village of lodi ohio€¦ · · 2007-10-13village of lodi, ohio major electric system improvement...

VILLAGE OF LODI, OHIO

MAJOR ELECTRIC SYSTEM MPROVEMENT I PROJECT FINANCING FEASIBILITY STUDY

FOR REVENUE BOND ANTICIPATION NOTES

MARCH 15, 2007

TABLE OF CONTENTS

PAGE DESCRIPTION PAGE NO.

1) INTRODUCTION 2 to 3

2) OVERVIEW OF LODI ELECTRIC SYSTEM 3

3) BOND ANTICIPATION NOTE FUNDED ELECTRIC SYSTEM IMPROVEMENTS 3 to 7

4) POWER SUPPLY AND GENERATOR ASSETS 7 to 16

5) CUSTOMER BASE, RATES, AND DEREGULATION 16 to 19

6) PROJECTED REVENUES, EXPENSES, AND OPERATING INCOME 19 to 21

7) PROJECTED CASH FLOW AND DEBT SERVICE COVERAGE 21 to 22

8) CONCLUSION 22

TABLES AND 2007 LODI RATE SCHEDULES PAGE NO.

TABLE 2 AND TABLE 3 23

TABLE 4 AND TABLE 5 24

TABLE 6, TABLE 7 AND TABLE 8 25

2007 LODI ELECTRIC RATE SCHEDULES 26 to 28

LODI ELECTRIC SYSTEM POWER COST ADJUSTMENT (PCA) RIDER 29

NOTE SCHEDULE 1 THRU SCHEDULE 6 ARE LOCATED FOLLOWING PAGE 29

Village of Lodi Financing Feasibility Study Page 1

1) INTRODUCTION

This report discusses the feasibility of the Village of Lodi, Ohio, to repay the existing $1,800,000 balance of a loan from American Municipal Power – Ohio (AMP-Ohio). AMP-Ohio has issued revenue bond anticipation notes to fund the loans and proceeds from the loans were used to fund construction of major Electric System improvements. Pursuant to three loan agreements and promissory notes from AMP-Ohio, the debt service on the proposed note must be paid from revenues derived from the Village’s Electric System. The term of the AMP-Ohio loan agreements was 20 years beginning in 1998. As discussed later in this report, all major Electric System improvements associated with the AMP-Ohio loan are complete and operational.

On behalf of the Village, AMP-Ohio issued a one-year revenue bond anticipation note in March 1998 for $1,800,000 to cover expenses for the start of project construction. In March 1999, the Village borrowed an additional $400,000 based on revisions to the cost estimate to complete construction. In March 2000, the Village borrowed an additional $300,000 to cover final construction costs and increase Electric Fund contingency reserves. A summary of the Village’s loan activity to date appears in Table 1 below:

TABLE 1 – LODI LOAN SUMMARY

Date Loan Proceeds Debt Retirement

Note Issue/ Renewal Amount

March 1998 $1,800,000 __ $1,800,000

March 1999 $400,000 __ $2,200,000

March 2000 $300,000 __ $2,500,000

March 2001 __ __ $2,500,000

March 2002 __ __ $2,500,000

March 2003 __ $100,000 $2,400,000

March 2004 __ $200,000 $2,200,000

March 2005 __ $200,000 $2,000,000

March 2006 __ $200,000 $1,800,000

The current one-year note will mature on March 15, 2007. The Village will retire an additional $300,000 of this debt at that time, and as a result, AMP-Ohio will issue a new one-year note in the amount of $1,500,000. To be conservative, this report assumes retirement of an additional $200,000 of debt and issuance of a 10-year bond in March of 2008 at an assumed rate of 5.5%.


Power Systems Design was incorporated in 2002 with the concept of providing quality power system engineering and electrical design services to a diverse customer base consisting of municipal utility systems, industrial customers, and commercial clients. The principles of the company interviewed and carefully selected a design team that’s history brings a long legacy of successful projects. Once this group was on board, the business was ready to start operation in October of 2005. Power Systems Design is new and growing, and although our association with the Village of Lodi just began in January of 2007, our teams extended experience in the electrical field allows us to draw upon a vast wealth of knowledge to bring the Village innovative and timely solutions for their needs.

2) OVERVIEW OF LODI’S ELECTRIC SYSTEM

The Village of Lodi’s Electric System was established in 1942 and exists solely to serve the customers within or near its corporation limits. Since that time, the Village has seen an increased demand in power consumption which has necessitated several electric facility system improvements. The Village purchases wholesale power from AMP-Ohio under various short and long-term power supply agreements. The Village accesses the wholesale power grid via a 69kV interconnection with the Ohio Edison Company (a subsidiary of the First Energy Corporation). The Village’s set their all time system peak load in August of 2006 at 9,229 kW.

3) BOND ANTICIPATION NOTE FUNDED ELECTRIC SYSTEM IMPROVEMENTS

Improvements to the Village of Lodi’s Electric System were divided into three separate projects. The first project consisted of several various improvements to increase system reliability and add system capacity to supply new load growth to the east and south of the Village. The major components of Project #1 included the installation of a new substation east of the Village and completion of a 69kV transmission loop around the Village. Project #2 consisted of installation of an 1800kW diesel generator for load peak shaving and to provide backup generation for the Lodi Community Hospital and Waste Water Treatment Plant. Project #3 consisted of a three-phase 12kV line extension to the Cloverleaf School complex. This line extension now provides the Village with the opportunity to serve existing residential customers along the new line route who are currently served by other sources and enable future expansion of 12kV service to existing and potential Lodi customers.

PROJECT #1 - ELECTRIC SYSTEM IMPROVEMENTS

A) Installation of a New 69kV Substation (Lodi East Substation) The new 69-12kV substation was constructed at the southwest corner of the intersection of Greenwich Road and Harris Road. The substation consists of one 7,500kVA step-down transformer with provisions for a future second transformer. A three-phase recloser and three single-phase voltage regulators provide a new exit to service the 12kV distribution line to Cloverleaf School (See Project #3). The structure has provisions for three future 12kV exits. The substation is supplied by


the 69kV system via two transmission lines, one line from Eaken Substation and the other from Krause Substation. Gang-operated air-break switches were installed on the 69kV lines in the Lodi East Substation to provide the flexibility to supply the Lodi East Substation from either Eaken or Krause Substations. Switched-loop operation has increased system reliability by allowing maintenance of either incoming 69kV line without loss of service to Lodi East Substation.

B) Krause Substation Upgrades and Improvements Improvements to Krause Substation consisted of the installation of a 69kV gang-operated air-break (GOAB) switch inside the substation boundary on the Krause to Lodi East 69kV pole line. The GOAB switch complements the existing GOAB on the existing Krause to Schultz 69kV line and provides the flexibility to supply Krause Substation from either Shultz Substation or Lodi East Substation. Switched loop operation will increase system reliability and permit maintenance of either incoming 69kV line without loss of service to Krause Substation. There were also miscellaneous grounding and structure improvements to the existing equipment.

C) Eaken Substation Upgrades and Improvements Improvements to Eaken Substation involved the addition of a new 69kV SF6 circuit breaker and associated relaying to accommodate the 69kV line that was installed to feed Lodi East Substation. A second new 69kV SF6 circuit breaker was installed to replace the previous 69kV oil circuit breaker on the Eaken to Shultz 69kV line. This provides flexibility to supply the completed 69kV loop in either (or both) direction(s) from Eaken Substation. Switched loop operation will increase system reliability and permit maintenance of either 69kV line without loss of service to Shultz or Lodi East Substations. Miscellaneous grounding and structure improvements to the existing equipment were also made.

D) 69kV Transmission Line Installation and Improvements Completion of the Lodi 69kV transmission loop involved the construction of a new 69kV pole line from Eaken Substation to Krause Substation via the new Lodi East Substation. A portion of the line overbuilt existing 4kV distribution lines along Railroad Street, Cemetery Road, Prospect Street, and Wooster Street to Greenwich Road. The new 69kV pole line was routed east along Greenwich Road to the proposed East Substation, and north along Harris Road to Krause Substation. A 4kV line was installed as underbuild from Krause Substation to Buffham Road and to supply the existing 4kV distribution customers on Harris Road and Highland Drive (see section E below). Completion of the 69kV transmission loop has increased system reliability by enabling maintenance of any segment of the 69kV line without loss of service to any of the Village’s substations.

E) 4kV Distribution Line from Krause Substation to Buffham Road This portion of the project consisted of the installation of a new 4kV distribution line (underbuild) on new 69kV poles from Krause Substation to Buffham Road. The


existing 4kV customers on Harris Road and the spacer cable on Highland Drive were reconnected to this proposed 4kV line. The 4kV line was constructed to 12kV standards to accommodate future conversion to 12kV.

Project #1 - Electric System Improvements Cost Summary

A) Lodi East Substation $713,170 B) Krause Substation Improvements $11,637 C) Eaken Substation Improvements $132,698 D) 69kV Line: Eaken to East Substation $143,633 E) 69kV Line: Krause to East Substation $195,684 F) 4kV Underbuild: Krause to Buffham Rd $23,810

Subtotal $1,220,632 Engineering & Startup $324,602 PROJECT #1 TOTAL $1,545,234

PROJECT #2 - INSTALLATION OF A NEW 1800kW DIESEL GENERATOR

This portion of the project consisted of the installation of a 1,800kW diesel generator for peak shaving during system peak loads to reduce system demand charges and to provide backup generation for the Lodi Community Hospital and Waste Water Treatment Plant (WWTP). The generator is capable of being dispatched by AMP-Ohio to peak shave the AMP-Ohio NEASG load. This capability provides Lodi with a generation credit from AMP-Ohio. These credits are discussed in greater detail later in this report.

The generator was installed on the WWTP property and is configured to operate on demand via AMP-Ohio during system peak loads or in response to a loss of 4kV distribution voltage at either the Hospital or the WWTP. Control logic and automatic transfer switches were installed that automatically start the generator and transfer the Hospital and WWTP to the generator to provide backup power. The generator is capable of supplying both facilities indefinitely until the normal power source is restored.

Project #2 - 1800kW DIESEL Generator Cost Summary

A) Generator $410,625 B) Generator Installation at WWTP $98,234 C) 4kV Line Work $40,108 D) WWTP & Lodi Community Hospital Work $22,043 E) Eaken Substation Modifications $16,694

Subtotal $587,705 Engineering & Startup $96,896 PROJECT #2 TOTAL $684,601


PROJECT #3 - 12kV DISTRIBUTION LINE EXTENSION TO CLOVERLEAF SCHOOL

Service to the Cloverleaf School complex required the installation of a new 12kV distribution line from the new Lodi East Substation to the school (approximately 14,800ft). This involved the installation of wood poles and overhead conductors east along Greenwich Road from Harris Road to Friendsville Road, then north along Friendsville Road to Buffham Road, then east to the school with sufficient height to clear existing Ohio Edison and Lorain Medina Co-op primary and secondary service laterals. The poles were sized to accommodate a future second 12kV circuit. Construction of the Cloverleaf 12kV line extension provides the Village with the opportunity to serve residential customers along Greenwich and Friendsville Roads who are currently served by other suppliers. Since the line went into service in November 1999 to serve the school, several residential customers have switched from the local competing electric suppliers to Lodi electric service.

Project #3 - 12kV Line Extension to Cloverleaf School Cost Summary

A) 12kV Line: East Sub to Friendsville Rd $95,274 B) 12kV Line: Greenwich Rd to Cloverleaf School $63,510

Subtotal $158,784 Engineering & Startup $62,982 PROJECT #3 TOTAL $221,766

Bond Anticipation Note Funding Summary

Project #1 Total $1,545,234 Project #2 Total $684,600 Project #3 Total $221,766 Capitalized Interest $144,550

GRAND TOTAL $2,596,150 Project construction began in March of 1999 and was scheduled for completion in August of 1999. After some contractor delays, the Village began serving the Cloverleaf School complex in November 1999. The diesel generator was commissioned and available for dispatch by AMP-Ohio in February of 2000, at which time the Village began receiving generation credits that effectively reduced the Village’s wholesale power costs.

Due to financial difficulties, the principal contractor ceased operations in February 2000 prior to completing the project punch list items. Independent contractors were hired by the Village to complete the punch list items and the project is now complete and economically viable with all major equipment and systems in operation and generating expected revenues.


Due to the contract default by the principal contractor, the Village began negotiations with the bonding company to recover 1) expenses incurred by the Village to complete the projects punch list items using independent contractors and 2) other default related expenses incurred and capitalized to date. In 2003, the Village reached a settlement with the bonding company and received a lump-sum payment of $60,000. The reimbursement amount, in conjunction with the waiving of payment of approximately $29,000 held in retainage by the Village on the default contract, covered all construction punch list related expenses and a significant portion of other default related expenses. The default related expenses and the bonding company proceeds were included in this study.

4) POWER SUPPLY AND GENERATION ASSETS

The Village purchases power from AMP-Ohio under a 20-year full-requirements contract (Pool Contract) that expires December 31, 2010. Power is delivered to the Village over Ohio Edison’s transmission system under the terms and conditions of an open-access Network Transmission Agreement between AMP-Ohio and First Energy Corporation. AMP-Ohio utilizes this agreement to provide similar services to 20 other municipal Electric Systems interconnected with Ohio Edison/First Energy, which, along with the Village, is collectively referred to as the Northeast AMP-Ohio Service Group (NEASG) Pool.

In addition to the power purchased under the NEASG Pool Contract, the Village also purchases power from AMP-Ohio’s Gorsuch facility, the Ohio Municipal Electric Generation Agency Joint Ventures (OMEGA JV1, JV2, and JV5), the New York Power Authority (NYPA) under long-term contracts, and from other sources (Northern Pool, IP-1) under short-term contracts. The Village’s participation in the Gorsuch and various OMEGA Joint Venture projects is discussed below.

THE BREAKDOWN OF ENERGY PURCHASED BY THE VILLAGE IN 2006 IS AS FOLLOWS:

NEASG Pool 37.4% Gorsuch 45.8% NYPA 3.6% OMEGA JV5 7.6% Northern Pool 3.7% OMEGA JV1 0% OMEGA JV2 0% IP-1 1.9% TOTAL 100%

OMEGA JV1

The Village and 20 other Ohio municipalities entered into a Joint Venture Agreement dated April 1, 1992 (known as the Ohio Municipal Electric Generation Agency Joint Venture 1 or OMEGA JV1) to acquire and install six diesel generators in the City of Cuyahoga Falls, Ohio


(a member of OMEGA JV1) and related transmission and distribution facilities (OMEGA JV1 Project) to provide supplemental reserve capacity to the members of OMEGA JV1. The ownership interests of the members of the OMEGA JV1 range from 0.19% to 21.05%. The Village’s ownership interest is 1.72% (155 kW). The OMEGA JV1 project was funded by cash contributions from its members.

OMEGA JV1 provides that the members shall make payments: (i) sufficient to pay debt service on any bonds or obligations (OMEGA JV1 Obligations) issued, or to be issued, by or on behalf of OMEGA JV1 to pay costs of the OMEGA JV1 Project (OMEGA JV1 Debt Service Payments); (ii) required for any reserve or other fund under a trust indenture securing OMEGA JV1 Obligations or for the provision of a liquidity instrument or credit enhancement for OMEGA JV1 Obligations (OMEGA JV1 Other Indenture Payments); (iii) sufficient to pay the operations and maintenance expenses incurred by the OMEGA JV1 (OMEGA JV1 Operating Expenses); and (iv) sufficient to pay all other payments required by the OMEGA JV1 (OMEGA JV1 Other Required Payments). OMEGA JV1 requires that the OMEGA JV1 Operating Expenses be treated as an operating expense of the Electric System. To date, there has not been a default by any member with respect to its OMEGA JV1 obligations.

The OMEGA JV1 prohibits members, such as the Village, from issuing bonds, notes or other obligations with debt service payments payable from electric revenues superior to the payment of the OMEGA JV1 Debt Service Payments. In addition, the OMEGA JV1 provides that members may not issue bonds, notes or other obligations with debt service payments payable from electric revenues on a parity with payments of the OMEGA JV1 Debt Service, unless the member certifies that on the date of the issuance of such bonds, notes or their obligations, the average of the difference between the revenues and operating expenses of the member’s electric utility for the immediately preceding two complete fiscal years (adjusted for subsequent increases) are at least equal to the member’s maximum debt service in any future fiscal year on the bonds, notes and other obligations (including OMEGA JV1 Debt Service Payments) payable from the Electric Fund net revenues.

There are no outstanding OMEGA JV1 Obligations requiring OMEGA JV1 Debt Service Payments, and the Village does not anticipate that any OMEGA JV1 Obligations will be issued in the foreseeable future. However, the payment of debt service charges on any service lien revenue bonds, notes or other evidence of the indebtedness payable through the Electric System revenues will be on a parity with OMEGA JV1 Debt Service Payments on any future OMEGA JV1 Obligations issued (in the sole discretion of the OMEGA JV1) as additional bonds under the OMEGA JV1.

The OMEGA JV1 remains in effect until the OMEGA JV1 determines that (i) it is unable to operate the OMEGA JV1 Project due to licensing, operating conditions or other causes beyond it’s control, or (ii) the OMEGA JV1 Project is not capable of producing or delivering energy consistent with prudent utility practice; and thereafter until debt service on all OMEGA JV1 Obligations have been paid or are deemed paid in accordance with their term.


OMEGA JV2

The Village is party to a joint venture agreement dated November 20, 2000 between the Village and 35 other AMP-Ohio members that formed the Ohio Municipal Electric Generation Agency Joint Venture 2 (OMEGA JV2). The OMEGA JV2 project consists of the joint ownership of two 32,000 kW used gas-fired turbines, one 11,000 kW used gas-fired turbine, and thirty-four 1,825 kW and one 1,600 kW used oil-fired diesel generating units (138,650 kW total distributed generation). The OMEGA JV2 units are run to offset high-cost NEASG pool power purchased during peak demand times.

The OMEGA JV2 project was financed with the proceeds from $50,260,000 AMP-Ohio OMEGA JV2 Project Distributed Generation Bonds, Series 2001, together with contributions from non-financing project participants. There are currently 16 financing participants and 20 non-financing participants in the project. The Village is an owner participant in OMEGA JV2 with a 0.16% ownership interest (218 kW share) of the project. The Village is also a financing participant and is responsible for 0.21% of the debt service on the OMEGA JV2 bonds payable over a 20-year period. As of February 28, 2007, OMEGA JV2 had $39,810,000 of debt outstanding, of which the Village’s share is $83,601 (0.21%). The OMEGA JV2 debt service is invoiced monthly based on the percent of financing participation and is included in the Village’s operating expenses.

If upon default by another financing participant in OMEGA JV2, the Village’s OMEGA JV2 debt service obligation may be increased by up to 25% (step-up) from its current 0.21% obligation to cover such default. The percentages of all other non-defaulting financing participants would increase by similar percentages in order to cover the debt service of the OMEGA JV2 bonds.

As set forth in the OMEGA JV2 Joint Venture Agreement, each financing participant covenants that it shall fix, charge, and collect rates, fees, and charges, and from time-to-time and as often as shall be necessary revise such rates, fees, and charges, for electric power and energy and other services, facilities and commodities sold, furnished, supplied or otherwise provided by its municipal electric system at least sufficient to provide revenues to meet or, with other available funds, to provide in each year 110% of the debt service on outstanding electric system revenue obligations.

As an OMEGA JV2 financing participant, the Village has covenanted and agreed that it shall not issue bonds, notes or other obligations with debt service payments payable from Electric Revenues superior to the OMEGA JV2 debt service payments. In addition, the OMEGA JV2 provides that financing participants may not issue bonds, notes or other obligations with debt service payments payable from Electric System revenues on a parity with payments of OMEGA JV2 debt service payments unless the participant certifies that on the date of the issuance of such bonds, notes or other obligations, the average of the difference between the revenues and operating expenses of the participant’s Electric System for the immediately preceding two complete fiscal years (adjusted for subsequent rate increases) are at least equal to the participant’s maximum debt service in any future fiscal year on all bonds, notes and other obligations (including OMEGA JV2 debt service payments) payable from the revenues of the utility.


The payments of the Village’s portion of the OMEGA JV2 debt service are on parity with the payment of debt service on the Electric Bonds.

The present fixed O&M cost for OMEGA JV2 participants is $1.20/kW-Month and this expense is anticipated to prevail throughout the study period. Based on a 218 kW share, the Village’s portion of the OMEGA JV2 fixed O&M expense is estimated at $3,140 for the year 2007 through the end of the study period. The OMEGA JV2 variable O&M expense for the year 2007 (primarily fuel cost) is projected at $ 106.50/MWh. Based on 320 operating hours per year at 218 kW, Lodi’s estimated variable expense is $ 7,430 for the year 2007 through the end of the study period. The OMEGA JV2 fixed and variable O&M costs are invoiced monthly based on the Village’s percent of ownership participation and are included in the Village’s operating expenses.

Participation in OMEGA JV2 provides for a reduction in system demand during peak energy usage, thus reducing the NEASG pool power demand and associated pool power demand charges to the Village. The Village’s pool peak demand charge averaged $5.47/kW-Month in 2006. This demand charge would have most likely been higher if the OMEGA JV2 generators had not been available to reduce pool peak demand.

Participants in OMEGA JV2 receive a credit for capacity sales based on the kW subscribed. In 2001, capacity credits were $5.25/kW-Month. In 2002, AMP-Ohio reduced the credit to $2.25/kW-Month due to reduced demand and adequate generation capacity. The capacity credit set by AMP-Ohio for 2005 and 2006 was $2.25/kW-Month and is projected at $2.25/kW-Month for 2007. Based on 218 kW subscribed, Lodi’s credit for capacity sales for 2007 is estimated at $5,890. A capacity credit of $2.25/kW-Month was assumed throughout the study period to be conservative. The capacity credit and the effective reduction in the Village’s monthly NEASG pool power demand charge as a participant in OMEGA JV2 results in an effective reduction in the Village’s purchased power cost.

OMEGA JV5

The Village and 41 other Ohio municipalities entered into a Joint Venture Agreement (Agreement) dated January 1, 1993 (known as the Ohio Municipal Electric Generation Agency Joint Venture 5 or OMEGA JV5) to acquire, construct and operate a 42 MW hydroelectric generator at the Belleville locks and dam on the Ohio River, including related transmission facilities, and 28 MW of fossil-fuel-fired back-up electric generators and related facilities (the OMEGA JV5 Project). OMEGA JV5 also entered into a prepaid lease agreement with the City of Oberlin for an additional 12 MW of backup generating capacity.

The ownership interests of members of the OMEGA JV5 range from 16.67% to 0.06%. The Village’s ownership interest is 395 kW (0.94%). Other percentages of ownership interests, in descending order, include Cuyahoga Falls (16.67%), Bowling Green (15.73%), Niles (10.63%), Napoleon (7.35%), Jackson (7.14%), Hudson (5.69%), Wadsworth (5.62%) and Oberlin (3.02%).


The OMEGA JV5 project was initially funded through the issuance of Beneficial Interest Certificates (BICs) in the aggregate principal amount of $153,415,000 in 1993. The 1993 BICs were refunded on February 17, 2004 through the issuance of $116,910,000 (2004 Refunding BICs). OMEGA JV5 issued $13,899,981 of additional Beneficial Interest Certificates in 2001. The 2001 Certificates are non-callable and accrete in value to $56,125,000 at maturity during the years 2025-2030. As of February 28, 2007, the 2004 Refunding BICs ($104,435,000) and 2001 additional Beneficial Interest Certificates ($56,125,000) represent a total outstanding debt of $160,560,000. Lodi is obligated to pay 0.94% (or $1,509,264) of the total outstanding debt.

Under the terms of the 2004 Refunding BIC’s Second Supplemental Trust Agreement (Second Supplemental Trust), each OMEGA JV5 Participant will be billed 115% of the debt service payments. The 15% component of such debt service payment will be refunded (with interest) to the Participant on each February 15 following the year of collection. For the Village, this amount will be approximately $12,950 per year. Under the terms of the Second Supplemental Trust, the refund is to be included as revenues for the purposes of calculating the Participant’s obligation under the OMEGA JV5 Joint Venture Agreement to maintain a debt service coverage equal to 110% of the sum of the OMEGA JV5 debt service and any other outstanding senior lien electric system revenue obligations.

In addition, under the terms of the 2004 OMEGA JV5 Second Supplemental Trust, during the first five years of any Bond Anticipation Note, only the interest on the Note shall be used for calculating debt service coverage. Beginning the sixth year, 1/20 of the original principal issue plus interest, shall be used for calculating debt service coverage. Bond anticipation notes were issued in the amounts of $1,800,000, $400,000, and $300,000 in years 1998, 1999, and 2000 respectively. The debt service amounts required in calculating OMEGA JV5 debt service coverage through 2010 are summarized below. 1/20th Original Principal Issue

Payment Year

1998 Issue ($1,800,000)

1999 Issue ($400,000)

2000 Issue($300,000)

Total All Note Issues *Interest

Debt Service For Coverage

1999 $ - $ - $ - $ $ 69,750 $ 69,750 2000 $ - $ - $ - $ $ 74,592 $ 74,592 2001 $ - $ - $ - $ $ 115,304 $ 115,304 2002 $ - $ - $ - $ $ 93,490 $ 93,490 2003 $ - $ - $ - $ $ 55,938 $ 55,938 2004 $ 90,000 $ - $ - $ 90,000 $ 28,640 $ 118,640 2005 $ 90,000 $ 20,000 $ - $ 110,000 $ 25,230 $ 135,230 2006 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 52,853 $ 177,853 2007 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 64,620 $ 189,620 2008 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 82,500 $ 207,500 2009 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 76,092 $ 201,092 2010 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 69,332 $ 194,332 2011 $ 90,000 $ 20,000 $ 15,000 $ 125,000 $ 62,201 $ 187,201

* Interest payments in years 2008 through 2011 are estimated values.


THE OMEGA JV5 PROVIDES THAT THE MEMBERS MAKE PAYMENTS:

A. Sufficient to pay debt service on any bonds or obligations (OMEGA JV5 Obligations) issued, or to be issued (including additional bonds), by or on behalf of the OMEGA JV5 (at its sole discretion) to pay costs of the OMEGA JV5 Project (OMEGA JV5 Debt Service Payments).

B. Required for any reserve or other fund or account under a trust indenture securing OMEGA JV5 Obligations or for Other Indenture Payments.

C. Sufficient to pay the operation and maintenance expenses incurred by the OMEGA JV5 (OMEGA JV5 Operating Expenses).

D. Sufficient to pay all other amounts required by the OMEGA JV5 Agreement (OMEGA JV5 Other Required Payments).

E. The member’s portion of payments for A through D that is attributable to a defaulting member’s share of ownership (Step-up Costs).

The OMEGA JV5 Agreement requires that OMEGA JV5 Operating Costs be treated as operating costs of the Electric System. Thus, the Electric Agreement’s definition of Electric Operating Expenses includes the Village’s portion of the OMEGA JV5 Operating Costs, and payments of the Electric Operating Expenses are made prior to payments of debt service on Electric Bonds.

The OMEGA JV5 Agreement prohibits members, such as the Village, from issuing bonds, notes or other obligations with debt service payments payable from Electric Revenues superior to the OMEGA JV5 Debt Service Payments. In addition, the OMEGA JV5 Agreement provides that members may not issue bonds, notes or other obligations with debt service payments payable from Electric Revenues on a parity with payments of OMEGA JV5 Debt Service Payments unless the member certifies that on the date of the issuance of such bonds, notes or other obligations, the average of the difference between the operating revenues and expenses of the member’s electric utility for the immediately preceding two complete fiscal years (adjusted for subsequent rate increases) are at least equal to the member’s maximum debt service in any future fiscal year on all bonds, notes and other obligations (including OMEGA JV5 Debt Service Payments) payable from the revenues of the utility.

The payments of the Village’s portion of the OMEGA JV5 debt service payment are on parity with the payment of debt service charges on the Electric Bonds.

Each member of the OMEGA JV5 covenants that it will fix, charge and collect rates that are at least sufficient in each fiscal year to produce Electric Revenues equal to the greater of:

A. The sum of: (i) the member’s Electric Operating Expenses (including its OMEGA JV5 Operating Expenses); and (ii) 110% of the debt service on any outstanding senior lien Electric System revenue obligations and the member’s portion of the OMEGA JV5 Debt Service Payments; or


B. The sum of: (i) the member’s Electric Operating Expenses (including the OMEGA JV5 Operating Expenses), (ii) the member’s share of the OMEGA JV5 Debt Service Payments, (iii) debt service on outstanding Electric System revenue obligations of the member, such as the Electric Bonds, and (iv) all service on general obligation or tax supported debt incurred for purposes of the member’s electric utility and the member’s share of OMEGA JV5 Other Indenture Payments and Other Required Payments.

In addition, the Village is required to pay Step-Up Costs equal to a pro rata share of a defaulting member’s OMEGA JV5 Debt Service Payments, OMEGA JV5 Other Indenture Payments, OMEGA JV5 Operating Expenses and OMEGA JV5 Other Required Payments; provided that the non-defaulting member’s Step-Up Costs shall not exceed 25% of the non-defaulting member’s ownership share of the OMEGA JV5 Project. To date, there has not been a default by any member with respect to its OMEGA JV5 obligations.

The OMEGA JV5 Agreement remains in effect until the OMEGA JV5 determines that: (i) it is unable to operate the OMEGA JV5 Project due to licensing, operating conditions or other causes beyond its control, or (ii) the OMEGA JV5 Project is not capable of producing or delivering energy consistent with prudent utility practice; and thereafter until debt service on all OMEGA JV5 Obligations have been paid or are deemed paid in accordance with their terms.

GORSUCH STATION SALES CONTRACT

The Village entered into a Power Sales Contract dated January 1, 1988 (Power Sales Contract) with AMP-Ohio and 47 other Ohio municipalities. The Power Sales Contract was entered into in connection with the financing by AMP-Ohio of its purchase from Elkem Metals Company (Elkem) of a 69.24% undivided ownership interest in an existing coal-fired steam and electric generating facility located near Marietta, Ohio, operated by AMP-Ohio and renamed the Richard H. Gorsuch Generating Station (the Gorsuch Station). AMP-Ohio issued $75,600,000 in revenue bonds (The Gorsuch Bonds) to finance its acquisition of this ownership interest and its refurbishment of the Gorsuch Station, of which $16,131,000 is currently outstanding. On September 1, 1997, Elkem exercised its right to put its 30.76% remaining ownership interest in the Gorsuch Station and certain related contracts to AMP-Ohio (the Put). The Put became effective September 1, 1999. AMP-Ohio made cash payments of $9,866,667 in 1999 and $2,450,000 in 2000 to acquire the remaining ownership.

On July 15, 2003, AMP-Ohio issued an additional $7,975,000 of Bond Anticipation Notes (“2003 Notes”) for the purpose of making two major improvements to the Gorsuch Generating Station. The two major improvements were the expansion of the existing ash disposal area and installation of nitrogen-oxides (Nox) reduction technology on Boilers Nos. 2 and 3. These 2003 Notes matured on April 1, 2004 and were re-issued (“2004 Notes”) in the amount of $7,160,000. The 2004 Notes included the additional improvement for the installation of a plant performance optimization system. These 2004


Notes matured on April 1, 2005 and were re-issued (“2005 Notes”) in the amount of $6,395,000. The 2005 Notes included the additional improvement for the purchase of an E-Crane, blending facility, radial stacker, coal analyzer, cross-cut sampler, two belt scales, barge pullers and various conveyors. Those 2005 Notes matured on April 1, 2006 and were reissued (“2006 Notes”) in the amount of $4,260,000. The notes are expected to be re-issued each April 1 until final maturity in 2008. Principal payments will be made ratably on each April 1 renewal date. The 1988 and 2006 issues have a combined outstanding debt total of $20,391,000 as of February 28, 2007.

Under the Power Sales Contract, the Village agrees to purchase 2.575MW of capacity from AMP-Ohio (1.36% commitment as of September 1, 1999) until such time as all of the Gorsuch Bonds (scheduled final maturity is April 1, 2008) or any additional bonds issued by AMP-Ohio with respect to the Gorsuch Station are retired. The present purchase commitments of all participating municipalities, including the City of Columbus, Ohio, which participates on the basis of a separate Power Sales Contract, range from 25.546 MW to 0.129 MW. The current commitments of some of the other participating Ohio municipalities include Niles at 25.546 MW (13.45%), Wadsworth at 17.252 MW (9.08%), Napoleon at 16.484 MW (8.68%), Columbus at 15.0 MW (7.89%), Orrville at 13.0 MW (6.84%), Hudson at 11.388 MW (5.99%), Cleveland at 10.0 MW (5.26%) and Dover at 9.0 MW (4.74%).

The total Gorsuch Station outstanding debt as of February 28, 2007 was $20,391,000. Lodi is obligated to pay $277,318 (1.36%) of the current total.

The rates to be charged under the Power Sales contract for delivery of this power are to be established by AMP-Ohio from time to time and are to be sufficient, but only sufficient, to generate enough revenue to cover all operation and maintenance expenses incurred by AMP-Ohio. This includes, but is not limited to, taxes, insurance, fuel costs, engineering, costs to AMP-Ohio of any electric power purchased for resale, working capital requirements, distribution and transmission services, and 110% of debt service requirements on the Gorsuch Bonds and any additional bonds which AMP-Ohio may issue (at its sole discretion) with respect to the Gorsuch Station at any time as provided in the Power Sales Contract.

Under the Power Sales Contract, as long as AMP-Ohio delivers any amount (up to a maximum of 2.575 MW of electricity from any source (including power purchased by AMP-Ohio for resale), the Village is obligated to take that power (at a load factor by not less than 70%) and pay whatever rate has been established (based on the factors discussed above) by AMP-Ohio for the power delivered.

The Village has agreed in the Power Sales Contract that it will treat all its payments under the Power Sales Contract, including its proportionate share ($277,318 or 1.36%) of debt service on the Gorsuch Bonds as an operating expense of their Electric System. The definition in the Electric Agreement of Electric Operating Expenses includes those payments as an operating expense of the Electric System, and the payment of debt service on the Electric Bonds is subordinated to the payment of Electric Operating Expenses under the terms of the Electric Agreement.


Under the Power Sales Contract, a "take and pay" contract, the Village and the other contracting municipalities bear certain risks associated with that Contract. These risks include, but are not limited to, any: (a) regulatory risk, including obtaining necessary EPA permits and the effects of any legislation resulting in limits on emissions which could increase the cost of operating the Gorsuch Station, the cost of fuel, or significant additional capital expenditures to meet those requirements; (b) risks associated with the operation of the Gorsuch Station, including fuel cost escalation and damage to the Gorsuch Station in excess of insurance coverage; (c) risks of nonpayment by any other contracting municipality (unlimited step-up) and by Elkem prior to September 1, 1999; and (d) the risk that the power available and required to be purchased under the Power Sales Contract becomes uneconomical. The Village would recover the costs associated with these risks for electricity delivered under the Power Sales Contract through an increase in retail electric rates by reducing the rate discount factor.

If upon default by another participant under the Gorsuch Power Sales Contract, the Village’s debt service obligation may be increased from its current 1.36% share to cover such default. The percentages of all other non-defaulting participants would increase by similar percentages in order to cover the debt service of the Gorsuch bonds.

BASELOAD ANNOUNCEMENT

On October 28, 2005, AMP-Ohio formally took the next step for a proposed power plant by publicly announcing the preferred site for the facility in southern Meigs County, Ohio. The site is located in Letart Township in southern Meigs County. The decision to locate the proposed facility in Meigs County is contingent upon permitting, geological studies and negotiations with state and local officials on appropriate incentives. Alternative sites and options are also being considered should the organization not be able to site the facility at this preferred location.

The announcement stems from a two-year process initiated following a strategic plan and including studies performed by the consulting engineering firms of Sargent & Lundy LLC and Black & Veatch, including an extensive request-for-proposal (RFP) process that considered long-term contractual arrangements and other options. The American Municipal Power Generating Station will contribute to meeting the long-term energy demands of 92 AMP-Ohio member communities participating in the study.

As proposed, the pulverized coal-fired plant will utilize the latest in proven clean coal technology to minimize the environmental impact and will allow the use of a fuel blend that includes Ohio coal. The facility would have a capacity of approximately 1,000 megawatts (MW). The plant and associated facilities would occupy approximately 1,300 acres and would consist of a power plant with two stacks, coal unloading facilities, a fly ash disposal area, a substation and access roads. It is anticipated the facility being on-line by 2012. The Village of Lodi has subscribed for 2.32 MW.


Gas Turbines

AMP-Ohio closed the $13,120,000 permanent financing for the Combustion Turbine (“CT”) Project on December 13, 2006. The financing is a variable-rate structure whereby AMP-Ohio swaps the variable-interest rate to a fixed-interest rate with a counterparty. The variable-interest rate is supported by a bank letter of credit. The 33 participants in the CT Project will pay the fixed rate, which was priced at 3.89% over the 15-year term of the issue. Because the transaction is supported by a letter of credit, the financing structure does not rely on the credit strength of the 33 participants. Therefore, no step-up provision, debt-service reserve fund or bond insurance was required, all of which brings significant savings to the participants and reduced the amount of bonds issued.

The project consists of three combustion turbine installations in the cities of Bowling Green, Galion and Napoleon. Each of the installations has two combustion turbine generators: a Westinghouse W301G, rated at 32 megawatts, and a General Electric Frame 5001LA, rated at 16.5 MW. The units were acquired in 2003 from PG&E Dispersed Generating Company LLC (PGET). With the acquisition, AMP-Ohio also purchased an additional GE Frame 5001LA 16.5-MW unit and three Mitsubishi Model 301 32-MW units, along with spare parts that are currently in storage. An independent study indicated the units had a replacement value of approximately $86 million. AMP-Ohio owns the project but a committee of participants will meet from time to time to review project performance. On recommendation from the committee, AMP-Ohio could sell the units and spare parts held in storage. Proceeds from any such sale would be applied to reduce debt. The Village’s project share is 2,100 kW or 1.48%. The current commitments of some of the other participating municipalities include Cuyahoga Falls at 26,600 kW (18.73%), Wadsworth at 17,900 kW (12.61%), Niles at 16,300 kW (11.48%), Napoleon at 12,400 kW (8.73%) and Hudson at 11,550 kW (8.13%). 5) CUSTOMER BASE, RATES, AND DEREGULATION

Electric SYSTEM Customers

A summary of the Village of Lodi's total electric customer base for 2006 is shown in Table 2. The Village’s 2006 electric sales by customer class were approximately 42% residential, 25% commercial, and 33% industrial.

The ten largest revenue-producing customers in 2006 are shown in Table 3. The Village’s ten largest customers represent approximately 41.3% of the Village’s total electric sales and the Village’s largest customer represents approximately 5% of total sales. Of the top ten customers, Cloverleaf Schools (No. 3) has a contract with the Village for power delivery through the year 2019 and Lodi Hospital (No. 7) is expanding and expected to remain a Village customer beyond the foreseeable future. In summary, the Village’s customer base is fairly diverse and the loss of any one customer would not significantly impact Electric System revenues and operating margins. In the event the Village lost its single largest customer, the Village would have to raise retail rates approximately 2% to maintain equivalent operating margins.


EXISTING ELECTRIC RATES

The existing electric rate policy has been in effect since 1975. The Village’s existing rates are based on Ohio Edison Company (local competing utility) rates, less a discount approved by the Village’s Board of Public Affairs. Increases in wholesale purchased power costs are passed on to the retail customers by the Board of Public Affairs, which determines and sets electric rates by adjusting the approved discount. This ratemaking policy passes all wholesale rate increases directly to the retail customer by periodically reviewing operating costs and adjusting the discount accordingly to generate sufficient revenues and maintain sufficient operating margins and Electric Fund reserves.

Prior to July 2000, the discount was 50% for customers within Village limits and 40% for customers outside Village limits. In July 2000, the discount was reduced to 47.5% for customers within Village limits and 37% for customers outside Village limits. In January 2001, the discount was reduced to 46% for in-Village customers and 35% for outside-Village customers. In January 2002, Lodi’s rate formulas were adjusted to reflect minor variations in the Ohio Edison rate formulas upon which Lodi’s rates are based. Also at that time, the discount was adjusted to 42% for in-Village customers and 36.2% for outside-Village.

Due to the increase in purchased power cost in 2004 and projected increases in power cost in 2005, the Village Board of Public Affairs passed a resolution on February 7, 2005 to implement a two-step retail rate increase (reduction in discount factor for all customer classes) in 2005 and 2006. The first rate increase of 3.4% became effective in April 2005 and the second rate increase of 3.0% was supposed to become effective in January 2006.

Due to the SECA charges and continuing fluctuation in wholesale power costs in 2005, the Village Board of Public Affairs initiated a review of the Village’s electric rates and development a Power Cost Adjustment (PCA) that would automatically adjust electric revenues to maintain adequate cash flows and operating margins. In August 2005, the Village’s residential electric rates were increased approximately 15% and the PCA was implemented.

The PCA uses a three-month rolling average to calculate the revenue requirements and maintain a desired revenue margin. The PCA appears as a $/kWh charge on each customer’s electric bill and is based on total electric fund income and disbursements and total kWh consumption over the previous three-month period. The new PCA and rate increase generated an additional $2,266,877 in revenue when compared to 2005 actual revenue.

On November 21, 2006, Resolution # 03-06 was passed that set forth new electric rates for residential, commercial, and industrial power customers. The overall impact to the Village’s customer base is roughly a 9% increase.


The PCA and rate modifications are expected to offset increased purchased power costs, maintain adequate operating margins, meet the debt coverage covenants for OMEGA JV2 and JV5, and optimize the Village’s competitiveness with neighboring utilities.

The Village of Lodi’s electric revenue rates, kWh consumption, and kWh sales (in dollars) by customer class for the years 2004 through 2006 are shown in Tables 4, 5, and 6 respectively. The PCA adjustment along with the rate increase in 2005, have had an impact on 2006 revenues and sales.

Based on 2005 Department of Energy data, the average revenue rate for electric sales by customer class for the Village and its two local competitors, Ohio Edison Company (OEC) and Lorain-Medina Rural Electric Cooperative (LMREC), are listed in Table 7. The Village’s electric revenue rates versus the Village’s closest competitors and the state average in terms of percentage are shown in Table 8. The Village’s electric revenue rate for residential customers was 1.3% lower than OEC, 3.5% higher than LMREC, and 9.8% higher than the state average. However, if you compare the Village’s rates against Ohio Edison’s service territory, they are 2.0% less than the average of all electric utilities in the service territory. The Village’s revenue rate for commercial customers was 4.3% lower than OEC, 3.7% higher than LMREC, and 8.2% higher than the state average. Again, when compared to the average rate in the Ohio Edison territory, the Village is 7.3% lower. The Village’s revenue rate for large power (industrial) customers was 71.2% higher than OEC, 59.4% higher than LMREC, and 74.9% higher than the state average. The present rate differentials for residential and commercial customer classes provide sufficient room for the Village to remain expenses.

OEC’s present residential, commercial, and industrial electric rate formulas are expected to remain in effect through at least 2006. LMREC’s rates increased approximately 5% during the summer of 2003 and approximately 2% in 2004 and 2005. LMREC’s electric rates are expected to rise approximately 2% per year over the next 8 years to pay for the addition of power generation capacity and the upgrade of pollution control equipment on existing Buckeye Power REC generating plants to meet environmental regulations. These anticipated LMREC rate increases should strengthen Lodi’s competitive advantage in the residential market and reduce the gap between the Village’s and LMREC’s commercial and industrial rates. Ohio Edison is currently under a rate freeze until 2009. At that time, Ohio Edison will increase their rates and at which time, all three customer classes should provide sufficient room for the Village to remain competitive.

The Village is aware of the rates of nearby competing utilities and will consider these rates in conjunction with the Village’s fixed and variable operating expense going forward to develop and refine electric rates that will remain competitive in all customer classes and provide sufficient revenues to meet expenses. It is also anticipated that the new retail rates will incorporate demand and power factor incentives for the Village’s large retail customers to manage their electric consumption and increase load factors, thus reducing demand and demand related charges.


ELECTRIC SYSTEM DEREGULATION

The Village owns and operates their Electric System under authority of applicable sections of Article XVIII, Ohio Constitution, including Section 4 which, in pertinent part, provides:

Any municipality may acquire, construct, own, lease and operate within or without its corporate limits, any public utility the product or service of which is or is to be supplied to the municipality or its inhabitants, and may contract with others for any such product or service.

Electric deregulation legislation has been passed in the Ohio General Assembly. Customer choice to customers of for-profit and cooperatively owned utilities began January 1, 2001, in the selection of their power supplier (customer choice). The legislation, consistent with the Ohio Constitution and Supreme Court decisions, does not mandate customer choice for customers of a municipal-owned Electric System such as Lodi’s Electric System.

The Ohio Supreme Court, in a number of decisions interpreting Section 4 of Article XVIII, to date has consistently held that the Ohio General Assembly may not (with limited exceptions not directly comparable to the imposition of customer choice on a municipal utility) regulate or impose conditions on the operations of a municipal utility. If the Ohio General Assembly were to mandate a statewide customer choice environment that would include municipal-owned Electric Systems and their customers, it would be difficult to forecast how the Supreme Court would rule on a challenge to the constitutionality of such a mandate, and no representation is made that such a mandate would be held unconstitutional.

If the Ohio General Assembly were to enact a law requiring municipal-owned Electric Systems to provide for customer choice in the selection of suppliers of electric service and if the Ohio Supreme Court were to determine that such legislation is constitutional or if the Village were to offer customer choice to its customers as a matter of municipal policy, the Village believes that it could and would operate their Electric System under customer choice conditions in a manner that would enable it to meet its obligations under their current contracts. To date, the Village has elected not to open their system to retail wheeling and does not anticipate doing so in the foreseeable future.

6) PROJECTED REVENUES, EXPENSES, AND OPERATING INCOME

SCHEDULE 1 - OPERATING REVENUE

Actual and projected kWh sales and operating revenues through the year 2011 are shown in Schedule 1. The Village’s projected annual metered kWh sales are based on an annual 2.6% load growth rate going forward. The projected kWh sales include electric sales to the Cloverleaf Schools that began in November of 1999 and extend under contract through the year 2019.


Actual and projected revenue rates in $/kWh and electric collections reflect rate increases to Lodi Electric System customers in April 2005, implementation of a Power Cost Adjustment in August 2005. Other annual Electric System operating revenues and credits include energy credit refunds, security lighting leases, labor services and material sales, disconnection & reconnection fees, and other miscellaneous revenues. Increases in other system revenues were projected at 4% per year.

As a result of a change in Ohio law effective May 1, 2001, the State of Ohio Public Utility Gross Receipts tax was eliminated from the Village’s wholesale power bill and the Village began collecting a kWh sales tax from its retail customers. The total kWh sales tax proceeds are included with kWh sales in the Electric Collections account shown in Schedule 1. The sales tax collected from customers outside the Village is paid to the state as an operating expense as discussed later in this report. The sales tax collected from customers inside the Village limits is retained and transferred to the General Fund by ordinance for use by the Village. The in-Village kWh sales tax is transferred to the General Fund as discussed later in this report. Projected kWh sales tax transfers to the State and General Fund are based on projected kWh sales. SCHEDULE 2 - OPERATING EXPENSES

Actual and projected operating expenses through the year 2011 are shown in Schedule 2. The projected purchased power costs over the period reflect an estimated 2.6% annual growth in electric sales. AMP-Ohio’s average wholesale electric rate to the Village increased approximately 12% in 2004 and approximately 21% in 2005 to cover increased power generation and transmission costs. Wholesale electric rates are expected to remain relatively stable in 2006 through the end of the study period. Since the Village has implemented a PCA to compensate for changes in purchased power costs, wholesale power costs were assumed constant in 2007 through 2011.

Salaries and benefits, contract services, O&M expenses for power distribution and generation, and capital outlays for general system improvements have been increased to reflect inflation at an annual rate of 4%. Actual and projected debt service and O&M expenses associated with participation in OMEGA JV2 and OMEGA JV5 are included in the Village’s Purchased Power cost. No increases in salaries and benefits, contract services, or O&M expenses for power distribution and generation are anticipated beyond the projected 4% annual rate.

AMP-Ohio provides generation capacity credits as a result of participation in the OMEGA JV2 project as discussed earlier in this report. These credits reduce the Village’s wholesale purchased power cost. In addition to credits received through participation in OMEGA JV2, the Village also receives a credit on its wholesale power bill for owning a 1,800 kW generator and making the generator available for dispatch by AMP-Ohio during times of high power demand. In 2000, the Village entered into an agreement with AMP-Ohio in which AMP-Ohio provides a 1,000 kW reduction in the Village’s monthly billing demand and a capacity credit on the remaining 800 kW of available generation plus actual kWh generated and sold to the NEASG power pool. The effective demand reductions and capacity credits are reflected in the Village’s actual and projected purchased power costs.


SCHEDULE 3 - OPERATING INCOME AND MARGIN

The actual and projected operating income and margins are shown in Schedule 3. Operating income includes present and future contract sales to the Cloverleaf Schools, Amp-Ohio capacity sales and generation credits, and O&M expenses associated with operation of the Village’s generator. Projected operating margins are excellent and expected to remain stable through the study period. 7) PROJECTED CASH FLOW AND DEBT SERVICE COVERAGE

SCHEDULE 4 – CASH FLOW AND CASH RESERVES

Actual and projected cash flow and cash reserves for the Electric Fund are shown in Schedule 4. Receipts include operating revenue, investment interest and miscellaneous non-operating revenue, and miscellaneous transfers. Disbursements include operating expenses, debt service to finance the major Electric System improvements, and capital outlay for major and general system improvements, including $2,464, $0 and $0 paid in years 2004 through 2006 respectively for completion of the major system improvement project punch list items and project closeout.

As previously discussed, the sales tax collected from customers outside the Village limits is transferred to the state of Ohio and the in-Village tax is transferred to the Village’s General Fund. The in-Village kWh sales tax transferred from the Electric Fund to the General Fund are shown on Schedule 4. In the years 2002 and 2003, a portion of the in-Village kWh sales tax transferred to the General Fund was transferred back to the Electric Fund as a credit to the kWh Sales Tax operating expense account. Going forward, the Village does not anticipate any transfer of kWh sales tax from the General Fund back to the Electric Fund. Projected kWh sales tax transfers to the State of Ohio and the General Fund are based on projected kWh sales to Village electric customers.

Based on a Village ordinance, Council and the Board of Public Affairs have the authority to transfer a portion or all of the in-Village sales tax proceeds from the General Fund back into the Electric Fund if necessary to maintain adequate cash reserves. In the year 2003, a portion of the in-Village kWh sales tax transferred to the General Fund was transferred back to the Electric Fund as a credit to the Electric Collections operating revenue account. In 2005, the Village made a one-time non-kWH tax related transfer from the General Fund into the Electric Fund. Going forward, the Village does not anticipate any transfers of kWh sales tax or other transfers from the General Fund back to the Electric Fund.

The year-end balances indicate that the Village will have adequate and steadily increasing cash reserves in the Electric Fund through the year 2011.


SCHEDULES 5 & 6 - DEBT SERVICE COVERAGE

Actual and projected debt service coverage is shown in Schedules 5 and 6. Schedule 5 calculates debt coverage based on OMEGA JV2 criteria that permits the addition of yearend Electric Fund balances, less operating income, to derive total funds available for debt service in the calculation of debt service coverage. Schedule 6 calculates debt coverage per the 2004 OMEGA JV5 Second Supplemental Trust Agreement previously discussed and coverage is based only on operating income available for debt service.

The coverage ratios in Schedules 5 & 6 indicate that the Village will have sufficient bond debt coverage to meet the OMEGA JV2 and OMEGA JV5 debt covenants through the year 2011. 8) CONCLUSION

It is our opinion that actual Electric Fund revenues and expenses are accurate. The projected revenues and expenses are estimates based on historical data and trends and reasonable judgment. As a result of the Village’s implementation of an automatic Power Cost Adjustment in August 2005 and rate modifications in 2006 and 2007 as previously discussed, the Electric Fund is operating with excellent operating margins and good cash reserves and is expected to meet the OMEGA JV2 and JV5 covenants through the end of the study period.

These projections are subject to changing economic conditions. Should expected load growth fall short and diminish revenues or operating expenses increase, the Village Board of Public Affairs has full authority to further raise or modify electric rates to cover any shortfall. Lodi’s retail rates are currently below and/or on par with neighboring competing utilities for residential and commercial customers, providing sufficient margin for the Village to adjust rates for these customer classes to meet expenses, if required, and remain competitive.

Power Systems Design anticipates the Village will continue to operate and maintain their Electric System in a responsible manner necessary to derive the needed revenue to make timely payments of the proposed Revenue Bond Anticipation Notes.

Prepared by Power Systems Design, Inc.

February 16, 2007

Bruce W. Irvine, P.E. Date


TABLE 2 – 2006 CUSTOMER BASE

Customer Classification

Number of Customers

Annual Electric Sales ($$)

% Total System Electric Sales

Residential - Village 1,413 $1,286,340 37.4%

Residential - Rural 122 $141,991 4.1%

Commercial - Village 216 $754,354 21.9%

Commercial - Rural 25 $103,543 3.0%

Industrial - Village 17 $908,379 26.8%

Industrial - Rural 3 $232,315 6.8%

Total 1,796 $3,426,922 100.0%

TABLE 3 - 2006 TEN LARGEST CUSTOMERS

No. Customer Annual Electric Sales ($$) % Total System Electric Sales

1 Teknor $290,077 8.5%

2 Advance Bronze $260,457 7.6%

3 Cloverleaf $252,109 7.4%

4 Buckeye Polymer $174,149 5.1%

5 Knott Brake $97,167 2.8%

6 ABC Plastic $91,441 2.7%

7 Lodi Hospital $85,580 2.5%

8 Miller Brothers $70,401 2.1%

9 Universal Forest $55,007 1.6%

10 Drug Mart $38,940 1.1%

Total $1,415,328 41.3%


TABLE 4 VILLAGE OF LODI ELECTRIC REVENUE RATES BY CUSTOMER CLASS †

(AVERAGE ¢/kWh)

Customer Class 2004 2005 2006

Residential (In-Village) 7.07 8.44 8.81

Residential (Rural) 8.02 9.43 8.91

Commercial (In-Village) 6.60 7.52 6.66

Commercial (Rural) 6.70 7.65 7.67

Industrial (In-Village) 7.21 7.83 7.09

Industrial (Rural) 8.39 9.28 8.81

TABLE 5 VILLAGE OF LODI kWh CONSUMPTION BY CUSTOMER CLASS

(AVERAGE kWh/CUSTOMER - MONTH)


Residential (In-Village) 850 873 862

Residential (Rural) 1,122 1,122 1,114

Commercial (In-Village) 3,906 3,801 4,370

Commercial (Rural) 4,505 4,289 4,498

Industrial (In-Village) 42,876 52,538 62,844

Industrial (Rural) †† 38,008 69,510 73,236

†† Includes the reclassification of customers in 2004.


TABLE 6 VILLAGE OF LODI kWh SALES BY CUSTOMER CLASS

(AVERAGE $/CUSTOMER - MONTH)


Residential (In-Village) $ 60.11 $ 73.73 $ 73.86

Residential (Rural) $ 89.94 $ 105.82 $ 96.99

Commercial (In-Village) $ 257.76 $ 285.76 $ 291.03

Commercial (Rural) $ 301.90 $ 328.22 $ 345.14

Industrial (In-Village) $ 3,091.97 $ 4,114.78 $ 4,452.84

Industrial (Rural) †† $ 3,190.01 $ 6,453.17 $ 6,453.19

†† Includes the reclassification of customers in 2004.

TABLE 7 AVERAGE REVENUE RATES FOR VILLAGE OF LODI

AND NEAREST COMPETITORS BY CUSTOMER CLASS ‡

Average Revenue Rate ($/kWh) Electric Service Provider

Residential Commercial Industrial

Village of Lodi $ 0.0854 $ 0.0753 $ 0.0808

Lorain-Medina REC $ 0.0825 $ 0.0726 $ 0.0507

Ohio Edison $ 0.0865 $ 0.0787 $ 0.0472

Ohio Edison Territory $ 0.0871 $ 0.0812 $ 0.0499

State Average $ 0.0778 $ 0.0696 $ 0.0462

‡ Based on 2005 Department of Energy Data

TABLE 8 LODI ELECTRIC REVENUE RATES VS.

NEAREST COMPETITOR BY CUSTOMER CLASS ‡

Electric Service Provider Residential Commercial Industrial

Lorain-Medina REC 3.5% 3.7% 59.4%

Ohio Edison -1.3% -4.3% 71.2%

Ohio Edison Territory -2.0% -7.3% 61.9%

State Average 9.8% 8.2% 74.9%

‡ Based on 2005 Department of Energy Data


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