principal for the bonds due October I, 2011, was $17,335,000. PENSION BENEFITS The KUA sponsors a single-employer defined benefit pension plan for its employees. Each year, an independent actuary engaged by the pension plan board of directors calculates the amount of the annual contribution that the KUA 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. As a matter of policy, the KUA fully funds each year's annual required contribution to the pension plan as detetmined by the actuary. As a result ofthe KUA's conservative funding policy, the KUAhas succeeded as of September 30,2011, in funding 69 percent of the present value of the projected benefits earned by employees. The remaining unfunded amount is being systematically funded over 30 years as part ofthe annual required contribution calculated by the actuary. ACKNOWLEDGMENTS The preparation of this report was made possible by the dedicated service of the entire staff of the Finance & Risk Management Department. Each member of the Department has our sincere appreciation for the contributions made in the preparation of this report. In closing, without the leadership and support of the Board ofdirectors of the KUA, preparation of this report would not have been possible. Respectfully submitted, resident & General Manager ~ Hostetler Finance & Risk Management vi

7 General Management 6 Power Supply Information Technology System Compliance & Operations Engineering & Operations Customer Service Finance & Risk Management Human Resources FY FY '13 vii

8 Tab Report of Independent Certified Public Accountants

9 INDEPENDENT AUDITORS' REPORT Board of Directors Kissimmee Utility Authority Kissimmee, Florida We have audited the accompanying financial statements of the business-type activity, the major fund and the aggregate remaining fund information of Kissimmee Utility Authority (the Authority), as of and for the years ended September 30, 2011 and 2010, which collectively comprise the Authority s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Authority s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activity, the major fund and the aggregate remaining fund information of the Authority, as of September 30, 2011 and 2010, and the respective changes in financial position and cash flows, thereof for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 16, 2011, on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal controls over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 1

10 Board of Directors Kissimmee Utility Authority Kissimmee, Florida INDEPENDENT AUDITORS' REPORT (Concluded) Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and certain pension trust information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. December 16, 2011 Ocala, Florida 2

11 Tab Management s Discussion & Analysis

12 Management s Discussion and Analysis This section of Kissimmee Utility Authority s (KUA) annual financial report presents the analyses of the KUA s financial performance during the fiscal years that ended on September 30, 2011 and Please read it in conjunction with the financial statements, which follow this section. Financial Highlights 2011 The assets of the KUA exceeded its liabilities at September 30, 2011 by $174.9 million (net assets). Of this amount, $30.2 million (unrestricted net assets) may be used to meet ongoing obligations to customers and creditors. The KUA s net assets increased by $3.4 million or 2 percent. The KUA s net utility plant increased by $3 million or 1.8 percent. During the year, the KUA s operating revenues decreased to $174.3 million or 11.3 percent while operating expenses decreased to $161.2 million or 9 percent. The KUA s total long term debt outstanding decreased to approximately $182.1 million. The decrease related to principal of approximately $17.3 million becoming current during the fiscal year combined with a $9.2 million decrease in Revenue Bonds Payable due to the refunding of the 2001A&B bond issues. These decreases were offset by a decline in the Unamortized Loss on Reacquired Debt of $2.8 million. Liabilities Payable from Restricted Assets increased by $2.4 million or 3.3% primarily due to increases in Rate Stabilization Deferred Credits of $6.2 million and Customer Deposits of $2 million offset by a decrease in the Current Portion of Revenue Bonds of $4.6 million. Financial Highlights 2010 The assets of the KUA exceeded its liabilities at September 30, 2010 by $171.5 million (net assets). Of this amount, $31.5 million (unrestricted net assets) may be used to meet ongoing obligations to customers and creditors. The KUA s net assets increased by $9.1 million or 5.6 percent. The KUA s net utility plant increased by $3.1 million or 1.9 percent. During the year, the KUA s operating revenues increased to $196.4 million or 3.1 percent while operating expenses decreased to $177.2 million or 1.3 percent. The KUA s total long term debt outstanding decreased to approximately $206.1 million. The decrease related to principal of approximately $16.6 million becoming current during the current fiscal year and a decrease in Unamortized Bond Premium of $1.4 million offset by a decrease in Unamortized Loss on Refunded Debt of $2.2 million. Liabilities Payable from Restricted Assets increased by $6.9 million or 10.6% primarily due to increases in Rate Stabilization Deferred Credits of $1.7 million, Customer Deposits of $1.7 million, CR3 Decommissioning Liability of $1.6 million and Accrued Interest Payable Revenue Bonds of $1 million. Required Financial Statements The KUA maintains its accounts on the accrual basis in accordance with accounting principles generally accepted in the United States. The accounts are substantially in conformity with accounting principles and methods prescribed by the Federal Energy Regulatory Commission (FERC) and other regulatory authorities. The financial statements of the KUA offer short and long term financial information about its activities. The Statement of Net Assets includes all of the KUA s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to KUA creditors (liabilities). It also 3

13 provides the basis for computing rate of return, evaluating the capital structure of the KUA and assessing the liquidity and financial flexibility of the KUA. All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Net Assets. This statement measures the success of the KUA s operations over the past year and can be used to determine whether the KUA has successfully recovered all of its costs. The other required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the KUA s cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and financing activities; and provides answers to such questions as where did the cash come from?, what was cash used for?, and what was the change in cash balance during the reporting period?. Financial Analysis of the KUA One of the most important questions asked about KUA s finances is, Is the KUA better off or worse off as a result of the year s activities? The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets report information about the KUA s activities in a way that will help answer this question. These two statements report the net assets of the KUA, and changes in them. You can think of the KUA s net assets the difference between assets and liabilities as one way to measure financial health or financial position. Over time, increases or decreases in the KUA s net assets are one indicator of whether its financial health is improving or deteriorating. However, you will need to consider other non financial factors such as changes in economic conditions, customer growth, and legislative mandates. The following analysis focuses on the KUA s Net Assets (Table 1) and Statement of Revenues, Expenses, and Changes in Net Assets (Table 2) during the three fiscal years. Table 1 Net Assets 9/30/2011 9/30/2010 9/30/2009 Capital Assets $ 166,749,071 $ 163,776,531 $ 160,709,378 Current and Other Assets 300,356, ,117, ,272,013 Total Assets 467,105, ,893, ,981,391 Long term Debt Outstanding 182,142, ,137, ,871,150 Current and Other Liabilities 110,077, ,269, ,725,543 Total Liabilities 292,219, ,407, ,596,693 Net Assets: Invested in Capital Assets, Net of Related Debt 108,426,949 99,631,748 91,623,789 Restricted 36,230,478 40,350,558 40,800,867 Unrestricted 30,228,644 31,504,305 29,960,042 Total Net Assets $ 174,886,071 $ 171,486,611 $ 162,384,698 Analysis of 2011 Net Assets Capital assets increased primarily as a result of an increase in Property, Plant and Equipment offset by a decrease in Construction in Progress (CWIP) less the depreciation of Utility Plant. Current and other assets decreased primarily due to decreases in Cash and Cash Equivalents of $1.2 million, Investments of $12.9 million, Accounts Receivable of $4.4 million and Net Investment in Capital Lease of $8.3 million. Total liabilities decreased by approximately $27.2 million, primarily due to decreases in the Current Portion of Revenue Bonds of $4.6 million, Long term Revenue Bonds Payable of $26.4 million and the Deferred Cost of 4

14 Power Adjustment of $5 million offset by increases in Customer Deposits of $2 million, Rate Stabilization Deferred Credits of $6.2 million and the decrease in Unamortized Loss on Reacquired Debt of $2.8 million. The first portion of net assets reflects the KUA s investment in capital assets (e.g. plant, property and equipment net of accumulated depreciation); less any related debt used to acquire those assets that are still outstanding. The KUA uses these capital assets to provide electricity and other services to rate payers. It should be noted that the resources needed to repay the related debt must be provided primarily from future operating revenues, since the capital assets themselves cannot be used to liquidate these liabilities. This amount increased primarily as a result of the decrease in the Current Portion of Revenue Bonds of $4.6 million and Long term Debt of $26.4 million offset by the decrease in Net Investment in Capital Lease of $8.3 million, Debt Service Reserve of $7.4 million and 2003 Bond Proceeds of $5.1 million. An additional portion of the KUA s net assets ($36.2 million) represents resources that are subject to external restrictions (i.e. debt covenants) on how they may be used. The remaining balance of unrestricted net assets ($30.2 million) may be used to meet the utility s ongoing obligations to rate payers and creditors. Changes in the KUA s net assets can be determined by reviewing the following condensed Statement of Revenues, Expenses, and Changes in Net Assets for the year. Analysis of 2010 Net Assets Capital assets increased primarily as a result of increases in Property, Plant and Equipment and Construction in Progress (CWIP) less the depreciation of Utility Plant. Current and other assets decreased primarily due to decreases in Net Investment in Lease of $8.3 million, Costs to be Recovered from Future Revenue of $1.5 million and Accounts Receivable of $1.3 million offset by increases in Cash and Cash Equivalents and Investments of $6.3 million. Total liabilities decreased by approximately $12.2 million, primarily due to decreases in Long term Revenue Bonds Payable of $16.6 million, Deferred Cost of Power Adjustment of $1.4 million, Unamortized Bond Premium of $1.4 million and Other Accrued Liabilities of $1.3 million offset by increases in Customer Deposits of $1.7 million, Rate Stabilization Deferred Credits of $1.7 million, CR3 Decommissioning Liability of $1.6 million and the decrease in Unamortized Loss on Reacquired Debt of $2.2 million. The first portion of net assets reflects the KUA s investment in capital assets (e.g. plant, property and equipment net of accumulated depreciation); less any related debt used to acquire those assets that are still outstanding. The KUA uses these capital assets to provide electricity and other services to rate payers. It should be noted that the resources needed to repay the related debt must be provided primarily from future operating revenues, since the capital assets themselves cannot be used to liquidate these liabilities. This amount increased primarily as a result of the decrease in Long term Debt of $16.6 million offset by the decrease in Net Investment in Capital Lease of $8.3 million. An additional portion of the KUA s net assets ($40.4 million) represents resources that are subject to external restrictions (i.e. debt covenants) on how they may be used. The remaining balance of unrestricted net assets ($31.5 million) may be used to meet the utility s ongoing obligations to rate payers and creditors. Changes in the KUA s net assets can be determined by reviewing the following condensed Statement of Revenues, Expenses, and Changes in Net Assets for the year. Changes in the KUA s net assets can be determined by reviewing the following condensed Statement of Revenues, Expenses, and Changes in Net Assets for the year. 5

15 Table 2 Statement of Revenues, Expenses, and Changes in Net Assets Metered Sales $ 154,975,230 $ 174,255,347 $ 172,228,530 Lease Revenue 12,374,316 12,374,317 12,374,317 Other 8,619,860 9,177,743 9,426,136 Rate Stabilization Transfer 2,100,000 (2,149,073) Change in costs to be Recovered (1,690,151) (1,525,301) (1,331,745) Total Operating Revenues 174,279, ,382, ,548,165 Generation & Purchased Power 119,131, ,713, ,721,329 Transmission & Distribution 9,816,804 8,483,886 9,708,776 Administrative & General 15,555,558 15,408,620 15,269,649 Intergovernmental Transfers 8,520,247 8,527,973 8,318,961 Depreciation & Amortization 8,171,237 7,057,666 6,517,500 Total Operating Expense 161,194, ,191, ,536,215 Operating Income 13,084,313 19,190,207 11,011,950 Non Operating Expenses (9,684,853) (10,088,294) (6,529,002) Change in Net Assets 3,399,460 9,101,913 4,482,948 Net Assets Beginning of the Year 171,486, ,384, ,901,750 Net Assets End of Year $ 174,886,071 $ 171,486,611 $ 162,384,698 Analysis of 2011 Activity Year to date MWh sales in FY 2011 were approximately 1,359,315 compared to FY 2010 sales of 1,371,308, or a.9% decrease. Sales to metered customers decreased from $174.3 million to $155 million or 11.1%. The decrease in metered sales revenue resulted from decreases in KWh revenues of $3 million or 1.6% and COPA revenues of $16.3 million or 80.1%. During FY 2003, the KUA Board of Directors approved the issuance of revenue bonds and refunding of outstanding bonds. A Rate Stabilization fund was created which allows current income to be deferred to a future time in order to stabilize rates. In FY 2011, unbudgeted transfers of $10.5 million were drawn from this fund to offset customer fuel charges. A transfer of $10.5 million out of the fund was made at year end. These offsetting transfers had no effect on operating revenues in FY Total operating expenses were lower than the previous year by $16 million, primarily due to lower Fuel and Purchased Power expense. We are required to record the fair value of our investment portfolio and recognize any corresponding increase or decrease in the fair value of investments in the income statement. For FY 2011, our unrealized loss (difference between carrying value versus current market value) was $257,000 compared to a loss of $265,000 for FY Non operating expenses decreased primarily due to a decrease of $.5 million in Interest Expense. Analysis of 2010 Activity Year to date MWh sales in FY 2010 were approximately 1,371,000 compared to FY 2009 sales of 1,336,000, or a 2.6% increase. Sales to metered customers increased from $172.2 million to $174.3 million or 1.2%. The increase in metered sales revenue resulted from an increase in KWh revenues of $7.3 million or 3.9% offset by a decrease of COPA revenues of $5.2 million or 34.7%. 6

16 During FY 2003, the KUA Board of Directors approved the issuance of revenue bonds and refunding of outstanding bonds. A Rate Stabilization fund was created which allows current income to be deferred to a future time in order to stabilize rates. In FY 2010, $7.5 million was budgeted to build up the rate stabilization fund. Unbudgeted transfers of $8.5 million were drawn from this fund during FY 2010 to offset customer fuel charges. A transfer of $1.1 million out of the fund was made at year end. The effect of these actions was to increase FY 2010 operating revenues by $2.1 million. Total operating expenses were lower than the previous year by $2.3 million, primarily due to lower Fuel and Purchased Power expense. We are required to record the fair value of our investment portfolio and recognize any corresponding increase or decrease in the fair value of investments in the income statement. For FY 2010, our unrealized loss (difference between carrying value versus current market value) was $265,000 compared to a gain of $587,000 for FY Non operating expenses increased primarily due to no Gain on the Sale of Property and lower Investment Income offset by decreased Debt Service expenses. Rates In December 1974, the City Commission adopted an ordinance permitting the City (and now the KUA) to pass on directly to the customer incremental fuel cost increases on a monthly basis. This Cost of Power Adjustment (COPA) has eliminated the regulatory delay that has been a problem for many other utilities. Additionally, in June 1983, the City Commission modified the COPA Ordinance to allow the System to project the billed COPA to a levelized rate for the fiscal year. The negative or positive COPA account balance was used in calculating the projected COPA rate for the next fiscal year. In July 1991 the Board of Directors approved a COPA Resolution that allows automatic monthly adjustments to the COPA rate based on a weighted average using the prior month, estimated current month and following monthly costs. In May 1994 the Board of Directors approved a resolution permitting the KUA to pass on directly to the customer conservation costs on a monthly basis similar to the COPA mechanism. This Energy Conservation Cost Recovery (ECCR) rate is adjusted semiannually to reflect changes in conservation costs. The COPA and ECCR rates have been combined and are presented on the customer s bill as Fuel Adjustment. The KUA additionally maintains a computerized cost of service study which is updated annually with: a. Past years audited amounts to survey the adequacy of each rate and rate structure; and b. The current years budgeted amounts to predict the need for a rate change. Customer rates and rate structures are intended to follow guidelines of the Florida Public Service Commission and, as such, should be fair, just and reasonable. It is also intended that they are competitive with neighboring utilities and equitable between rate classes. Capital Assets and Debt Management Capital Assets At the end of FY 2011, the KUA had $267.9 million invested in a broad range of capital assets primarily electric transmission and distribution systems. This amount represents an increase of $8.8 million, or 3.4% over last year. Those interested in more detailed information may refer to Footnote 5 in the Notes to the Financial Statements. At the end of FY 2010, the KUA had $259.1 million invested in a broad range of capital assets primarily electric transmission and distribution systems. This amount represents an increase of $8 million, or 3.2% over last year. Those interested in more detailed information may refer to Footnote 5 in the Notes to the Financial Statements. 7

17 Debt Management At the end of the current fiscal year, the KUA had total debt outstanding of $192,420,000. Of this amount, $149,220,000 million is improvements and refunding revenue bonds and $43,200,000 million is commercial paper Revenue Bonds $ 149,220,000 $ 180,325,000 $ 196,165,000 Commercial Paper 43,200,000 43,200,000 43,200,000 Total $ 192,420,000 $ 223,525,000 $ 239,365,000 The KUA s total debt decreased by $31.1 million (13.9 percent) during the current fiscal year due to the scheduled principal payments and refunding of the 2001A&B bond issues. See Footnote 9 in the Notes to the Financial Statements for further detail. The KUA maintains an AA and A1 underlying rating from Fitch and Moody s respectively for outstanding bond issues. The KUA s total debt decreased by $15.8 million (6.6 percent) from 2009 to 2010 due to the scheduled principal payments. The KUA maintained an AA 1 and A2 underlying rating from Fitch and Moody s respectively for outstanding bond issues. The KUA attempts to minimize external financing needs through internal generation of capital funds. The purpose of this financial policy is to establish and maintain a debt to equity ratio and a coverage ratio that would minimize the impact of future debt issues for generation and transmission plants. The current fiscal policy includes the following guidelines: 1. Bond proceeds should fund all generation (capacity) and transmission projects; 2. Current earnings (cash provided from operations) should be adequate to fund operating and maintenance expenses, debt service related costs (excluding capitalized interest) and year to year capital needs generally less than $100,000; 3. The Reserve for Future Capital Outlay funds should be used for all other purposes as approved by the Board of Directors. Maintain a minimum level of $5,000,000 in Reserve for Future Capital Outlay, indexed each year by the increase in KWh sales beginning in FY The Board of Directors froze fund growth for FY 2009, but growth has resumed in FY (current minimum level is approximately $7,800,000); 4. Maintain a minimum of one and one half months of fixed operating & maintenance expenses (excluding Depreciation, Costs to be Recovered from Future Revenue, Fuel Costs, and debt service related costs) in unrestricted operating cash and cash equivalents and longer term invested working capital funds; 5. Maintain a minimum of 1.25 debt service coverage as defined in the bond resolution; 6. Build an insurance fund adequate to fund reconstruction expenditures for our transmission and distribution system in the event of the most likely level of storm that would occur in the Central Florida area; and 7. Maintain a minimum of $5,000,000 in a Rate Stabilization fund. The principal, premium if any, and interest on all outstanding bonds are payable solely from the net revenues derived by the KUA from the operation of the System. These obligations do not constitute liens upon the System or on any other property of the KUA or the City of Kissimmee, but are a lien only on the Net Revenues and special funds created by the Bond Resolution and in the manner provided therein. The income available for debt service was $37,989,000, $37,260,000 and $32,254,000 for FY 2009, FY 2010, and FY 2011 respectively. The debt service requirements for FY 2009, FY 2010, and FY 2011 were $25,879,000, $25,386,000, and $25,674,000 respectively. Debt service coverage was 1.5x, 1.5x, and 1.3x for FY 2009, FY 2010, and FY 2011 respectively. 8

18 Those interested in more detailed information may refer to Footnote 9 in the Notes to the Financial Statements. Economic Factors and Next Year s Budget and Rates In July 2011, the KUA growth in customers and energy sales for FY 2012 was projected to be approximately 1.6% and 2.5% respectively within the service territory. The change in net assets was projected to be approximately $10.3 million. There is no rate increase planned for the upcoming year. Contacting the KUA s Financial Management This financial report is designed to provide the KUA s rate payers and creditors with a general overview of the KUA s finances and to demonstrate the KUA s accountability for the money it receives. Those interested in more detailed information may refer to the notes to the financial statements. If you have questions about this report or need additional information, contact the Finance & Risk Management Department at Kissimmee Utility Authority, 1701 W. Carroll Street, Kissimmee, Florida,

19 Tab Financial Statements

20 STATEMENTS OF NET ASSETS SEPTEMBER 30, ASSETS CURRENT ASSETS Cash and cash equivalents $29,204,456 $22,967,214 Investments 11,884,120 22,607,719 Interest receivable 23,270 80,760 Accounts receivable 10,599,866 13,271,603 Less: allowance for doubtful accounts (670,871) (1,429,934) Unbilled receivables 4,767,086 6,525,650 Inventory 6,695,068 7,716,250 Other current assets 1,669, ,317 Current portion of net investment in capital lease 8,301,719 8,301,719 Current portion of note receivable other agency 355,852 0 TOTAL CURRENT ASSETS 72,829,928 80,604,298 RESTRICTED ASSETS Cash and cash equivalents 93,171, ,604,332 Investments 19,168,781 21,322,708 Interest receivable 26,439 81,055 TOTAL RESTRICTED ASSETS 112,366, ,008,095 OTHER ASSETS Unamortized bond costs 1,696,550 1,970,914 Costs to be recovered from future revenue 7,845,082 9,535,233 Stanton Energy Center power entitlement 414, ,275 Net investment in capital lease 104,254, ,556,350 Note receivable other agency 948,940 0 TOTAL OTHER ASSETS 115,159, ,504,772 CAPITAL ASSETS UTILITY PLANT Property, plant and equipment 248,636, ,324,865 Less: accumulated depreciation (101,187,111) (95,347,459) 147,448, ,977,406 Construction in progress 17,727,570 32,417,950 Nuclear fuel inventory 1,572,509 1,381,175 TOTAL CAPITAL ASSETS UTILITY PLANT 166,749, ,776,531 TOTAL ASSETS 467,105, ,893,696 The accompanying notes are an integral part of these financial statements 10

21 STATEMENTS OF NET ASSETS SEPTEMBER 30, LIABILITIES AND NET ASSETS LIABILITIES CURRENT LIABILITIES Accounts payable 10,529,388 $11,178,497 Due to other governments 1,860,858 1,761,068 Deferred cost of power adjustment 2,096,628 7,110,420 Other accrued liabilities 2,121,064 2,060,220 Current portion of other long term liabilities 2,126,846 1,904,386 TOTAL CURRENT LIABILITIES 18,734,784 24,014,591 LIABILITIES PAYABLE FROM RESTRICTED ASSETS Current portion of revenue bonds 11,935,000 16,550,000 Accrued interest payable revenue bonds 3,262,055 4,459,692 Advances for construction 2,415,888 2,401,580 Customer deposits 11,353,493 9,334,721 Rate stabilization deferred credits 39,756,581 33,540,204 CR3 decommissioning liability 5,691,076 5,742,926 TOTAL LIABILITIES PAYABLE FROM RESTRICTED ASSETS 74,414,093 72,029,123 LONG TERM DEBT Revenue bonds payable 137,285, ,775,000 Commercial paper notes 43,200,000 43,200,000 Unamortized bond premium 10,057,118 10,367,122 Less: unamortized loss on reacquired debt (8,399,607) (11,204,709) TOTAL LONG TERM DEBT 182,142, ,137,413 OTHER LONG TERM LIABILITIES Self insurance fund 15,300,929 15,589,585 Accrued compensated absences 1,312,409 1,423,069 Accrued other post employment benefits 315, ,304 TOTAL OTHER LONG TERM LIABILITIES 16,928,353 17,225,958 TOTAL LIABILITIES 292,219, ,407,085 NET ASSETS Investment in capital assets, net of related debt 108,426,949 99,631,748 Restricted 36,230,478 40,350,558 Unrestricted 30,228,644 31,504,305 TOTAL NET ASSETS 174,886, ,486,611 The accompanying notes are an integral part of these financial statements 11

22 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, OPERATING REVENUES Metered Sales $154,975,230 $174,255,347 Lease Revenue 12,374,316 12,374,317 Other 8,619,860 9,177,743 Rate stabilization transfer 0 2,100,000 Change in costs to be recovered from future revenue (1,690,151) (1,525,301) TOTAL OPERATING REVENUES 174,279, ,382,106 OPERATING EXPENSES Fuel and purchased power 118,130, ,270,232 Power supply other 1,000,642 2,443,522 Transmission and distribution 9,816,804 8,483,886 Administrative and general 15,555,558 15,408,620 Intergovernmental transfers 8,520,247 8,527,973 Depreciation and amortization 8,171,237 7,057,666 TOTAL OPERATING EXPENSES 161,194, ,191,899 OPERATING INCOME 13,084,313 19,190,207 NONOPERATING REVENUES (EXPENSES) Investment income 693, ,700 Interest expense (8,387,000) (8,855,652) Other debt service expense (1,903,217) (2,084,342) Loss on disposal of property (88,485) 0 TOTAL NONOPERATING REVENUES (EXPENSES) (9,684,853) (10,088,294) CHANGE IN NET ASSETS 3,399,460 9,101,913 NET ASSETS BEGINNING OF YEAR 171,486, ,384,698 NET ASSETS END OF YEAR 174,886, ,486,611 The accompanying notes are an integral part of these financial statements 12

23 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and other sources $182,155,568 $207,132,828 Payments to suppliers for goods and services (120,445,781) (142,531,849) Payments for employees for services (19,387,125) (18,796,403) Payments for benefits on behalf of employees (6,315,405) (5,894,971) NET CASH PROVIDED BY OPERATING ACTIVITIES 36,007,257 39,909,605 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets 1,248,853 (16,913,200) Advances for construction & advances from co owners (12,244,812) 7,084,339 Proceeds from debt issue 32,020,600 0 Payment to defease debt (39,160,000) 0 Debt issuance costs (269,500) 0 Principal paid on long term debt (21,950,000) (15,840,000) Interest paid on long term debt (9,642,890) (7,856,810) Other debt costs (898,053) (985,890) NET CASH PROVIDED BY (USED IN) CAPITAL AND RELATED FINANCING ACTIVITIES (50,895,802) (34,511,561) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities (41,016,377) (51,244,589) Proceeds from maturities of investment securities 54,002,000 49,000,000 Interest on investments 707, ,387 NET CASH PROVIDED BY INVESTING ACTIVITIES 13,693,213 (1,350,203) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,195,332) 4,047,841 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 123,571, ,523,705 CASH AND CASH EQUIVALENTS AT END OF YEAR $122,376,214 $123,571,546 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO BALANCE SHEET: Current Assets Cash and cash equivalents $29,204,456 $22,967,214 Restricted Assets Cash and cash equivalents 93,171, ,604,332 CASH AND CASH EQUIVALENTS AT END OF YEAR $122,376,214 $123,571,546 13

24 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, CASH PROVIDED BY OPERATING ACTIVITIES Continued Operating Income $13,084,313 $19,190,207 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 8,143,595 7,030,023 Loss on capital asset disposal (88,485) 0 Costs to be recovered from future revenue 1,690,151 1,525,301 Net amortization 27,642 27,642 Change in assets decrease (increase): Accounts receivable, net 2,955,055 2,134,685 Other assets (1,694,654) 55,845 Inventory 1,021,182 77,209 Deferred cost of power adjustment (5,013,792) (1,411,806) Energy conservation cost recovery 31, ,821 Net investment in capital lease 8,301,720 8,301,720 Change in liabilities increase (decrease): Accounts payable (649,012) (887,432) Due to other governments 99,790 52,378 Customer deposits 1,979,623 1,638,547 Other current liabilities 251, ,147 Other accrued liabilities 6,164,527 1,777,155 Other long term liabilities (297,605) (14,837) NET CASH PROVIDED BY OPERATING ACTIVITIES $36,007,257 $39,909,605 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: (Increase)/Decrease in fair value of investments $257,467 $265,173 14

25 STATEMENT OF ASSETS AND LIABILITIES AGENCY FUND NON ELECTRIC BILLING/COLLECTION FUND SEPTEMBER 30, ASSETS Cash $220,113 $122,966 TOTAL ASSETS $220,113 $122,966 LIABILITIES Due to City of Kissimmee 58,922 38,802 Due to TOHO Water Authority 161,191 84,164 TOTAL LIABILITIES $220,113 $122,966 The accompanying notes are an integral part of these financial statements. 15

26 STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND NON ELECTRIC BILLING/COLLECTION FUND FOR THE YEARS ENDED 9/30/2010 Balance Additions Reductions 9/30/2011 Balance ASSETS Cash $122,966 $64,182,296 ($64,085,148) $220,113 TOTAL ASSETS $122,966 $64,182,296 ($64,085,148) $220,113 LIABILITIES Due to City of Kissimmee 38,802 11,948,561 (11,928,441) 58,922 Due to TOHO Water Authority 84,164 52,233,735 (52,156,707) 161,191 TOTAL LIABILITIES $122,966 $64,182,296 ($64,085,148) $220,113 9/30/2009 Balance Additions Reductions 9/30/2010 Balance ASSETS Cash $106,206 $59,561,110 ($59,544,350) $122,966 TOTAL ASSETS $106,206 $59,561,110 ($59,544,350) $122,966 LIABILITIES Due to City of Kissimmee 37,351 12,425,841 (12,424,390) 38,802 Due to TOHO Water Authority 68,855 47,135,269 (47,119,960) 84,164 TOTAL LIABILITIES $106,206 $59,561,110 ($59,544,350) $122,966 The accompanying notes are an integral part of these financial statements. 16

27 STATEMENT OF NET ASSETS PENSION TRUST FUND FOR THE YEARS ENDED SEPTEMBER 30, ASSETS Receivables Interest $ 143,457 $ 68 Dividends 28,929 21,123 Total Receivables 172,386 21,191 Prepaid Insurance 1,501 1,508 Investments at Fair Value Pooled Fixed Income Fund 14,645,759 13,440,496 Domestic Stocks 18,380,625 18,455,785 Pooled Equity Fund 3,385,822 4,158,076 Foreign Equity Fund 6,011,941 4,551,203 Temporary Investment Fund 1,029,911 3,886,180 Total Investments at Fair Value 43,454,059 44,491,741 TOTAL ASSETS $ 43,627,946 $ 44,514,440 LIABILITIES Accounts Payable $ 25,273 $ 50,238 TOTAL LIABILITIES 25,273 50,238 PLAN NET ASSETS HELD IN TRUST FOR PENSION BENEFITS $ 43,602,673 $ 44,464,202 The accompanying notes are an integral part of these financial statements. 17

28 STATEMENT OF CHANGES IN PLAN NET ASSETS PENSION TRUST FUND FOR THE YEARS ENDED SEPTEMBER 30, ADDITIONS Contributions Employer $ 2,797,124 $ 2,444,831 Employee 271, ,923 Total Contributions 3,068,690 2,801,754 Investment Income (Loss) Net Appreciation (depreciation) in fair value of investments (1,464,005) 3,541,498 Interest 373,203 1,179 Dividends 757, ,304 Class Action Proceeds & Other 58,132 7,347 Total Investment Income (Loss) (274,743) 4,003,328 Less: Investment Expenses 245, ,969 Net Investment Income (Loss) (520,668) 3,785,359 TOTAL ADDITIONS (REDUCTIONS) 2,548,023 6,587,113 REDUCTIONS Benefits Age & Service 2,348,955 2,090,284 Disability 132, ,679 DROP 873, ,120 Refund of Contributions 5,188 0 Professional & Administrative Expenses 50,176 59,103 TOTAL REDUCTIONS 3,409,552 2,886,187 NET INCREASE (DECREASE) (861,530) 3,700,926 PLAN NET ASSETS HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR 44,464,202 40,763,276 END OF YEAR $ 43,602,673 $ 44,464,202 The accompanying notes are an integral part of these financial statements. 18

29 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Note 1 Summary of Significant Accounting Policies Entity Definition: The accompanying financial statements present the financial position, changes in financial position and cash flows of the Kissimmee Utility Authority (KUA). The reporting entity for the KUA includes all functions in which the KUA exercises financial accountability. Financial accountability is defined as appointment of a voting majority of the component unit s board, and either (a) the ability to impose will by the primary government, or (b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government. As a result of applying the above reporting entity criteria, no other component units exist in which the KUA has any financial accountability which would require inclusion in the KUA s financial statements. Description of Business: The KUA is a municipal electric utility authority created effective October 1, 1985 by the City of Kissimmee (COK) Ordinance No adopted on February 19, 1985 and ratified by the voters on March 26, The KUA serves customers in Kissimmee and the surrounding area. The KUA Board (Board) has 6 members. The Mayor of the COK is a non voting Ex Officio member. The 5 voting members are nominated by the Board and ratified by the City Commission. The KUA has exclusive jurisdiction, control and management of the electric utility. Under the definition of GASB No. 14, the KUA is properly excluded from the COK s financial statements. KUA also offers internet access to the residents of Osceola and surrounding counties. The service, KUA.net, features dial up internet access, e mail, and web hosting. The web hosting portion of the business is in transition for sale to a third party. The dial up and service will follow a similar path once a buyer has been found for those customer accounts. Afterward, KUA.net will cease its internet service offerings, but continue to work as a marketing agent with third parties. Currently, KUA.net is in partnership with Century Link, allowing KUA customers to select package plans for home phone, internet and satellite TV. Regulation: According to existing laws of the State of Florida, the five voting members of the KUA act as the regulatory authority for the establishment of electric rates. The Florida Public Service Commission (FPSC) has authority to regulate the electric rate structures of municipal utilities in Florida. It is believed that rate structures are clearly distinguishable from the total amount of revenues which a particular utility may receive from rates, and that distinction has thus far been carefully made by the FPSC. As noted above, the FPSC has jurisdiction to regulate electric rate structures of municipal utilities. In addition, the Florida Energy Efficiency and Conservation Act has given the FPSC exclusive authority to approve the construction of new power plants under the Florida Electrical Power Plant Siting Act. The FPSC also exercises jurisdiction under the National Energy Act, including electric use conservation programs. Operations of the KUA are subject to environmental regulations by federal, state and local authorities and to zoning regulations by local authorities. Federal and state standards and procedures that govern control of the environment can change. These changes can arise from continuing legislative, regulatory and judicial action respecting the standards and procedures. Therefore, there is no assurance that the units in operation, under construction, or contemplated will always remain subject to the regulations currently in effect or will always be 19

30 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 in compliance with future regulations. An inability to comply with environmental standards or deadlines could result in reduced operating levels or complete shutdown of individual electric generating units not in compliance. Furthermore, compliance with environmental standards or deadlines may substantially increase capital and operating costs. Description of Funds Reported: An Enterprise Fund operated by the KUA accounts for the electric utility and the Internet Service Provider (ISP) segments. Agency Funds account for the COK and Toho Water Authority (TWA) utility billings performed by the KUA. The KUA collects revenues on behalf of the COK and TWA for utility services including water, sewer, solid waste and utility taxes. All agency funds are presented in the accompanying agency statements and excluded from the enterprise fund financial statements because they are fiduciary in nature and do not represent resources available to KUA for operations. A Pension Trust Fund accounts for the activities of the employees retirement system which accumulates resources for pension benefit payments to qualified retiring employees. They are excluded from the enterprise fund financial statements because they are fiduciary in nature and do not represent resources available to KUA for operations. Basis of Accounting: The KUA maintains its accounts on the accrual basis in accordance with accounting principles generally accepted in the United States. The accounts are substantially in conformity with accounting principles and methods prescribed by the Federal Energy Regulatory Commission and other regulatory authorities. The accounting and reporting policies of the KUA conform to the accounting rules prescribed by the GASB. Based on the accounting and reporting standards set forth in GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the KUA has elected to apply only the accounting and reporting pronouncements issued by the Financial Accounting Standards Board (FASB) issued on or before November 30, 1989, except for those that conflict with or contradict GASB pronouncements. Budget: The KUA is required by charter to adopt an annual budget (budget). The budget is adopted on a basis consistent with generally accepted accounting principles. The KUA follows these procedures in establishing the budget: 1. The President and General Manager submits to the Board of Directors a proposed operating budget for the ensuing fiscal year. The operating budget includes proposed uses and the sources of funds to finance them. 2. Staff discusses and presents a preliminary budget to the Board of Directors at a workshop which is open to the public. 3. A public hearing is subsequently advertised and conducted to obtain ratepayer comments. Once approved by the Board of Directors, the budget becomes the basis for operations for the ensuing fiscal year. 20

31 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 The President and General Manager is authorized to approve all budget transfers and all interdepartmental transfers are reported to the Board of Directors quarterly. Budget amendments which increase the adopted budget are approved by the Board of Directors. Operating budgets lapse at year end. Capital projects are budgeted for the project life rather than for the current fiscal year. The unexpended portion of project budgets does not lapse until conclusion of the project. Rate Stabilization Accounts: A retail Rate Stabilization account was created by the KUA bond resolution which allows current income to be deferred to a future time in order to stabilize rates. This gives the KUA the ability to defer revenues in years when excess revenues (over minimum bond requirements) exist to build up the Rate Stabilization account. The deferred revenues would be recognized in future years. This fund was created by a revenue bond resolution and as such is classified as restricted (See Note 4). A bulk system Rate Stabilization account was created which allows current Cost of Power Revenue to be utilized at a future time in order to stabilize rates related to fuel and purchase power pursuant to an agreement with the wholesale power provider. This fund is classified as restricted (See Note 4). Costs to be Recovered from Future Revenue: The KUA s electric rates are established by the Board of Directors and are based upon debt service and cash operating requirements. Depreciation and other non cash items are not considered in the cost of service calculation but ensure rates are set to recover all cash requirements. This results in timing differences between when costs are included in the ratemaking process versus when costs are incurred and recognized under generally accepted accounting principles. Costs to be recovered from future revenue consist principally of the difference between depreciation and the amortization of the gain and loss on bond refunding and the debt principal requirements included in the determination of rates and changes in the market value of investments. The recognition in income of outstanding amounts associated with costs to be recovered from future revenue will coincide with the inclusion of these amounts in rates charged to customers in accordance with Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation. Operating Revenues and Expenses: Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with principal ongoing operations. The principal operating revenue of the KUA is charges to customers for sales and services. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non operating revenues and expenses. The KUA accrues base revenue for services rendered but unbilled to provide a closer matching of revenues and expenses. Capital Assets: Property, plant and equipment are stated at cost when purchased or constructed. Depreciation is provided using the straight line method. The estimated useful lives of the various classes of depreciable property, plant and equipment are as follows: Production 25 to 33 years Transmission 32 to 50 years Distribution 25 to 37 years General 4 to 39 years 21

32 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 The cost of maintenance and repairs, including renewal of minor items of property less than $5,000, is charged to operating expense as incurred. The cost of replacement of depreciable property units, as distinguished from minor items, is charged to utility plant. The cost of units replaced or retired, including cost of removal, net of any salvage value, is charged to accumulated depreciation. Nuclear Fuel: Amortization of nuclear fuel is based on cost, which is prorated by fuel assembly batch in accordance with the thermal energy that each assembly produces. The KUA is currently paying $1.00 per MWh for residual future disposal costs in addition to estimated labor and waste burial costs. Inventory: Inventory is stated at weighted average cost. Unamortized Bond Costs: Unamortized bond discounts and issuance costs on long term debt are amortized over the life of the issue on a straight line basis. The KUA considered the effective interest method of amortizing bond discounts and determined that no material difference results from the continued use of the straight line method. Unamortized Loss of Refunded Debt: Unamortized gains or losses on refunded debt are amortized to income over the life of the new debt consistent with the methods used for setting rates. Unamortized gains and losses on bond refunding have been netted for financial statement purposes. Net Assets: Equity is classified as net assets and displayed in three components: Invested in capital assets, net of related debt Consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any long term debt that is attributable to the acquisition, construction, or improvement of those capital assets. Restricted Consists of net assets with constraints placed on their use by revenue bond resolution or other external agreement. Unrestricted All other net assets that do not meet the definition of restricted or invested in capital assets, net of related debt. Reclassifications: Certain amounts presented for the prior year have been reclassified in order to be consistent with the current year s presentation. Capital Contributions: The KUA receives funds from developers for electric line extensions. These funds are recorded as reductions to gross plant. Unspent developer contributions are reported as Advances for Construction. Deferred Cost of Power Adjustment: Deferred cost of power adjustment represents the KUA s cost of power adjustment revenues collected, but for which costs have not been incurred or costs that have been incurred, but for which cost of power adjustment revenues have not been collected. Energy Conservation Cost Recovery: Energy conservation cost recovery represents the KUA s energy conservation cost revenues collected, but for which costs have not been incurred or costs that have been incurred, but for which energy conservation cost recovery revenues have not been collected. 22

33 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Payments to and from the City of Kissimmee and Toho Water Authority: By charter the KUA is required to pay to the COK a minimum of 6.24 mills per KWh, which will increase to 6.91 mills effective 10/1/2011, and 5% of KUA.net receipts. This payment is treated as an operating and maintenance expense in the Statements of Revenues, Expenses and Changes in Net Assets. The total amount transferred to the COK was approximately $8,520,000 and $8,528,000 for the years ended September 30, 2011 and 2010, respectively. The amount owed to the COK was approximately $1,480,000 and $1,450,000 for the years ended September 30, 2011 and 2010, respectively. The KUA performs certain customer related services for the COK and TWA for which the COK and TWA combined paid the KUA approximately $2,222,000 and $2,185,000 for the years ended September 30, 2011 and 2010, respectively. The amount owed by the COK and TWA combined to the KUA was approximately $186,000 and $181,000 at September 30, 2011 and 2010, respectively. During a recent County audit, it was discovered that KUA erroneously remitted General Service Demand County taxes to the COK. KUA reimbursed the County and the COK agreed to repay KUA $1,305,000 over a period of 44 months beginning October 1, 2011 plus interest calculated using the SBA average monthly interest rate. The COK agreed to pay all sums owed to KUA no later than May 1, Cash and Cash Equivalents: Cash and cash equivalents include short term, highly liquid investments that are both readily convertible to known amounts of cash and whose original maturity is three months or less. These consist of repurchase agreements, the State Board of Administration (SBA) Pool and the carrying amount of the KUA s deposits with financial institutions. Investments: Investments are recorded at fair market value. Fair market value is determined based on quoted market prices. The Fund A of the Local Government Investment Pool operated by the Florida SBA is a 2a 7 like pool; therefore, it is not presented at market value but at its actual pooled share price. The Fund B, of which KUA holds an immaterial amount (approximately $4,000), is accounted for as a fluctuating net asset value (NAV) pool. KUA reports the entire balance of investments in the State Board of Administration (SBA) of approximately $40,000,000 at its pooled share price and does not report Fund B at its NAV. The net change to the investments carrying value is included in interest revenue. Compensated Absences: The KUA accrues a liability for employees rights to receive compensation for future absences when certain conditions are met. The KUA has not normally, nor is it legally required to, accumulate expendable available financial resources to liquidate this obligation. Accordingly, the liability for compensated absences is included in Other Long term Liabilities in the accompanying Statement of Net Assets. Note 2 Cash, Cash Equivalents, Investments and Interest Receivable Enterprise Fund Florida Statutes, the KUA Charter and the KUA Investment Policy authorize the investment of excess funds in time deposits or savings accounts of financial institutions approved by the State Treasurer, obligations of 23

34 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 United States Government agencies, certain instruments guaranteed by the U.S. Government agencies, certain instruments guaranteed by the U.S. Government, the State Board of Administration (SBA) Pool, bankers acceptances, and commercial paper. Revenue Bond Covenants also restrict the type and maturities of investments in the required trust funds (see Note 9). Investments must be in the KUA s name and represented by bank safekeeping receipts which enumerate the various securities held, except for the Crystal River Unit No. 3 Decommissioning Reserve Trust, ARP Working Capital deposit, and Rate Stabilization Bulk System which are not in the name of KUA. The funds not held in the name of KUA are held at Florida Municipal Power Agency (FMPA) and are contractually obligated to be paid on behalf of KUA. The Statutes also require depositories of public funds to provide collateral each month at least equal to 50 percent of the average daily balance of all public deposits in excess of deposit insurance. Any loss not covered by the pledged securities and deposit insurance would be assessed by the State Treasurer and paid by other qualified public depositories. The components of the KUA s total cash, cash equivalents, and investments at their respective carrying amounts at September 30, 2011 and 2010 are as follows: Current Cash & Cash Equivalents $ 29,204,456 $ 22,967,214 Investments 11,884,120 22,607,719 Total Current 41,088,576 45,574,933 RestrictedCash & Cash Equivalents 93,171, ,604,332 Investments 19,168,781 21,322,708 Total Restricted 112,340, ,927,040 Total Cash & Cash Equivalents 122,376, ,571,546 Investments 31,052,901 43,930,427 Total $ 153,429,115 $ 167,501,973 The KUA s total cash, cash equivalents, and investments as of September 30, 2011 and 2010 are summarized as follows: Investments $ 109,240,884 $ 128,655,705 Investments held at FMPA 20,892,144 14,320,348 Cash with Paying Agent 15,185,645 Bank Carrying Value 8,100,769 24,516,798 Petty Cash 9,673 9,122 $ 153,429,115 $ 167,501,973 24

35 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Investments are recorded at market value. The effect of adjusting the investments to market value at September 30, 2011 and 2010 was a change to the investments carrying value of ($257,467) and ($265,172), respectively. The balance in the SBA was $40,058,799 and $24,411 at September 30, 2011 and 2010, respectively and is collateralized in accordance with Florida Statutes. All investments are delivered to the SBA s custody bank and held for the SBA s account according to their instructions. The KUA s SBA funds are invested in the SBA s Local Government Surplus Funds Investment Pool Trust Fund. Repurchase agreements result entirely from a banking services agreement requiring overnight repurchase agreements of securities guaranteed by the United States Government. The value of repurchase agreements held with the KUA s depository bank was $740,821 and $742,931 at September 30, 2011 and 2010, respectively. Repurchase agreements are held in the name of the KUA s depository bank. The maximum repurchase agreement was $742,943 and $745,113 during the year ending September 30, 2011 and 2010, respectively. At September 30, 2011 and 2010, the carrying value of the KUA s deposits with financial institutions was $8,100,769 and $24,516,798 for each year respectively, and the bank balance was $7,559,583 and $24,257,386, respectively. All bank balances are fully insured in accordance with Florida Statute 280, which established the multiple financial institution collateral pool. Deposit and Investment Risk Disclosures: When practical, the KUA will attempt to match its investments with anticipated cash flow requirements. Maturity lengths may be adjusted based on the opportunities presented by the then current yield curve. Investment in securities in which the maturity dates result in a duration that exceeds the maximum duration allowed for the security class is not permitted. KUA s investment policy limits duration and percent of portfolio limitations (based on par values) by investment class as follows: Investment Class Duration Portfolio % U.S. Government Securities 8.25 years 100% U.S. Federal Agencies 8.25 years 25% U.S. Federal Instrumentalities 4.75 years 90% Corporate Bonds 4.75 years 15% State & Local Government Taxable and Tax Exempt Debt 3.00 years 15% Mortgage Backed Securities (MBS) 2.50 years 15% Certificate of Deposit 365 days 15% Commercial Paper 270 days 15% Bankers' Acceptance 180 days 15% Repurchase Agreements 60 day maturity 20% Reverse Repurchase Agreements 60 day maturity 10% Fixed Income Treasury Mutual Funds Daily liquidity 100% Fixed Income Mutual Funds Daily liquidity 10% Florida Local Government Surplus Trust Fund (SBA) Daily liquidity 60% 25

36 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the market value of an investment in debt securities. Generally, the longer the time to maturity or duration, the greater the exposure to interest rate risk. KUA s investment policy restricts investments by duration in an effort to limit its exposure to market value losses arising from rising interest rates. These investment restrictions have been detailed above. As of September 30, 2011, the portfolio had duration of.22 and a weighted average life of.35. Duration is a measure of fixed income s cash flows using present values, weighted for cash flows as a percentage of the investments full price. Analytical software commonly includes duration functions. Macaulay Duration (named after its developer) is the basic calculation developed for portfolio of bonds assembled to fund a fixed liability. Modified Duration, based on Macaulay Duration, estimates the sensitivity of a bond s price to interest rate changes. Effective Duration makes assumptions regarding the most likely timing and amounts of variable cash flows arising from such investment as callable bonds, prepayments, and variable rate debt. Since KUA assumes that callable bonds will be called due to the falling interest rate environment, Effective Duration will be used. As of September 30, 2011 and 2010, KUA had the following investments in its portfolio: Investment Market Value Effective Duration Market Value Effective Duration Fixed Income Mutual Funds $ 44,796, $ 84,810, Florida Local Government Trust Fund (SBA) 40,058, , Bank Deposits Invested 9,749, ,732, Bank Repurchase Agreement 740, , State & Local Government Debt 4,000, ,000, Federal Instrumentalities Coupon 6,891, ,292, Corporate Bonds N/A 6,052, U.S. Government Securities 3,004, N/A $ 109,240,884 $ 128,655,705 Credit Risk: Credit risk is the risk that a debt issuer will not fulfill its obligations. KUA s policy is to limit its investments in commercial paper and corporate bonds by rating to mitigate this risk. At purchase, commercial paper must have a minimum rating of A1 by Standard & Poor s, F1 by Fitch and P1 by Moody s. A minimum of two of the rating agencies must rate the commercial paper. As a practical matter, KUA only invests in commercial paper rated as A1+/P1. Corporate bonds are limited at purchase to ratings of AA by Standard & Poor s, AA by Fitch and Aa by Moody s. Additionally, the investment policy limits Fixed Income Mutual Funds ratings as AAA by Standard & Poor s, AAA by Fitch and Aaa by Moody s. 26

37 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 As of September 30, 2010, fixed income mutual funds and federal instrumentalities held by KUA were rated AAA. Bank Deposits Invested represents funds held at SunTrust Banks, Inc. and invested by them in a pool. SunTrust s long term ratings are as follows: Moody s A3 Standard & Poor s BBB+ Fitch BBB+ Investments represented by the Crystal River 3 (CR3) Decommissioning Trust were composed of AAA rated federal instrumentalities, AAA rated corporate bonds, AAA rated mutual funds and commercial paper rated A 1+/P1. Custodial Credit Risk: For an investment, custodial credit risk is the risk that, in the event of failure of the counterparty, KUA will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. As of September 30, 2011, KUA did not have any material investments held by our counterparty which were in a name other than KUA. Cash & Investments held by FMPA Investments represented by the CR3 Decommissioning Trust were composed of AAA rated federal instrumentalities, AAA rated mutual funds and commercial paper rated A 1+/P1. The ARP Working Capital and the Rate Stabilization Bulk System investments were held as cash deposits. As of September 30, 2011 and 2010, FMPA held the following investments in its portfolio: Investment/Cash Deposits Market Value Effective Duration Market Value Effective Duration ARP Working Capital $ 3,735, $ 3,735, Rate Stabilization Bulk System 11,856, ,640, Crystal River 3 Decommissioning Trust 5,300, ,945, $ 20,892,144 $ 14,320,348 Pension Trust Fund Valuation of Investments: Investments in common stocks and bonds traded on a national securities exchange are valued at the last reported sales price on the last business day of the year; securities traded in the overthe counter market and listed securities for which no sale was reported on that date are valued at the mean between the last reported bid and asked prices; investments in securities not having an established market value are valued at market value as determined by the Board of Trustees. The market value of an investment is the amount that the Kissimmee Utility Authority Employees Retirement Plan (Plan) could reasonably expect to receive for it in a current sale between a willing buyer and a willing seller, other than in a forced or liquidation sale. Purchases and sales of investments are recorded on a trade date basis. Investment income is recognized on the accrual basis as earned. Unrealized appreciation in fair value of investments includes the difference between cost and fair value of investments held. The net realized and 27

38 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 unrealized investment appreciation or depreciation for the year is reflected in the Statement of Changes in Plan Net Assets. Investments: Investments that are not evidenced by securities that exist in physical or book entry form include investments in open ended mutual or pooled investment funds. The Plan s investments are uninsured and unregistered and are held in a custodial account in the Plan s name. The Plan held no investments that individually represent 5% or more of the Plan s net assets available for benefits during the years ended September 30, 2011 and 2010, respectively. The Plan has no instrument that, in whole or part, is accounted for as a derivative instrument under GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments during the current Plan year. The Plan held the following fixed investments as of September 30, 2011 and 2010: Investment Type Percent of Total Fund Fair Value 9/30/11 Overall Credit Rating (S&P and Moody's) Average Effective Duration (Years) Integrity Bond Fund 33.7% $ 14,645,759 AA 5.0 Temporary Investment Fund 2.4% 1,029,911 A+ of better N/A Total $ 15,675,670 Investment Type Percent of Total Fund Fair Value 9/30/10 Overall Credit Rating (S&P and Moody's) Average Effective Duration (Years) SunTrust High Grade Bond Fund 30.2% $ 13,440,496 A+ or better 5.38 Temporary Investment Fund 8.7% 3,886,180 A+ or better N/A Total $ 17,326,676 Credit Risk: Consistent with state law the Plan s investment guidelines limits its fixed income investments to a quality rating of A or equivalent as rated by one or more recognized bond rating services at the time of purchase. Fixed income investments which are downgraded to BAA or equivalent must be liquidated within a reasonable period of time not to exceed twelve months. Fixed income investments which are downgraded below BAA shall be liquidated immediately. Interest Rate Risk and Duration: Through its investment policies, the Plan manages its exposure to market value losses arising from increasing interest rates. In this regard, the Plan adopted the Merrill Lynch Government Corporate Bond Index (MLGC) benchmark. The Plan further limited the effective duration of its fixed investment portfolio to between 50% and 150% of the duration of the MLGC duration. Custodial Credit Risk: The Plan requires all securities to be held by a third party custodian in the name of the Plan. Securities transactions between a broker dealer and the custodian involving the purchase or sale of 28

39 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 securities must be made on a delivery vs. payment basis to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. The investments in mutual funds are considered unclassified pursuant to the custodial risk categories of GASB Statement No. 3, because they are not evidenced by securities that exist in physical or book entry form. The Plan s investments at both cost and market value as of September 30, 2011 and 2010 are summarized as follows: Investments Cost Market Value Cost Market Value US Government & Agency Bonds $ 5,134,605 $ 5,245,649 $ 9,257,877 $ 13,440,496 Domestic Stocks 20,094,155 18,380,625 17,210,555 18,455,785 Corporate & Municipal Obligations 9,342,423 9,400,110 1,339,136 1,483,000 Pooled Equity Funds 3,342,883 3,385,822 2,272,548 2,675,077 Foreign Equity 7,624,027 6,011,941 5,442,477 4,551,203 Temporary Investment Funds 1,029,915 1,029,911 3,886,180 3,886,180 Total $ 46,568,008 $ 43,454,059 $ 39,408,773 $ 44,491,741 The Plan s investments appreciated (depreciated) in value during the years ended September 30, 2011 and 2010, as follows: Fiscal Year End 2011 Fiscal Year End 2010 Realized Unrealized Realized Unrealized Appreciation (Depreciation) Appreciation (Depreciation) Total Appreciation (Depreciation) Appreciation (Depreciation) Total Investments at fair value as determined by quoted market price: Pooled fixed income funds $ 4,105,862 $ (4,002,713) $ 103,149 $ 406,724 $ 641,759 $ 1,048,483 Domestic stocks 2,480,414 (2,958,761) (478,348) 1,454,119 44,575 1,498,694 Pooled equity funds 141,700 (503,458) (361,758) (141,005) 845, ,529 Foreign equity funds (6,237) (720,812) (727,048) 231, ,595 Other 58,197 58,197 Net increase (decrease) in realized and unrealized appreciation of investments $ 6,721,739 $ (8,185,744) $ (1,464,005) $ 1,719,838 $ 1,821,660 $ 3,541,498 The calculation of realized gains and losses is independent of the calculation of net appreciation (depreciation) in the fair value of plan investments. Unrealized gains and losses on investments sold in 2011 that had been held for more than one year were included in net appreciation (depreciation) reported in the prior year. 29

40 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Note 3 Current Cash and Investments Certain designations of current cash, investments, and interest receivable are made in the financial records during the fiscal year to identify a portion of cash, cash equivalents, investments and interest receivable intended to be used for specific purposes in a future period. Current cash and cash equivalents, investments and interest receivable at September 30, 2011 and 2010 included the following designations: Current Assets Undesignated $ 4,048,166 $ 4,227,106 Designated for: Capital Improvements 13,505,407 18,549,771 Self Insurance 15,400,000 15,738,756 Decommissioning 626, ,848 Good Neighbor Fund 5,967 6,342 General Reserve 6,422,223 5,802,577 ARP Load Retention Funding Credits 1,103, ,293 Total $ 41,111,846 $ 45,655,693 Note 4 Restricted Cash and Investments Restrictions are made in accordance with bond resolutions, contracts and developers, the Florida Municipal Power Agency (FMPA), agreements with customers, and in accordance with Nuclear Regulatory Commission (NRC) rules and regulations. Restricted assets, which consist of cash, cash equivalents, investments and interest receivable at September 30, 2011 and 2010, included the following: Restricted Assets Debt Service Reserve $ 12,163,073 $ 19,606,083 Sinking Fund 11,409 21,009,692 Cash with Paying Agent 15,185,645 Construction Fund 1,494,336 6,572,331 Restricted Reserve Fund 19,442,887 19,353,464 Renewal, Replacement & Improvemen 1,500,000 1,500,000 Advances for Construction 2,415,888 2,401,581 Customer Deposits 11,353,493 9,334,721 Crystal River Unit #3 Decommissioning 5,308,603 4,954,956 ARP Working Capital 3,735,063 3,735,063 Rate Stabilization Retail 27,900,000 27,900,000 Rate Stabilization Bulk System 11,856,581 5,640,204 Total $ 112,366,978 $ 122,008,095 30

41 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Note 5 Capital Assets Utility plant activity for the years ended September 30, 2011 and 2010 was as follows: Utility Plant 9/30/10 Balance Additions Deletions & Reclassifications 9/30/11 Balance Land & SFAS71 $ 15,394,058 $ $ $ 15,394,058 Nuclear Production 10,023, ,790 10,563,033 Transmission Plant 55,837,897 4,442,195 60,280,092 Distribution Plant 110,760,762 19,215,225 (651,407) 129,324,580 General 33,308,905 1,286,232 (1,520,797) 33,074,340 Subtotal 225,324,865 25,483,442 (2,172,204) 248,636,103 Less Accumulated Depreciation: Nuclear Production (4,712,860) (362,155) $ (5,075,015) Transmission Plant (26,695,203) (1,409,721) (28,104,924) Distribution Plant (48,743,828) (5,025,924) 783,146 (52,986,606) General (15,195,568) (1,345,795) 1,520,797 (15,020,566) Subtotal (95,347,459) (8,143,595) 2,303,943 (101,187,111) CWIP 32,417,950 17,495,334 (32,185,714) 17,727,570 Nuclear Fuel 1,381, ,439 52,895 1,572,509 Net Plant $ 163,776,531 $ 34,973,620 $ (32,001,080) $ 166,749,071 Utility Plant 9/30/09 Balance Additions Deletions & Reclassifications 9/30/10 Balance Land & SFAS71 $ 15,178,852 $ 215,206 $ $ 15,394,058 Nuclear Production 9,089, ,711 10,023,243 Transmission Plant 55,948,285 (110,388) 55,837,897 Distribution Plant 107,943,550 2,586, , ,760,762 General 32,966,953 1,441,790 (1,099,838) 33,308,905 Subtotal 221,127,172 5,066,550 (868,857) 225,324,865 Less Accumulated Depreciation: Nuclear Production (4,385,272) (327,588) (4,712,860) Transmission Plant (25,314,289) (1,380,914) (26,695,203) Distribution Plant (45,872,273) (3,887,103) 1,015,548 (48,743,828) General (14,860,988) (1,434,418) 1,099,838 (15,195,568) Subtotal (90,432,822) (7,030,023) 2,115,386 (95,347,459) CWIP 28,962,984 17,550,653 (14,095,687) 32,417,950 Nuclear Fuel 1,052, ,132 1,381,175 Net Plant $ 160,709,377 $ 15,916,312 $ (12,849,158) $ 163,776,531 Depreciation expense for Utility Plant totaled approximately $8,144,000 and $7,030,000 for years ended September 30, 2011 and 2010, respectively. 31

42 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 The capital contribution of plant costs was approximately $1,024,000 and $705,000 for years ended September 30, 2011 and 2010 respectively. These funds are recorded as reductions to gross plant. Note 6 Construction Project Interest Cost KUA capitalizes interest on construction projects financed with revenue bonds. The amount capitalized is the interest cost of the debt less any interest earned on investment of debt proceeds until the assets are placed in service. Total interest expense was approximately $8,387,000 and $8,856,000 which is net of capitalized interest expense of approximately $155,000 and $213,000 for fiscal years 2011 and 2010, respectively. Note 7 Net Investment in Capital Lease The KUA negotiated with FMPA All Requirements Power Supply Project (ARP) the Revised, Amended, and Restated Capacity and Energy Sales Contract (TARP Contract) effective October 1, 2008, under which FMPA ARP will pay the KUA a fixed capacity credit that will not vary for the KUA owned generating assets over various periods of time that are tied to the useful life of such KUA assets. The total amount of fixed capacity credits that will be paid to the KUA from FY 2009 through FY 2028 will be approximately $342 million. In return for this fixed rate of return, not tied to market variations, the KUA ceded to FMPA operational control of these assets and waived its right to exercise its contract rate of delivery associated with the KUA s Cane Island Units 1, 2, and 3, Hansel, Stanton Energy Center Units 1 and A, and Indian River Units A and B. The KUA also passed responsibility for the operation, maintenance, and capital costs of these generation assets to FMPA, see Note 8. The KUA retained responsibility for its ownership share of Cane Island land and common transmission facilities and a proportionate share of decommissioning costs or benefits of the generation assets. The following lists the components of the net investment in capital lease as of September 30: Total minimum lease payments to be received $ 280,329,793 $ 301,005,829 Less: Unearned lease revenue (167,773,444) (180,147,760) Net investment in capital lease $ 112,556,349 $ 120,858,069 Shown in the accompanying Statement of Net Assets as: Current Assets current portion $ 8,301,719 $ 8,301,719 Other Assets long term portion 104,254, ,556,350 Total $ 112,556,349 $ 120,858,069 32

43 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Fiscal Year Minimum Lease Payments to be received Lease Revenue 2012 $ 20,676,037 $ 12,374, ,160,188 11,467, ,160,188 11,467, ,993,011 11,367, ,993,011 11,367, ,125,974 54,537, ,769,660 45,347, ,451,724 9,846,127 Total $ 280,329,793 $ 167,773,440 Note 8 Power Supply Agreements FMPA All Requirements Power Supply Project (ARP): The KUA purchases power exclusively from Florida Municipal Power Agency (FMPA) through the State wide bulk power system. The KUA has an All Requirements Power Supply Project Contract (effective 10/1/2002) with FMPA which requires FMPA to sell and deliver to the KUA and the KUA to purchase from FMPA all electric power that the KUA requires in excess of the amount the KUA receives from its percentage ownership interest in Crystal River 3 and power entitlement in St. Lucie 2. The contract shall remain in effect until October 1, 2040, and is subject to automatic five year extensions each fifth anniversary unless either party notifies the other in writing at least two years prior to such automatic extension date of its decision not to extend the contract. The KUA pays for electric power under the contract at the rates set forth in the applicable rate schedule of FMPA, which FMPA may revise from time to time. The contract provides the option for the KUA to leave the FMPA after notice and making the remaining project participants whole. This is generally understood to mean paying off its portion of the project s long term debt. Effective October 1, 2008, the KUA leased, as discussed in Note 7, its ownership share of the generating assets associated with the KUA s Cane Island Units 1, 2, and 3, Hansel, Stanton Energy Center Units 1 and A, and Indian River Units A and B. In addition, the KUA entered into a Consolidated Operating and Joint Ownership Contract with the FMPA whereby the KUA provides operation and maintenance services for Cane Island, Gulfstream Interconnection, and Hansel facilities and FMPA reimburses the expenditures. Power Supply Entitlements: Stanton Energy Center (SEC): KUA is a member of FMPA s Stanton and Stanton II projects whereby the KUA has a total power entitlement of % in SEC 1, approximately 8 MW and % in SEC 2, approximately 33 MW. These resources are dedicated to the ARP. The participation costs are paid by the ARP. The following are excluded resources under the ARP agreement: 33

44 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 St. Lucie Nuclear Power Plant: KUA is a member of FMPA s St. Lucie project whereby the KUA has a total power entitlement of %, approximately 7 MW in the St. Lucie nuclear power plant. The KUA is billed for its share of the participation costs which are included in purchase power. Crystal River Unit No. 3 (CR3): The KUA entered into a Participation Agreement with Florida Power Corporation (FPC), now Progress Energy, to purchase a % undivided ownership interest, approximately 6 MW in their nuclear powered electric generating plant. During an outage, CR3 was found to have cracking or delamination in the upper portions of the concrete containment structure. The Nuclear Regulatory Commission has been notified and an engineering plan for repair has been submitted by Progress Energy. Repairs are expected to be complete by An agreement between Progress Energy and the minority owners, that include KUA, requires that 87% of replacement power is delivered annually until the end of Replacing this small amount of energy following 2013 is not expected to have a major rate impact. Additional costs for repairs are expected to be paid by insurance according to Progress Energy. However, this has not been finalized. Progress Energy has been communicating with the minority owners as updates are available. The KUA is billed for its share of operating and capital costs. Operating costs are included as fuel and power supply other expenses and capital costs are included in Property, Plant and Equipment, see note 5. The amounts of utility plant in service for CR3 do not include the cost of common and external facilities for which participants pay user charges to the operating entity. Accumulated depreciation on utility plant in service is determined by each participant based on their depreciation methods and rates relating to their respective share. The KUA does not exercise significant influence or control over the operating or financial policies of Progress Energy. Note 9 Long Term Liabilities Long Term Liabilities for the years ended September 30, 2011 and 2010 were as follows: 9/30/2010 Balance Additions Reductions 9/30/2011 Balance Amounts Due Within One Year Long Term Debt Revenue Bonds Payable $ 180,325,000 $ 30,005,000 $ (61,110,000) $ 149,220,000 $ 11,935,000 $ 137,285,000 Commercial Paper 43,200,000 43,200,000 43,200,000 Total Debt 223,525,000 $ 30,005,000 $ (61,110,000) 192,420,000 $ 11,935,000 $ 180,485,000 Deferred Bond Premiums, Discounts and Losses on Refunding (837,587) (358,089) Total $ 222,687,413 $ 192,061,911 Other Liabilities Self Insurance Fund $ 15,738,756 $ 440,690 $ (779,446) $ 15,400,000 $ 99,071 $ 15,300,929 Compensated Absences 3,115,722 2,009,433 (1,859,877) 3,265,279 1,952,870 1,312,409 Other Post Employment Benefits 275, , ,920 74, ,015 Total Other Liabilities $ 19,130,344 $ 2,564,177 $ (2,639,322) $ 19,055,199 $ 2,126,846 $ 16,928,353 34

45 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND /30/2009 Balance Additions Reductions 9/30/2010 Balance Amounts Due Within One Year Long Term Debt Revenue Bonds Payable $ 196,165,000 $ $ (15,840,000) $ 180,325,000 $ 16,550,000 $ 163,775,000 Commercial Paper 43,200,000 43,200,000 43,200,000 Total Debt 239,365,000 $ $ (15,840,000) 223,525,000 $ 16,550,000 $ 206,975,000 Deferred Bond Premiums, Discounts and Losses on Refunding (1,653,850) (837,587) Total $ 237,711,150 $ 222,687,413 Other Liabilities Self Insurance Fund $ 15,773,590 $ 86,774 $ (121,607) $ 15,738,756 $ 149,171 $ 15,589,585 Compensated Absences 2,998,186 1,810,189 (1,692,653) 3,115,722 1,692,653 1,423,069 Other Post Employment Benefits 172, , ,866 62, ,304 Total Other Liabilities $ 18,944,586 $ 2,000,018 $ (1,814,260) $ 19,130,344 $ 1,904,386 $ 17,225,958 The Revenue Bond resolutions provide for both Senior and Subordinate rate covenants. These covenants are established to ensure, among other things, that rates, fees and charges will be sufficient to provide revenues in each fiscal year for the funding of operations and maintenance expenses, debt service, new funds established by resolution and all other charges or liens whatsoever payable of revenues during the year. Listed below are the pertinent elements of the resolutions. These elements relate to both the senior and the subordinate resolutions except as noted in Section 3 below. All amounts required, relating to subordinate debt, shall be subordinate to amounts required for senior debt. 1. Establishment and maintenance of various funds: Revenue Fund records all operating revenues and expenses of the system; Sinking Fund records principal and interest requirements; Bond Amortization Fund records funds held for the retirement of term bonds; Reserve Fund records funds held in reserve for the maximum annual debt service requirements; Renewal, Replacement & Improvement Fund is to be used only for making improvements, extensions and replacements to the system; Construction Fund records the cost of major additions to the system financed by revenue bonds; and Rate Stabilization Retail Fund records funds to be used to the extent provided in the current Annual Budget or to be transferred, as appropriate, to any other fund or account under the resolutions. 2. Restrictions on the use of cash from operations in order of priority: Deposits are made to the Revenue Fund to meet current operations according to the Budget; 35

46 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Deposits to the Sinking Fund Account are required to equal one sixth (1/6 of the interest coming due on the next semi annual interest payment date and one twelfth (1/12) of the principal coming due on the next principal payment date; Deposits to the Bond Amortization Fund are required to equal one twelfth (1/12) of the amortization installment coming due on the next annual payment date; Deposits to the Reserve Fund are to be made when required to maintain the Fund at the Reserve Requirement (maximum annual debt service); and Deposits to the Renewal, Replacement and Improvement Fund are required each month in an amount equal to one twelfth (1/12) of the adopted budget for that fund. The total annual deposit may not be less than 5% of the gross revenues for the preceding fiscal year after deducting 100% of the fuel expense and the energy component of purchased power expenses incurred in such preceding fiscal year. However, no such monthly deposit shall be required when the amount in such fund shall at least equal $1,500, Rate Covenant: The KUA will at all times establish, fix, prescribe and collect rates and charges for the services and facilities furnished by the system which, together with other income, are reasonably expected to yield annual Net Revenues in each fiscal year at least equal to 110% of the bond service requirement in the bond Year which ends one day after such fiscal year. 4. Early redemption: The bond resolution provides for early redemption of certain of the outstanding bonds at a call rate of 100% to 101% of the bond s face value, dependent upon the call date. 5. Investment restrictions: Funds of the Sinking Fund, Bond Amortization Fund, Reserve Fund and Renewal, Replacement & Improvement Fund are required to be continuously secured in the same manner as municipal deposits of funds are required to be secured by the laws of the State of Florida; and Monies on deposit in the Sinking Fund and the Bond Amortization Fund shall be invested only in direct obligations of, or obligations on which the principal and interest are guaranteed by the United States of America and which do not permit redemption prior to maturity at the option of the KUA. Monies on deposit in the Revenue Fund, Reserve Fund and Renewal, Replacement & Improvement Fund may be invested as described above as well as in the following: obligations rating an A or better from Moody s Investors Service, Inc., bank time deposits represented by certificates of deposit and bankers acceptances, repurchase agreements, commercial paper which has the highest investment grade rating and shares of investment companies which invest principally in United States government securities. Long term debt outstanding at September 30, 2011 and 2010 consisted of the following serial and term bonds, and outstanding Commercial Paper Notes: 36

47 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Final Maturity Original Amount Description Refunding Revenue Bonds Series 2001A 10/1/2017 $ 31,020,000 $ $ 17,965,000 Refunding Revenue Bonds Series 2001B 10/1/2015 $ 44,500,000 31,755,000 Refunding & Improvement Bonds Series % 5.25% 4/1; 10/1 10/1/2018 $ 55,835,000 30,430,000 35,025,000 Refunding Revenue Bonds Subordinate Series % 5.25% 4/1; 10/1 10/1/2018 $ 60,700,000 60,700,000 60,700,000 Refunding Revenue Bonds Subordinate Series % 5.25% 4/1; 10/1 10/1/2018 $ 63,680,000 28,085,000 34,880,000 Refunding Revenue Bonds Series % 4.00% 4/1; 10/1 10/1/2017 $ 30,005,000 30,005,000 Subtotal 149,220, ,325,000 Commercial Paper Program Series B, Variable Interest $ 35,000,000 35,000,000 35,000,000 Commercial Paper Program Series B, Second Installment Variable Interest $ 8,200,000 8,200,000 8,200,000 Subtotal 43,200,000 43,200,000 $ 192,420,000 $ 223,525,000 The annual long term debt service requirements at September 30, 2011 are as follows (excludes Series A and B Commercial Paper): Fiscal Year Interest Principal Total 2012 $ 3,250,645 $ 11,935,000 $ 15,185, ,152,278 17,065,000 23,217, ,383,000 17,775,000 23,158, ,563,150 18,605,000 23,168, ,724,575 19,310,000 23,034, ,111,606 64,530,000 69,641,606 Total $ 28,185,254 $ 149,220,000 $ 177,405,254 37

48 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Commercial Paper Notes KUA authorized the issuance of the Commercial Paper Notes pursuant to Resolution No , adopted by the Board on October 25, The Notes were issued in three series, 2000A, 2000B, and 2000B second installment for $35,000,000, $35,000,000 and $8,200,000, respectively to (a) finance the cost of the Cane Island Project (including repayment of amounts previously borrowed to provide financing therefore) and (b) pay the costs of issuance of the Commercial Paper Notes. The aggregate principal amount of all Commercial Paper Notes outstanding at any one time shall not exceed the lesser of $100,000,000 or the amount of the Available Commitment under the Purchase Agreement (the current Available Commitment is $60,000,000). During the year ended September 30, 2011, interest rates on the Commercial Paper ranged from.13% to.38% and averaged.28%. The Notes are secured by the Commercial Paper Purchase Agreement between KUA and JP Morgan Chase Bank. In the Purchase Agreement, the Bank has agreed, subject to certain conditions, to purchase Commercial Paper Notes which have not been sold by the Dealers so that moneys will be available in the Commercial Paper Notes Payment Fund to pay the maturing principal of outstanding Notes. The obligation of the Bank under the Purchase Agreement provides only for payment of maturing principal of the Notes; KUA is obligated to make provision for payment of interest on maturing Commercial Paper Notes from Subordinates Revenues. The amount of the Bank s obligation under the Purchase Agreement is limited to $43.2 million, reduced by the amount of any outstanding Notes previously purchased by the Bank and subject to adjustment upward upon request of KUA and consent of the Bank or downward upon unilateral request by KUA, in either case in $1 million increments. The duration of the Bank s obligation under the Commercial Paper Purchase Agreement is for three years, beginning on June 8, 2011 and terminating on August 5, KUA must request such an extension at least 60 days prior to the expiration of the Purchase Agreement (unless the Bank consents to a later request), and the Bank must notify the Issuing and Paying Agent within 30 days of receipt of the request whether the Bank consents to such extension and must deliver a written acknowledgement of the extension within 15 days of its consent to the Issuing and Paying Agent. In the event that Bank Notes owned by the Bank are outstanding on the expiration date, August 5, 2014, the Bank agrees to accept amortization of the principal thereof and payment of the interest thereon as indicated. The Bank agrees that it shall continue to hold such Bank Notes for the Term Out Period, an additional period up to three years. This will occur provided that all Bank Notes shall bear interest at the Term Out Rate during the Term Out Period, payable in arrears, on the last day of each calendar month; and provided further that KUA shall redeem the Bank Notes, by paying to the Bank the principal amount of the Bank Notes, in six (6) equal principal amounts on a semi annual basis, on each sixth Interest Payment Date together with accrued interest, commencing on the sixth interest payment date after the expiration date. The Term Out Rate is a Base Rate plus two percent (2%) calculated on the basis of a 360 day year and actual days elapsed. The Base Rate means for any day, the higher of (a) the Prime Rate plus one and one half percent (1.50%), (b) the Federal Funds Rate plus two percent (2.00%), or (c) eight and one half percent (8.50%) per annum. 38

49 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Debt Refundings As of September 30, 2005, $35,000,000 of the Series A was refunded. On October 13, 2005, $32,000,000 was refunded and the remaining $3,000,000 was refunded on November 16, The Series B in the amount of $43,200,000 are outstanding and are reflected as Long Term Liabilities on the Statement of Net Assets. The KUA refunds and defeases debt primarily as a means of reducing debt service, thereby postponing or reducing future electric rate adjustments. On July 7, 2011, the KUA refunded the Series 2001 A&B Bonds originally issued on October 25, 2001 and maturing on October 1, 2012 and thereafter. This refunding resulted in gross present value debt service savings of $17,178, and net present value benefit of $3,275, On the $30,005,000 debt issuance, the net present value benefit was %. In addition, the KUA deposited into an escrow account sufficient funds to cash defease the Series 2001 A&B Bonds maturing on October 1, Outstanding serial bonds, which were refunded through the net cash defeasance method on February 25, 1982 and July 7, 2011, are as follows at September 30, 2011: Electric Revenue and Refunding Bonds $ $ 215, A 14,010, B 25,150,000 Total $ 39,160,000 $ 215,000 Since government obligations are held in escrow for the payment of principal and interest on these bonds, they are not liabilities to the KUA. Note 10 Commitments and Contingent Liabilities The KUA has made certain commitments in connection with its continuing capital improvements program. The KUA estimates that capital expenditures for its ongoing business during 2012 will be approximately $8,290,000 and $27,341,000 for years 2013 through The KUA is involved in litigation arising during the normal course of its business. In the opinion of management, the resolution of these matters will not have a material effect on the financial position of the KUA. The KUA is subject to general liability claims throughout the year. The range of loss is such that an estimate cannot be made. These claims are well within our insurance limits. The KUA has established a Self Insurance fund to cover any claims that exceed our insurance deductibles and/or limits. On August 7, 2011, a transformer exploded at the Clay Street Substation. At this time, the exact cause of the accident remains undetermined. KUA believes it had no responsibility for the accident. The KUA has insurance coverage and the self insurance fund will cover any insurance deductibles. At this time, we are uncertain of the outcome of any litigation resulting from this accident, but in the opinion of management, the resolution of this matter will not have a material effect on the financial position of the KUA. 39

50 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 The KUA has purchase agreements with utilities whereby the KUA must pay capacity demand fees whether or not electricity or fuel is received from these utilities. The utilities involved and the approximate charges of the purchase agreements to be paid in Fiscal Year 2012 are as follows: Date Commitment Orlando Utilities Commission (OUC) SEC 1, Indian River, SEC A NONE $1,478,999 FMPA (St. Lucie, SEC1, SEC2) NONE 5,151,296 Progress Energy (Crystal River 3) NONE 149,526 Total $6,779,821 The KUA owns a portion of Progress Energy s nuclear power plant at Crystal River, Florida. This plant is scheduled to be decommissioned beginning in the year The KUA will be liable for approximately $5,691,000 in decommissioning costs in 2010 dollars. In June 1988, the Nuclear Regulatory Commission (NRC) required utilities to provide financial assurance that decommissioning funds would be sufficient and available when needed for NRC required decommissioning activities. On July 12, 1990, the KUA and the FMPA entered into an agreement whereby the FMPA would act as agent for the KUA and certain other Crystal River 3 (CR3) participants to coordinate the administration of a trust fund. Contributions to this trust fund are not available to the KUA for any other purpose except the decommissioning of CR3. The KUA s carrying balance in this Trust at September 30, 2011 and 2010 including interest earnings was approximately $5,309,000 and $4,955,000, respectively. Future contributions will be made to this trust account as needed based on updated cost estimates and trust fund earnings. As a result of its ownership interest in CR3, the KUA is subject to the Price Anderson Act which was enacted to provide financial protection for the public in the event of a nuclear power plant accident. The first layer of financial protection was the purchase of $375 million of public liability insurance from pools of commercial insurers. The second layer of financial protection is provided under an industry retrospective payment plan. Under that plan, owners are subject to an assessment of $117.5 million per incident with provision for payment of such assessment to be made over time as necessary to limit the payment in any one year to no more than $17.5 million per incident. The KUA is liable for its ownership interest of any assessment made against CR3 under this plan. Note 11 Risk Management The KUA is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The KUA has established a Self Insurance reserve to account for and finance its uninsured risks of loss for the transmission and distribution system as well as other uninsured losses. The reserve balance is approximately $15,400,000 and $15,739,000 for the years ended September 30, 2011 and 2010, respectively. The Self Insurance reserve is the KUA s best estimate based upon available information and is decreased by claims paid each year. This reserve is reflected as a liability under Other Long term Liabilities on the Statement of Net Assets (see Note 9). 40

51 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 The KUA purchases commercial insurance for all other risks of loss, including general liability, excess liability, workers compensation, property insurance, employee health, life and accident insurance. Settled claims have not exceeded the commercial coverage insurance in any of the past five fiscal years. Note 12 Restricted Net Assets Restricted net assets are comprised of the following at September 30, 2011 and 2010: Debt Service: Sinking funds $ 11,409 $ 21,009,692 Accrued Interest Payable Revenue Bonds (3,262,054) (4,459,692) Cash with Paying Agent 15,185,645 Other: Crystal River Unit #3 Decommissioning (382,472) (787,969) ARP Working Funds 3,735,063 3,735,063 Restricted Reserve Fund 19,442,887 19,353,464 Asset Renewal and Replacement Fund 1,500,000 1,500,000 Total Restricted Assets $ 36,230,478 $ 40,350,558 Note 13 Other Post Employment Benefits The KUA provides medical, dental and life insurance benefits to current employees and eligible retirees and their families. These benefit provisions have been established by and may be amended by the KUA s Board of Directors. Retirees participating in the plans offered by the KUA are required to contribute 100% of the active premiums. The KUA does not contribute any funds on behalf of the retirees. The annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution to the employer (ARC), an amount actuarially determined in accordance with the parameters of Governmental Accounting Standards Board (GASB) Statement 45. The ARC is used for accrual accounting purposes, not for funding purposes. It is a basis for the allocation of the KUA s projected cost of providing OPEB over periods that approximate the periods in which the KUA receives services from the covered employees. The following table shows the components of the annual OPEB cost for the fiscal year, the amount actually contributed to the plan, and changes in the net OPEB obligation at September 30, 2011 and 2010: 41

52 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND Annual Required Contribution $ 185,418 $ 163,145 Interest on Net OPEB Obligation 13,793 8,641 Adjustment to Annual Required Contribution (10,252) (6,168) Annual OPEB Cost (Expense) 188, ,618 Estimated Net Contributions Made (74,905) (62,562) Increase in Net OPEB Obligation 114, ,056 NET OPEB Obligation Beginning of Year 275, ,810 NET OPEB Obligation End of Year $ 389,920 $ 275,866 The annual OPEB cost and the percentage of annual OPEB cost contributed to the plan is as follows: FY Ended Annual OPEB Cost % of Annual OPEB Net OPEB Obligation 9/30/2011 $188, % $389,920 9/30/2010 $165, % $275,866 9/30/2009 $146, % $172,810 The funding status of at September 30, 2011 and 2010 is as follows: Actuarial Accrued Liability (AAL) $2,077,968 $1,812,456 Actuarial Value of Assets (AVA) Unfunded Actuarial Accrued Liability (UAAL) $2,077,968 $1,812,456 Funded Ratio 0% 0% Covered Payroll $15,766,943 $15,409,570 Ratio of UAAL to Covered Payroll 13.2% 11.8% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. In the October 1, 2010 actuarial valuation, the Entry Age Normal Actuarial Cost Method (Level Percent of Pay) was used. The actuarial assumptions included a 5% investment rate of return (net of investment related expenses) and an annual healthcare cost trend rate of 10%, reduced each year until the ultimate rate of 5% in FY Both rates included a 4.2% inflation assumption. The amortization of the UAAL is the level percentage of payroll (closed amortization over 30 years). Other factors used in the development of the annual OPEB expense are as follows: 42

53 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Amortization of Unfunded Actuarial Accrued Liability Actuarial Accrued Liability $2,077,968 $1,812,456 Actuarial Value of Assets Unfunded Actuarial Accrued Liability $2,077,968 $1,812,456 Amortization Period Amortization Method Closed Closed Discount Rate 5.00% 5.00% Payroll Growth Rate 4.20% 4.50% Amortization Amount $83,952 $68,671 Development of Annual Required Contribution (ARC) Normal Cost $92,636 $86,705 Interest on Normal Cost 4,632 4,335 Normal Cost Component $97,268 $91,040 Amortization Amount $83,952 $68,671 Amortization Interest 4,198 3,434 Amortization Component $88,150 $72,105 Annual Required Contribution $185,418 $163,145 As a Percent of Covered Payroll 1.10% 1.00% Development of Annual OPEB Cost Annual Required Contribution $185,418 $163,145 NET OPEB Obligation, Beginning of Year $275,866 $172,810 Discount Rate 5.00% 5.00% Interest on Net OPEB Obligation $13,793 $8,641 NET OPEB Obligation, Beginning of Year $275,866 $172,810 Amortization Factor Adjustment to Annual Required Contribution ($10,252) ($6,168) Annual OPEB Cost $188,959 $165,618 Note 14 Pension Plan Description: The Kissimmee Utility Authority Employees Retirement Plan (the Plan ) is a single employer defined benefit pension plan. The Plan provides for pension, death and disability benefits. Participation in the Plan is required as a condition of employment for all full time employees. The Plan is subject to provisions of Chapter 112 of the State of Florida Statutes and the oversight of the Florida Division of Retirement. The Plan is governed by a five member pension board. 43

54 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 At September 30, 2011 the Plan s membership consisted of: Retirees and beneficiaries: Currently receiving benefits 133 DROP Retirees 13 Terminated employees entitled to benefits but not yet receiving them Pension Benefits: Under the Plan, a participant s normal retirement date shall be as follows: 1) Tier 1 Members: the attainment of age sixty two (62) and the completion of ten (10) years of credited service; 2) Tier 2 Members: the attainment of the age which when added to the years of credited service, equals eighty (80) years and the completion of ten (10) years of credited service; and 3) Tier 3 Members: the attainment of age sixty two (62) and the completion of ten (10) years of credited service. Participants are entitled to annual pension benefits in accordance with the above schedule or an early retirement at age 55 with a benefit reduced by two percent for each year prior to normal retirement. Vesting in a Participant s accrued benefit based on their contributions begins at 25 percent at five years of credited service and increases 15 percent per year. A participant s normal retirement benefit shall be calculated in accordance with the following schedule: 1) Tier 1 Members: two and six tenths percent (2.6%) of average final compensation for each year of credited service; 2) Tier 2 Members: two and six tenths percent (2.6%) of average final compensation for each year of credited service; and 3) Tier 3 Members: three percent (3%) of average final compensation for each year of credited service. The monthly retirement benefit shall not exceed 100 percent of the participant s average final compensation. A participant who terminates prior to five (5) continuous years of service forfeits the right to receive all benefits he/she has accumulated. However, he/she retains the right of a refund of all personal contributions made to the Plan. Deferred Retirement Option Plan (DROP): The Plan adopted a DROP benefit on November 17, Any Plan participant who is eligible to receive a normal retirement pension may elect to participate in a deferred retirement option plan (DROP) while continuing his/her active employment. Upon participation in the DROP, the participant becomes a retiree for all Plan purposes so that he/she ceases to accrue any further benefits under the Plan. Normal retirement payments that would have been payable to the participant as a result of retirement are accumulated and invested in the DROP to be distributed to the participant upon his/her termination of employment. Participation in the DROP ceases for a Plan participant after 96 months. 44

55 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Death Benefits: For any deceased employee who had been an actively employed participant eligible for early or normal retirement, the manner of benefit payable shall be at least equal to the annuity of ten years calculated as of the date of death. The benefit payable in the event of death while in service on or prior to normal retirement date is the greater of the value of a participant s accrued benefit accrued to the date of death or the smaller of 24 times a participant s average final monthly compensation at the date of death or 100 times a participant s monthly retirement income assuming retirement occurred on the date of death. Disability Benefits: A participant that has two or more years credited service and becomes totally and permanently disabled to the extent that they are unable to engage in any reasonable occupation is entitled to a disability benefit. If granted, the pension benefit will be 2.6 percent of final average compensation multiplied by years of credited service, not to exceed thirty years of credited service, but in any event, the minimum benefit shall be 25 percent of average final compensation. Disability pension will be reduced by any workers compensation and/or social security disability benefits such that the total does not exceed 100 percent of the disability pension benefit. Basis of Accounting: The accrual basis of accounting is used by the Plan. KUA contributions to the Plan, as calculated by the Plan s Actuary, are recognized as revenue when due and the KUA has made a formal commitment to provide the contributions. Benefits are recognized when due and payable in accordance with the terms of the Plan. Custody of Assets: Custodial and certain investment services are provided to the Plan under contracts with a custodian having trust powers in the State of Florida. The Plan s investment policies are governed by investment objectives of the Kissimmee Utility Authority and the Florida State Statutes. Authorized Plan Investments: The obligations of the Plan are long term and the investment policy is geared toward performance and return over a numbers of years. The general investment objective is to obtain a reasonable total rate of return defined as interest and dividend income plus realized and unrealized capital gains or losses commensurate with a prudent investor rule and Chapter 112 of the Florida Statutes. Permissible investments include obligations of the U.S. Treasury and U.S. agencies, high capitalization common or preferred stocks, pooled equity funds, high quality bonds or notes and fixed income funds. In addition, the Plan requires assets be invested with no more than 70 percent in stocks and convertible securities measured at cost. In addition, the Plan limits investment in common stock (equity investments) as follows: a. No more than 5 percent at cost of an investment manager s portfolio may be invested in the common or capital stock of any single corporation. b. The Plan s investment in the common stock of any single foreign corporation shall not exceed 25 percent of the Plan s total value. Designations: A portion of the Plan net assets are designated for benefits that accrue in relation to the DROP accounts. Allocations to the DROP plan accounts for the year ended September 30, 2011 are presented below as determined in the most recent notification of DROP balances prepared by the Plan s actuary: 45

56 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Designated for DROP accounts (fully funded) Undesignated plan net assets Total Plan Net Assets $ $ 1,387,436 42,215,237 43,602,673 Actuarial Cost Method: The Plan uses the Entry Age Normal Actuarial Cost Method for funding purposes. This method allocates future normal costs based on the earnings of each employee participant. Entry age is the employee s age nearest his birthday on October first following his employment. The unfunded actuarial accrued liability is not separately identified and is not, therefore, amortized under this actuarial method. Information about funded status and funding progress was prepared using the entry age actuarial cost method and is intended to serve as a surrogate for the funded status and funding progress of the Plan. Funding Policy: The KUA is obligated to fund all Plan costs based upon actuarial valuations. The KUA is authorized to establish benefit levels and to approve the actuarial assumptions used in the determination of contribution levels. The KUA s contribution rate for the years ended September 30, 2011, 2010, and 2009, respectively, was 19.20%, 16.65%, 14.31%, and 12.7% of total annual payroll. The Plan had been a noncontributory Plan since 1986 and was changed to a tiered plan in April Employees now have the option of contributing to the Plan. The employee contribution rate for the years ended September 30, 2011, 2010, and 2009, respectively, was 1.60%, 1.67%, and 1.84% of total annual payroll. Annual Pension Cost: For the years ended September 30, 2011, 2010, and 2009, respectively, the annual pension costs of $2,797,124, $2,444,831, and $2,068,851 were equal to the KUA s required and actual contributions. The annual required contribution was determined as part of the October 1, 2010 actuarial valuation using the Entry Age Normal Actuarial Cost Method. The actuarial assumptions included (a) life expectancy calculated using the RP2000 Combined Healthy table; (b) 8% investment rate of return (net of administrative expenses); and (c) projected salary increases of 6% per year, including an inflation component of 3%. The assumptions included post retirement benefit increases of 0%. The actuarial value of assets was determined using techniques that smooth the effects of short term volatility in the market value of investments over a four year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at October 1, 2010 was 30 years. Actuarial Valuation Date Actuarial Value of Assets Actuarial Accrued Liability Unfunded Actuarial Liability (UAL) Funded Ratio Annual Covered Payroll UAL Ratio to Covered Payroll 10/01/10 $47,038,128 $67,885,399 $20,847, % $14,500, % The schedule of funding progress, included as required supplementary information following the notes to the financial statements, presents multi year trend information about whether the actuarial value of Plan assets is increasing or decreasing over time relative to the actuarial accrued liability. 46

57 Required Supplemental Information 47

58 Kissimmee Utility Authority Employees Retirement Plan Schedule of Funding Progress Actuarial Valuation Date Actuarial Value of Assets Actuarial Accrued Liability Unfunded Actuarial Liability (UAL) Funded Ratio Annual Covered Payroll UAL Ratio to Covered Payroll 10/01/10 $47,038,128 $67,885,399 $20,847, % $14,500, % 10/01/09 46,149,076 64,042,399 17,893, % 14,524, % 10/01/08 45,529,982 55,613,694 10,083, % 13,481, % 10/01/07 43,658,863 51,005,979 7,347, % 12,205, % 10/01/06 39,191,550 45,264,890 6,073, % 12,126, % 10/01/05 35,234,393 41,372,941 6,138, % 11,966, % 10/01/04 32,403,029 37,840,876 5,437, % 11,872, % 10/01/03 30,566,700 31,427, , % 11,503, % 10/01/02 29,233,758 30,085, , % 10,726, % 10/01/01 28,565,661 29,407, , % 10,349, % 10/01/00 27,476,780 28,292, , % 9,622, % 10/01/99 24,543,409 24,543, % 9,338,568 10/01/98 21,310,000 21,310, % 9,077,176 10/01/97 37,242,142 37,242, % 19,037,030 10/01/96 30,720,860 30,720, % 18,082,940 Five Year Trend Information Year Ending Actuarially Determined Contribution Percentage of Actuarially Determined Contribution Net Pension Obligation 09/30/10 $2,441, % 0 09/30/09 2,061, % 0 09/30/08 1,604, % 0 09/30/07 1,534, % 0 09/30/06 1,324, % 0 48

59 Tab Supplementary Information

60 COMBINING STATEMENTS OF NET ASSETS SEPTEMBER 30, 2011 Electric Total ASSETS System ISP Enterprise Funds CURRENT ASSETS Cash and cash equivalents $28,937, ,973 $29,204,456 Investments 11,884, ,884,120 Interest receivable 23, ,270 Accounts receivable 10,587,812 12,054 10,599,866 Less: allowance for doubtful accounts (659,590) (11,281) (670,871) Unbilled receivables 4,767, ,767,086 Inventory 6,695, ,695,068 Other current assets 1,669, ,669,362 Current portion of net investment in capital lease 8,301, ,301,719 Current portion of note receivable other agency 355, ,852 TOTAL CURRENT ASSETS 72,562, ,746 72,829,928 RESTRICTED ASSETS Cash and cash equivalents 93,171, ,171,758 Investments 19,168, ,168,781 Interest receivable 26, ,439 TOTAL RESTRICTED ASSETS 112,366, ,366,978 OTHER ASSETS Unamortized bond costs 1,696, ,696,550 Costs to be recovered from future revenue 7,845, ,845,082 Stanton Energy Center power entitlement 414, ,633 Net investment in capital lease 104,254, ,254,630 Note receivable other agency 948, ,940 TOTAL OTHER ASSETS 115,159, ,159,835 CAPITAL ASSETS UTILITY PLANT Property, plant and equipment 248,532, , ,636,103 Less: accumulated depreciation (101,128,993) (58,118) (101,187,111) SUBTOTAL 147,403,617 45, ,448,992 Construction in Progress 17,727, ,727,570 Nuclear Fuel Inventory 1,572, ,572,509 TOTAL CAPITAL ASSETS UTILITY PLANT 166,703,696 45, ,749,071 TOTAL ASSETS $466,792, ,121 $467,105,812 49

61 Electric Total System ISP Enterprise Funds LIABILITIES AND NET ASSETS LIABILITIES CURRENT LIABILITIES Accounts payable $10,527,782 1,606 $10,529,388 Due to other governments 1,860, ,860,858 Deferred cost of power adjustment 2,096,628 2,096,628 Other accrued liabilities 2,121, ,121,064 Other long term liabilities due within one year 2,126, ,126,846 TOTAL CURRENT LIABILITIES 18,733,026 1,758 18,734,784 LIABILITIES PAYABLE FROM RESTRICTED ASSETS Current portion of revenue bonds 11,935, ,935,000 Accrued interest payable revenue bonds 3,262, ,262,055 Advances for construction 2,415, ,415,888 Customer deposits 11,353, ,353,493 Rate stabilization deferred credits 39,756, ,756,581 CR3 decommissioning liability 5,691, ,691,076 TOTAL LIABILITIES PAYABLE FROM RESTRICTED ASSETS 74,414, ,414,093 LONG TERM DEBT Revenue bonds payable 137,285, ,285,000 Commercial paper notes 43,200, ,200,000 Unamortized bond premium 10,057, ,057,118 Less: unamortized loss on refunded debt (8,399,607) 0 (8,399,607) TOTAL LONG TERM DEBT 182,142, ,142,511 OTHER LONG TERM LIABILITIES Self insurance fund 15,300, ,300,929 Accrued compensated absences 1,312, ,312,409 Accrued other post employment benefits 315, ,015 TOTAL OTHER LONG TERM LIABILITIES 16,928, ,928,353 TOTAL LIABILITIES 292,217,983 1, ,219,741 NET ASSETS Investment in capital assets, net of related debt 108,381,574 45, ,426,949 Restricted 36,230, ,230,478 Unrestricted 29,962, ,988 30,228,644 TOTAL NET ASSETS 174,574, , ,886,071 50

62 COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Electric Total System ISP Enterprise Funds OPERATING REVENUES Metered sales $154,975,230 0 $154,975,230 Lease revenue 12,374, ,374,316 Other 8,570,697 49,163 8,619,860 Rate stabilization transfer Change in costs to be recovered from future revenue (1,690,151) 0 (1,690,151) TOTAL OPERATING REVENUES 174,230,092 49, ,279,255 OPERATING EXPENSES Fuel and purchased power 118,130, ,130,454 Power supply other 1,000, ,000,642 Transmission and distribution 9,816, ,816,804 Administrative and general 15,507,687 47,871 15,555,558 Intergovernmental transfers 8,517,974 2,273 8,520,247 Depreciation and amortization 8,170, ,171,237 TOTAL OPERATING EXPENSES 161,144,122 50, ,194,942 OPERATING INCOME 13,085,970 (1,657) 13,084,313 NONOPERATING REVENUES (EXPENSES) Investment income 692,610 1, ,849 Interest expense (8,387,000) 0 (8,387,000) Other debt service expense (1,903,217) 0 (1,903,217) Loss on disposal of property (88,485) 0 (88,485) TOTAL NONOPERATING REVENUES (EXPENSES) (9,686,092) 1,239 (9,684,853) CHANGE IN NET ASSETS 3,399,878 (418) 3,399,460 NET ASSETS BEGINNING OF YEAR 170,746, , ,486,611 NET ASSETS END OF YEAR $174,146, , ,886,071 51

63 COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Electric Total System ISP Enterprise Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and other sources $182,106,009 $49,559 $182,155,568 Payments to suppliers for goods and services (120,398,698) (47,083) (120,445,781) Payments for employees for services (19,385,346) (1,779) (19,387,125) Payments for benefits on behalf of employees (6,315,405) 0 (6,315,405) NET CASH PROVIDED BY OPERATING ACTIVITIES 36,006, ,007,257 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets 1,248, ,248,853 Advances for construction & advances from co owners (12,244,812) 0 (12,244,812) Proceeds from debt issue 32,020, ,020,600 Payment to defease debt (39,160,000) 0 (39,160,000) Debt issuance costs (269,500) 0 (269,500) Principal paid on long term debt (21,950,000) 0 (21,950,000) Interest paid on long term debt (9,642,890) 0 (9,642,890) Other debt costs (898,053) 0 (898,053) NET CASH USED IN CAPITAL AND RELATED FINANCING ACTIVITIES (50,895,802) 0 (50,895,802) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities (41,016,377) 0 (41,016,377) Proceeds from maturities of investment securities 54,002, ,002,000 Interest on investments 706,352 1, ,590 NET CASH PROVIDED BY INVESTING ACTIVITIES 13,691,975 1,238 13,693,213 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,197,268) 1,935 (1,195,333) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 123,306, , ,571,546 CASH AND CASH EQUIVALENTS AT END OF YEAR $122,109,241 $266,973 $122,376,214 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO BALANCE SHEET: Current Assets Cash and cash equivalents 28,937, ,973 $29,204,456 Restricted Assets Cash and cash equivalents 93,171, ,171,758 CASH AND CASH EQUIVALENTS AT END OF YEAR $122,109,241 $266,973 $122,376,214 52

64 COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Continued RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Electric Total System ISP Enterprise Funds Operating Income $13,085,970 ($1,657) $13,084,313 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 8,142, ,143,595 Loss (gain) on capital asset disposal (88,485) 0 (88,485) Costs to be recovered from future revenue 1,690, ,690,151 Net amortization 27, ,642 Change in assets decrease (increase): Accounts receivable, net 2,954, ,955,055 Other assets (1,695,903) 1,249 (1,694,654) Inventory 1,021, ,021,182 Deferred cost of power adjustment (5,013,792) 0 (5,013,792) Energy conservation cost recovery 31, ,664 Net investment in capital lease 8,301, ,301,720 Change in liabilities increase (decrease): Accounts payable (649,117) 105 (649,012) Due to other governments 99,860 (70) 99,790 Customer deposits 1,979, ,979,623 Other current liabilities 251, ,543 Other accrued liabilities 6,164, ,164,527 Other long term liabilities (297,605) (297,605) NET CASH PROVIDED BY OPERATING ACTIVITIES $36,006,560 $697 $36,007,257 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: (Increase) in fair value of investments $257,467 0 $257,467 The accompanying notes are an integral part of these financial statements 53

65 Operating Revenues By Source/Operating Expenses By Department Last Ten Fiscal Years Operating Revenues: Sources [2] [2] [2] [2] [1] [2] As Restated Metered Sales to Customers $154,975,230 $174,255,347 $172,228,530 $165,028,579 $158,363,578 $139,223,748 $128,936,242 $101,245,778 $104,661,879 $88,914,602 $94,760,118 Other 20,945,013 21,490,459 21,592,684 35,717,708 34,875,202 34,095,860 33,376,703 30,596,871 26,829,993 23,109,164 8,996,698 Internet Service Provider 49,163 61, , , , , , , , , ,637 Total Other Operating Revenue 20,994,176 21,552,060 21,800,453 35,955,838 35,146,624 34,545,376 34,116,153 31,530,540 27,673,410 24,043,305 9,972,335 Rate Stabilization Transfer 0 2,100,000 (2,149,073) 900,000 (3,200,000) (12,150,927) (8,400,000) 0 (5,000,000) - - Total Operating Revenues $175,969,406 $197,907,407 $191,879,910 $201,884,417 $190,310,202 $161,618,197 $154,652,395 $132,776,318 $127,335,289 $112,957,907 $104,732,453 Operating Expenses: Departments Total Generation and Purchased Power 119,131, ,713, ,721, ,535, ,670, ,881, ,431,499 83,141,953 79,995,658 65,301,761 61,262,876 Engineering & Operations [3] 9,816,804 8,483,886 9,708,776 8,327,426 7,673,682 6,908,091 7,213,523 6,943,469 5,887,135 5,871,529 4,688,754 Administrative & General: Information Technology 2,550,262 2,586,295 2,529,113 2,216,181 2,141,590 1,875,568 1,375,190 1,442,307 1,145,301 1,096, ,423 Customer Service & Marketing 7,935,544 7,294,386 6,960,790 6,587,780 5,553,518 5,132,839 4,970,838 4,705,987 3,884,039 3,786,274 3,599,326 Finance & Risk Management 2,370,207 2,254,715 2,237,150 2,222,738 2,077,539 1,889,301 1,392,184 1,416,388 1,250,862 1,131,696 1,103,615 Human Resources 1,523,593 1,501,416 1,367,588 1,484,920 1,389,027 1,304,246 1,172,630 1,341,361 1,169,223 1,163, ,753 Executive 1,209,947 1,086,166 1,101,547 1,140,525 1,034, , , , , , ,485 Internet Service Provider 47,871 57, , , , , , , , , ,942 Other Administrative & General 91, ,469 1,015,955 1,811,313 1,874,459 2,010,350 5,172,522 2,006,908 1,538,939 1,317,377 4,055,291 Work Order Credits (173,610) (182,357) (175,591) (241,923) (200,812) (205,152) (153,444) (129,898) (235,438) (94,762) (526,126) Total Administrative & General 15,555,558 15,408,620 15,269,649 15,549,094 14,183,964 13,071,885 15,222,921 12,132,434 9,978,057 9,491,342 11,280,709 Intergovernmental Transfers [4] 8,520,247 8,527,973 8,318,961 8,521,963 8,587,212 8,472,821 8,279,285 7,674,217 7,665,013 6,990,571 6,804,053 Depreciation 8,171,237 7,057,666 6,517,500 15,095,682 15,137,630 13,842,602 14,904,456 14,801,151 13,432,408 13,169,601 11,612,111 Total Operating Expenses $161,194,942 $177,191,899 $179,536,215 $193,029,508 $176,252,651 $152,176,675 $149,051,684 $124,693,224 $116,958,271 $100,824,804 $95,648,503 [1] Restated to correct overstatement of O&M expense and to true-up overhead and depreciation estimates. [2] The audited financial statements for FY 07 (restated), FY 08, FY 09, FY 10 and FY11 include Change in Costs to be Recovered from Future Revenue in Total Operating Revenues. Those amounts, $3,961,999 in FY 07, $6,693,080 in FY 08, ($1,331,745) in FY 09, ($1,525,301) in FY 10, and ($1,690,151) in FY11 have been reclassified to Nonoperating Revenues for comparability purposes. [3] Includes System Compliance and Operations Department, which was boken out of Engineering and Operations in FY 08. [4] Established by KUA at 6.24 mills per KWh of retail sales and 25% of surcharge revenues. In FY 2000 the decrease reflects KUA dropping the Surcharge (and associated transfer to COK) and implementing the Osceola County Tax. 54

66 INSURANCE FYE 9/30/11 COMPANY TYPE OF COVERAGE DED./AGG. MAXIMUM Preferred Government Insurance Trust General Liability $5,000/$3 Million Aegis Insurance Service, Inc. Excess Liability $1 Million/$35 Million Liberty Mutual Workers Compensation $0/$1 Million AEGIS Insurance Services, Inc. Property Scheduled/Scheduled Preferred Government Insurance Trust Automobile $25,000/$1 Million Travelers Insurance Fiduciary Liability - Pension $1 Million Hartford Fire Insurance Public Official Fidelity Bond $250,000 Maximum Hartford Fire Insurance Crime $250,000 Maximum Aegis Insurance Services, Inc. Directors & Officers $100,000/$10 Million Lexington Insurance Employee Practices Liability $50,000/$1 Million SOURCE: Kissimmee Utility Authority 55

67 Tab Bond Compliance Information

68 Annual Report to Bondholders for the Kissimmee Utility Authority in accordance with Continuing Disclosure Requirements of SEC Rule 15c2-12 February 6, 2012 The Kissimmee Utility Authority's ("KUA" or the "Authority") Annual Disclosure Report to Bondholders is primarily designed to provide updated financial and operating information on the Authority to the holders of KUA Bonds. The Authority currently has $137.3 million in fixed rate bonds outstanding (Series 2003, 2005 and 2011), and $43.2 million of commercial paper outstanding (2000 CP, 2004 CP) for a total of $180.5 million outstanding. The annual payments for each of these issues are reflected in the "Summary of Outstanding Debt Service" table on the next page. In accordance with undertakings of the Authority regarding secondary market disclosure made pursuant to SEC Rule 15c2-12(b)(5)(i), by the resolutions adopted by the Authority or agreements approved by the Authority, enclosed is the annual financial information and operating data updated for Fiscal Year ended September 30,2011, as described in the respective undertakings for the bond issues of the Authority listed in the enclosed repmt. That information constitutes the annual information, including the audited financial statements, agreed to be provided under the provisions regarding secondary market disclosure set forth in the continuing disclosure undertakings entered into by the Authority by the time of the primary offerings referenced herein. No representation is made as to the materiality or completeness of that information. Other relevant information for that period may exist, and matters may have occurred or become known during or since that period, which an investor would consider to be material to the making of an investment decision. Further, no representation is made that such information is indicative of financial or operating results of the Authority since the end of that Fiscal Year or of future financial or operating results. For additional financial infmmation, please download a copy of our Annual Report at on the Internet. Additionally, a copy of the Annual Report can be requested by contacting the Finance & Risk Management depmtment at ( 407) , ext Very truly yours, ~ff~ Vice President of Finance & Risk Management 56

69 57 Summary of Outstanding Debt Service Kissimmee Utility Authority Annual Bond Disclosure Year 2000 CP Program 2000 CP Program Series 2001A Series 2001B Series 2003 Series 2003 Series 2005 Second Installment Series 2011 All Series ESTIMATED DEBT Refunding & ESTIMATED DEBT SCHEDULE Commercial Refunding Revenue Refunding Revenue Improvement Revenue SCHEDULE Paper Bonds Bonds Bonds Refunding Revenue Bonds Refunding Revenue Bonds Commercial Paper Refunding Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Total ,000 2,015, ,545 3,385,000 1,426,750 4,835,000 1,571, ,149, ,100,000 1,266, , ,842 17,335,000 8,805,743 26,140, , ,085,000 1,317, ,149, ,485, , ,000 4,495,000 1,100,750 17,065,000 6,937,769 24,002, , ,910,000 1,051, ,149, ,170, , ,000 7,695,000 1,010,850 17,775,000 6,230,788 24,005, ,861, , ,290, ,738 6,025,000 3,149, ,280, ,425 1,607,526 82,000 8,010, ,050 27,073,919 5,399,213 32,473, ,930, , ,385, ,275 6,275,000 2,832, ,325, ,475 1,623,602 65,925 8,325, ,650 27,863,609 4,506,398 32,370, ,999, , ,505, ,063 14,575,000 2,503, ,260, ,100 1,639,838 49, ,000 49,650 28,704,145 3,551,837 32,255, ,069, , ,640, ,550 15,100,000 1,738, ,360, ,100 1,656,236 33, ,000 22,650 29,580,536 2,428,746 32,009, ,139,993 71, ,780, ,950 18,725, , ,105,000 84,200 1,672,798 16, ,422,791 1,301,340 33,724,132 Outstanding 35,000,000 2,106,965 2,015, ,545 3,385,000 1,426,750 30,430,000 5,964,375 60,700,000 20,653,063 28,085,000 4,288,063 8,200, ,632 30,005,000 3,526, ,820,000 39,161, ,981,833 Dated Date: 11/1/ /25/ /25/2001 8/28/2003 8/28/2003 9/29/2005 7/16/2004 7/5/2011 Original Par: $35,000,000 $15,470,000 $19,330,000 $55,835,000 $60,700,000 $63,680,000 $8,200,000 $30,005,000 Purpose: Construction of Cane Island Unit #3 and capitalized interest. Refund Series 1991 ($9,445,000) due , Series 1993A ($20,745,000) due , and a portion of Series 1993 ($44,215,000) due Refund Series 1991 ($9,445,000) due , Series 1993A ($20,745,000) due , and a portion of Series 1993 ($44,215,000) due Refund Series 1993 ($85,560,000) due and pay a portion of the cost of acquiring and constructing additions, extensions and improvements to the System. Pay issuance costs of the 2003 Bonds. Refund Series 1993 ($85,560,000) due Pay issuance costs of the 2003 Bonds. Refund Series 1997 ($30,405,000) due and Commercial Paper, Series 2000A ($35,000,000). Pay issuance costs of the 2005 Bonds. Construction of Stanton A Refund Series 2001A & B Refunding & Revenue Bonds

70 Summary of Outstanding Debt Service Total Debt Service Payments Kissimmee Utility Authority Annual Bond Disclosure Millions of Dollars (Principal & Interest) $34 $32 $30 $28 $26 $24 $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $ Fiscal Year (Maturity 10/1) 2000 CP Program Series 2001A Series 2001B Senior 2003 Subordinate 2003 Subordinate CP 2nd Installment Series 2011 Debt Service Coverage (Actual Through 2011) Ratio Fiscal Year (Maturity 10/1) 1.25 KUA Board Policy on Bonds 1.10 KUA Board Policy on CP Calculated Debt Service Coverage Debt Service Coverage After Transfers 58

71 Description of the Authority Kissimmee Utility Authority Annual Bond Disclosure The Kissimmee Utility Authority ( Authority ) was established in October of 1985 when operational control of the electric generation, transmission, and distribution system ( System ) was transferred from the City of Kissimmee ( City ) to the Authority for the creation of an Enterprise Fund. An Enterprise fund is a governmental facility or service that is entirely or predominately self-supported by user charges. The Authority does not currently own or operate any facilities that are not part of the System, however, the Authority does have ownership interest in and entitlements to the output of certain generation facilities primarily owned and operated by other electric utilities. The Authority has no taxing power. The Authority is a public body corporate and politic, duly organized and legally existing as part of the government of the City of Kissimmee under the Constitution and Laws of the State of Florida, particularly the Charter of the City. In 1985, Amended City Ordinance No (the Ordinance ) was approved, amending the Charter of the City to create the Authority, with the powers and immunities set forth in the Ordinance. Pursuant to the Ordinance, the Authority is responsible for the development, production, purchase, sale, exchange, interchange, transmission and distribution of all electricity and such other utility services as may be designated by resolution of the City Commission of the City. The Authority has all the powers and duties possessed by the City to construct, acquire, expand and operate the System, and to do any and all acts or things that are necessary, convenient or desirable in order to operate, maintain, enlarge, extend, preserve and promote an orderly, economic and businesslike administration of the System. The governing body of the Authority is the Board of Directors which consists of five voting members and one non-voting ex-officio member who shall always be the Mayor of the City. The term of one voting member of the Board expires each year. Members are appointed for five year terms. Successors to all current members of the Board will be nominated by the Board and approved by the City Commission. No successor to a voting membership on the Board may be an elected official or employee of the City. No voting member of the Board may serve more than thirteen consecutive years on the Board, unless there is a break in service of at least five consecutive years. Officers of the Board are determined by majority vote of the Board. The System: FMPA All-Requirements Power Supply Project (ARP): The KUA purchases power exclusively from Florida Municipal Power Agency (FMPA) through the State-wide bulk power system. The KUA has an All- Requirements Power Supply Project Contract (effective 10/1/2002) with FMPA which requires FMPA to sell and deliver to the KUA and the KUA to purchase from FMPA all electric power that the KUA requires in excess of the amount the KUA receives from its percentage ownership interest in Crystal River 3 and power entitlement in St. Lucie 2. The contract shall remain in effect until October 1, 2045, and is subject to automatic five-year extensions each fifth anniversary unless either party notifies the other in writing at least two years prior to such automatic extension date of its decision not to extend the contract. The KUA pays for electric power under the contract at the rates set forth in the applicable rate schedule of FMPA, which FMPA may revise from time to time. The contract provides the option for the KUA to leave the FMPA after notice and making the remaining project participants whole. This is generally understood to mean paying off its portion of the project s long-term debt. 59

72 Description of the Authority Kissimmee Utility Authority Annual Bond Disclosure Effective October 1, 2008, the KUA leased, as discussed in Note 7, its ownership share of the generating assets associated with the KUA s Cane Island Units 1, 2, and 3, Hansel, Stanton Energy Center Units 1 and A, and Indian River Units A and B. In addition, the KUA entered into a Consolidated Operating and Joint Ownership Contract with the FMPA whereby the KUA provides operation and maintenance services for Cane Island, Gulfstream Interconnection, and Hansel facilities and FMPA reimburses the expenditures. Power Supply Entitlements: Stanton Energy Center (SEC): KUA is a member of FMPA s Stanton and Stanton II projects whereby the KUA has a total power entitlement of % in SEC 1, approximately 8 MW and % in SEC 2, approximately 33 MW. These resources are dedicated to the ARP. The participation costs are paid by the ARP. The following are excluded resources under the ARP agreement: St. Lucie Nuclear Power Plant: KUA is a member of FMPA s St. Lucie project whereby the KUA has a total power entitlement of %, approximately 7 MW in the St. Lucie nuclear power plant. The KUA is billed for its share of the participation costs which are included in purchase power. Crystal River Unit No. 3 (CR3): The KUA entered into a Participation Agreement with Florida Power Corporation (FPC), now Progress Energy, to purchase a % undivided ownership interest, approximately 6 MW in their nuclear powered electric generating plant. The KUA is billed for its share of operating and capital costs. Operating costs are included as fuel and power supply-other expenses and capital costs are included in Property, Plant and Equipment, see note 5. The amounts of utility plant in service for CR3 do not include the cost of common and external facilities for which participants pay user charges to the operating entity. Accumulated depreciation on utility plant in service is determined by each participant based on their depreciation methods and rates relating to their respective share. The KUA does not exercise significant influence or control over the operating or financial policies of Progress Energy. KUA has direct transmission interconnections with the following utilities: (1) Progress Energy delivered at 69 kv via the Progress Energy substations located at Lake Bryan and Meadow Woods and 230 kv via their Intercession City substation; (2) Orlando Utilities Commission delivered at 69 kv (1 connection) and 230 kv (2 connections) via OUC s Taft substation; (3) City of St. Cloud, Florida delivered at 69 kv via the St. Cloud Central substation; (4) Tampa Electric Company delivered at 230 kv via the Cane Island and Osceola substations. The Service Area: During Fiscal Year 2012 the System will serve approximately 64,100 customers (excluding outdoor lighting) in an 85 square mile area, with the City of Kissimmee's square-mile area near the center. 60

73 Description of the Authority Kissimmee Utility Authority Annual Bond Disclosure Kissimmee is the county seat of Osceola County, which is geographically located in the center of Florida. Osceola County s topography is generally flat prairie lands, with a high sandy ridge in the western region. The county has a land area of 1,322 square miles and an elevation level of 69 feet. Kissimmee is located 18 miles south of Orlando and 7 miles east of the Walt Disney World Resort Complex. While the Authority does not serve the Disney World complex, significant population and employment growth since 1980 has been related to the expansion of the complex. Disney s future expansion plans should continue to benefit the Authority. Kissimmee enjoys a stable economic base due to its proximity to the Walt Disney World complex and numerous other tourist attractions and the surrounding cattle and citrus industries. Although the Kissimmee economy depends largely on tourism and related services, its proximity to Orlando has been helpful in attracting other non-tourism businesses. 61

74 SERVICE AREA AND SURROUNDING VICINITY SOUlHWOOD,- ISTANTON 1 1ENERGY I ~N_l~li._j PROPOSED FPC OSCEOLA SUB. LAKE BRYAN SUBSTATION FPC MEADOW WOODS SOUlH OUC STATION--"7 TAFT SWITCHING STATION TECO FPC INTERCESSION CITY POWER PLANT PLEASANT HILL SUB.... "... EXISTING SUBSTATION PROPOSED SUBSTATION NON-KUA SUBSTATION KISSIMMEE SERVICE AREA BOUNDARY 69 KV TRANSMISSION 230 KV TRANSMISSION LINE KISSIMMEE CITY LIMITS PROPOSED 69 KV TRANSMISSION D\t/N BY KB D\t/N DATE 04/11/94

75 KUA - Annual Bond Disclosure Historical Revenues/Expenses and Debt Service Coverage (For Fiscal Years Ended September 30) [6] [7] [8] [7] [8] [8] [8] [8] [9] Line Description FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 ($000) ($000) ($000) ($000) ($000) 1 Operating Revenues $190,910 $202,490 $200,428 $197,907 $175, Operating Expense 4 Production Electric 11,110 8,446 1,897 2,582 1,482 5 Purchase Power 120, , , , ,649 6 Subtotal Power Supply Expense 131, , , , , Other Operating Expense (excl. depreciation) 21,858 23,877 24,978 23,893 25,324 9 Total Operating Expense (excl. depreciation) 153, , , , , Net Operating Revenues 37,782 32,473 35,729 36,301 31, Other Income (includes Gain/Loss Invest.) 6,442 4,166 2, Less Gain/Loss from Investment [1] (743) (220) (587) Net Revenues available for Debt Service 43,481 36,418 38,049 37,418 32, Debt Service 18 Senior Debt Service [2] 12,431 12,218 14,143 13,931 14, Subordinate Debt Service [3] 11,869 12,824 11,715 11,517 11, Commercial Paper Debt Service [4] 1,570 1, Capitalized Interest (1,365) (1,271) (324) (324) (324) 22 Total Debt Service $24,504 $24,847 $25,879 $25,275 $25, Debt Service Ratios 25 Overall Coverage (Senior, Subordinate & Commercial Paper) Senior Lien Bonds coverage Required by Bond resolution Revenues after 1.25 Senior Coverage $27,943 $21,146 $20,370 $20,004 $14, Subordinate & Commercial Paper coverage Required by Bond resolution Balance avail.for Renewals, Replacements & Add. $15,869 $8,517 $8,634 $8,660 $3, Transferred to City General Fund (COK) [5] $8,587 $8,522 $8,319 $8,528 $8,520 Notes: [1] The Bond Covenant calculation does not include the "Gain/Loss from Investment" - GASB No. 31which requires investments to be recorded at fair market value due to the fact that the Authority holds its investments to maturity. This adjustment is backed out of the calculation for Bond Coverage purposes. [2] Senior Debt Service includes: Series 1991(refunded in FY 2002); Series 1993 (partially refunded in FY 2002 and 100% refunded in FY 2003); Series 1993A (refunded in FY 2002); Series 1997 (refunded in FY 2005); Series 2001A (Refunded in FY 2011); Series 2001B (Refunded in FY 2011); Series 2003 ; Series [3] Subordinate Debt Service includes Series 2003 issued in August 2003 and Series The Series 2003 Program was remarketed on September 1, 2009 in a fixed mode from the then current weekly mode. [4] Commercial Paper Debt Service includes: 2000 Pooled Loan Program (refunded in FY 2000); 2000A Commercial Paper (refunded in FY 2005) and 2000B Commercial Paper. Commercial Paper principal amortization is discretionary with KUA. [5] Established by KUA/COK at 6.24 mills per KWh of retail sales and 5% of ISP revenue. In FY 2000 the decrease reflects the implementation of the Osceola County Tax which affected the associated transfer of Surcharge Revenues. [6] Restated to correct overstatement of O&M expense and to true-up overhead and depreciation estimates. [7] The audited financial statements for FY 2007 (restated) and FY (2008) include Change in Costs to be Recovered from Future Revenue in Total Operating Revenues. Those amounts, $3,961,999 in FY 2007, $6,693,080 in FY 2008 have been reclassified to Nonoperating Revenues for comparability purposes. [8] G&A expenses reimbursed by FMPA were reclassified to Operating Revenues in FY FY [9] Reference Note 9, heading "Debt Refundings", regarding the July 7, 2011 refunding. The Series 2011 Bonds resulted in all fixed rate outstanding bonds being on parity. Source: Kissimmee Utility Authority 63

76 Bonds On October 25, 2001, the KUA issued $31,020,000 in Kissimmee Utility Authority Electric System Refunding Revenue Bonds, Series 2001A and $44,500,000 in Kissimmee Utility Authority Electric System Refunding Revenue Bonds, Series 2001 B. The bonds were issued to (1) refund all of the KUA s outstanding Electric System Improvements and Refunding Revenue Bonds, Series 1991, and all of its Electric System Refunding Revenue Bonds, Series 1993A and a portion of its Electric System Improvement and Refunding Revenue Bonds, Series 1993, in the total outstanding amount of $74,405,000 and (2) pay certain expenses related to the issuance and sale of the Series 2001 Bonds. The result of the refunding was a net present value savings of $3,099,342 or approximately 4.17% of the refunded bonds. On August 28, 2003, the KUA simultaneously issued variable rate and fixed rate bonds together with an interest rate swap via $55,835,000 in Refunding and Improvement Revenue Bonds Series 2003 and $60,700,000 in Refunding Revenue Bonds, Subordinate Series The bonds were issued to (1) refund the remainder of Improvement and Refunding Revenue Bonds Series 1993 in the amount of $88,115,000 and (2) pay certain expenses related to the issuance and sale of the Series 2003 Bonds and (3) fund the acquisition and construction of additions, extensions, and improvements to the electric system estimated at a cost of $32,000,000. The result of the refunding was a net present value savings of $7,806,770 or 9.1% of the refunded bonds. On September 29, 2005, the KUA issued $63,680,000 in Kissimmee Utility Authority Electric System Refunding Revenue Bonds, Subordinate Series The bonds were issued to (1) refund all of the KUA s outstanding Electric System Refunding Revenue Bonds, Series 1997, maturing on and after October 1, 2006, of which $30,405,000 aggregate principal amount is currently outstanding, (2) KUA s Commercial Paper, Series 2000A in the amount of $35,000,000, and (3) pay certain expenses related to the issuance and sale of the Series 2005 Bonds. The result of the refunding was a net present value savings of $1,196,528 or approximately 3.94% of the refunded bonds. On August 4, 2009, the KUA terminated the $60,700,000 swap with JPMorgan Chase Bank, N.A. (JPMorgan) associated with its $60,700,000 Electric System Refunding Revenue Bonds, Subordinate Series KUA incurred a termination fee of $5,495,000 as a result of terminating the swap. The swap had an initial trade date of August 5, 2003, effective date of August 28, 2003 and a scheduled termination date of October 1, As the fixed rate payer, KUA paid 3.519% on April 1 and October 1 of each year. KUA received interest payments based on 70% of USD-LIBOR-BBA one month rate during each 35-day calculation period. On September 1, 2009, the KUA converted the $60,700,000 Electric System Refunding Revenue Bonds, Subordinate Series 2003, to a Fixed Mode. The Bonds were initially issued in an Auction Rate Mode and were converted to a Weekly Mode on July 17, The Bonds were remarketed at a premium to generate funds to pay the costs of issuance and the termination fee on the related swap. Net present value benefit, based on net cash flow savings at 5.184% and the termination fee on the swap, were $2,197,892 or approximately 3.62% of the remarketed bonds. 64

77 On July 7, 2011, the KUA issued $30,005,000 in Kissimmee Utility Authority Electric System Refunding Revenue Bonds, Series The bonds were issued to (1) refund all of the KUA s outstanding Electric System Refunding Revenue Bonds, Series 2001A ($14,010,000), and Electric System Refunding Revenue Bonds, Series 2001B ($25,150,000), originally issued on October 25, 2001 and maturing on October 1, 2012 and thereafter, (2) funding a deposit to the Series 2011 Subaccount of the Debt Service Reserve Account and (3) paying certain expenses related to the issuance and sale of the Series 2011 Bonds. This refunding resulted in gross present value debt service savings of $17,178,380 and net present value benefit of $3,275,161. On the $30,005,000 debt issuance, the net present value benefit was %. 65

78 KUA - Annual Bond Disclosure Financial Highlights For the Years Ended September OPERATING REVENUES 1 Metered sales $158,363,578 $165,028,579 $172,228,530 $174,255,347 $154,975,230 2 Capacity credits 28,988,786 29,419, Lease revenue ,374,317 12,374,317 12,374,316 4 Other 6,757,244 7,141,679 9,426,136 9,177,743 8,619,860 5 Net rate stabilization transfer (3,200,000) 900,000 (2,149,073) 2,100, Change in costs to be recovered from future revenue 3,961,999 6,693,080 (1,331,745) (1,525,301) (1,690,151) 7 TOTAL OPERATING REVENUES 194,871, ,183, ,548, ,382, ,279,255 OPERATING EXPENSES 8 Fuel and purchased power 120,582, ,167, ,191, ,270, ,130,454 9 Power supply - other 10,686,868 7,973,033 1,529,924 2,443,522 1,000, Transmission and distribution 7,673,682 8,327,426 9,708,776 8,483,886 9,816, Administrative and general 14,183,964 15,549,094 15,269,649 15,408,620 15,555, Intergovernmental transfers 8,587,212 8,521,963 8,318,961 8,527,973 8,520, Depreciation and amortization 15,137,630 15,095,682 6,517,500 7,057,666 8,171, TOTAL OPERATING EXPENSES 176,852, ,635, ,536, ,191, ,194, OPERATING INCOME 18,019,550 15,547,989 11,011,950 19,190,207 13,084,313 NONOPERATING REVENUES (EXPENSES) 16 Investment income 6,441,765 4,165,964 2,907, , , Interest expense (10,489,201) (9,904,165) (10,114,905) (8,855,652) (8,387,000) 18 Other debt service expense (2,074,485) (2,402,643) (7,869,513) (2,084,342) (1,903,217) 19 Gain (Loss) on disposal of property 0 0 8,548,353 0 (88,485) 20 TOTAL NONOPERATING REVENUES (EXPENSES) (6,121,921) (8,140,844) (6,529,002) (10,088,294) (9,684,853) 21 INCOME BEFORE CAPITAL CONTRIBUTIONS 11,897,629 7,407,145 4,482,948 9,101,913 3,399, CHANGE IN NET ASSETS 11,897,629 7,407,145 4,482,948 9,101,913 3,399, NET ASSETS - BEGINNING OF YEAR 138,596, ,494, ,901, ,384, ,486, NET ASSETS - END OF YEAR $150,494,605 $157,901,750 $162,384,698 $171,486,611 $174,886,071 66

79 KUA Annual Bond Disclosure Operating Highlights For the Years Ended September 30 % Increase ELECTRIC AND ISP OPERATIONS (Decrease) (In Dollars) 1 OPERATING REVENUE 196,382, ,279,255 (11.3%) SELECTED OPERATING EXPENSES 2 Fuel and Purchased Power 135,270, ,130,454 (12.7%) 3 Departmental Operations 26,313,277 26,352, % 4 INTEREST REVENUES 851, ,849 (18.5%) 5 INTEREST EXPENSE 8,855,652 8,387,000 (5.3%) 6 DEBT SERVICE COVERAGE (14.3%) 7 CHANGE IN NET ASSETS 9,101,913 3,399,460 (62.7%) 8 PAYMENTS TO OTHER GOVERNMENTS 8,527,973 8,520,247 (0.1%) 9 UTILITY PLANT (Net) 163,776, ,749, % 10 NET ASSETS 171,486, ,886, % 11 LONG-TERM DEBT 206,137, ,142,511 (11.6%) 12 TOTAL ASSETS 490,893, ,105,812 (4.8%) 13 TOTAL RETAIL SALES 174,255, ,975,230 (11.1%) 14 Residential 94,103,151 82,336,572 (12.5%) 15 Commercial/Industrial 80,152,196 72,638,658 (9.4%) 16 SYSTEM PEAK DEMAND (MW) % 17 TOTAL ENERGY SALES (MWH) 1,371,308 1,359,315 (0.9%) 18 Residential (MWH) 743, ,223 (1.4%) 19 Commercial/Industrial (MWH) 627, ,092 (0.3%) 20 AVERAGE MONTHLY CUSTOMERS 61,988 62, % 21 Residential 52,517 53, % 22 Commercial/Industrial 9,471 9,311 (1.7%) 23 AVERAGE MONTHLY RESIDENTIAL USAGE (MWH) (3.3%) 24 AVERAGE MONTHLY RESIDENTIAL BILL $149 $128 (14.2%) 25 ANNUAL HEATING DEGREE DAYS (25.1%) 26 ANNUAL COOLING DEGREE DAYS 3,551 3, % GENERAL FUEL MIX (%): 27 Purchases 17% 10% (41.2%) 28 Natural Gas & Oil 55% 65% 18.2% 29 Coal 20% 16% (20.0%) 30 Nuclear 8% 9% 12.5% 31 NET ENERGY FOR LOAD (MWH) 1,430,141 1,410,602 (1.4%) 32 Net Generation (MWH) 0 0 N/A 33 Power Purchases (MWH) 1,428,294 1,417,291 (0.8%) 34 Sales for Resale (MWH) 0 0 N/A 67

80 Power Supply Resources [a] Fuel Net MW Capability Summer [b] Line Type Project Owned/Leased: 1 Stanton Energy Center Units 1&2 Coal [c] Key West Units 2&3 Fuel Oil Key West Unit 4 Fuel Oil Cane Island Unit 1,2,3&4 Natural Gas [d] Indian River Units A,B,C,&D Natural Gas [d] Stanton Energy Center Unit A - CC Natural Gas [d] Treasure Coast Energy Center Unit 1 Natural Gas Kissimmee Native Generation Natural Gas [d] Key West Native Generation Fuel Oil [e] Lake Worth Native Generation Natural Gas [e] Total Owned/Leased Resources 1,215 1,530 1,530 1,530 1,432 1,389 Project Purchased: 12 Key West LT - FPL Purchase NA PEF Partial Requirements NA [f] Stanton A - Purchase NA Oleander Purchase NA Total Purchased Resources Project Excluded Nuclear: 17 Excluded Resources - CR3 for KUA Nuclear [g] Excluded Resources - STL2 for KUA Nuclear [g] Excluded Resources - STL2 for LWU Nuclear [g] Excluded Resources Nuclear [g] Total Excluded Nuclear Resources Total Resources 1,692 1,891 1,897 1,856 1,737 1,694 Notes: [a] [b] [c] [d] [e] [f] [g] This table shows the KUA's Power Supply resources through its membership in FMPA's All-Requirements Project (ARP). It includes generation facilities in which the ARP has: an undivided ownership interest but which are operated by third parties ( owned ), members facilities which are leased to ARP ( leased ) and the ARP's purchase power agreements (purchased). Effective October 1, 2002, KUA joined FMPA's All-Requirements Project (ARP). This means that ARP will manage all of KUA's existing and future power supply needs with the exception of the excluded nuclear resources (Crystal River #3 and St. Lucie #2). This project, implemented in 1986, now serves 14 cities: Bushnell, Clewiston, Fort Meade, Fort Pierce, Green Cove Springs, Havana, Jacksonville Beach, Key West, Kissimmee, Lake Worth, Leesburg, Newberry, Ocala and Starke. Peak Demands are at the delivery point level, Summer Season, per FMPA Ten Year Site Plan. Owned by FMPA or purchased from ARP participants at cost (KUA represents 8 MW of Unit 1 and 33 MW of Unit 2). Includes Capacity and Energy purchase of KUA's ownership share. Capacity and Energy purchase. Seller provides reserves for these purchases above the amount shown. Excluded Power Supply Resources (St.Lucie Project and ownership shares in CR3). Nuclear generation is excluded from the All-Requirements Project power supply. It is owned directly by some project participants. Source: Kissimmee Utility Authority and Florida Municipal Power Agency (FMPA) 68

81 KUA - Annual Bond Disclosure Fuel Mix through FMPA's All-Requirements Project (For Fiscal Year Ended September 30, 2011) Nuclear 9% Oil 0% Purchases 10% Coal 16% Natural Gas 65% Notes: This graph shows KUA's fuel mix through its membership in FMPA's All-Requirements Project (ARP). It includes fuels used at generating facilities in which the ARP has an undivided ownership interest but which are operated by third parties, members facilities. Nuclear generation is excluded from the All-Requirements Project power supply. It is owned directly by some project participants. Source: Kissimmee Utility Authority and Florida Municipal Power Agency (FMPA) 69