· preliminary official statement dated may 17, 2017 new issue - book-entry only ratings: standard...

PRELIMINARY OFFICIAL STATEMENT DATED MAY 17, 2017

New Issue - Book-Entry Only Ratings: Standard & Poor's: AA+

Fitch Ratings: AA+ (See "RATINGS" herein)

In the opinion of Bond Counsel, under existing law, and assuming compliance with the tax covenant described herein, interest on the 2017 Series A and B Bonds is excluded from gross income for Federal income tax purposes and is not a specific preference item for purposes of the Federal alternative minimum tax. Furthermore, in the opinion of Bond Counsel, under existing law interest on the 2017 Series A and B Bonds is exempt from all state, county, and municipal taxation in the State of Tennessee, except franchise and excise taxes. See, however, "TAX EXEMPTION" herein regarding certain other tax considerations.

THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY

$109,015,000* ELECTRIC SYSTEM REVENUE BONDS, 2017 SERIES A $65,490,000* ELECTRIC SYSTEM REVENUE REFUNDING BONDS, 2017 SERIES B

Dated: Date of Delivery Due: May 15 as shown on the inside cover*

The $109,015,000* Electric System Revenue Bonds, 2017 Series A (the "2017 Series A Bonds") and the $65,490,000* Electric System Revenue Refunding Bonds, 2017 Series B (the "2017 Series B Bonds" and collectively with the 2017 Series A Bonds, the “2017 Series A and B Bonds”) of The Metropolitan Government of Nashville and Davidson County (the "Metropolitan Government") will be issued in fully registered form, without coupons, in denominations of $5,000 or any integral multiple thereof, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the 2017 Series A and B Bonds. Individual purchases of the 2017 Series A and B Bonds will be made in book-entry form only. See "DESCRIPTION OF THE 2017 SERIES A AND B BONDS – Book-Entry-Only System" herein.

Interest on the 2017 Series A and B Bonds will be payable semiannually on May 15 and November 15 of each year, commencing November 15, 2017. Ownership of the 2017 Series A and B Bonds will be registered on the registration books kept by Regions Bank, Nashville, Tennessee (the "Fiscal Agent"). Payment of principal, redemption price, if applicable, and interest will be made by the Fiscal Agent directly to Cede & Co., as nominee of DTC, and will be subsequently disbursed by DTC through the Direct Participants (as defined herein) and thereafter to Beneficial Owners (as defined herein). Purchasers will not receive physical delivery of the 2017 Series A and B Bonds. See "DESCRIPTION OF THE 2017 SERIES A AND B BONDS – Book-Entry-Only System" herein.

The 2017 Series A and B Bonds are subject to redemption prior to maturity as described herein. See "DESCRIPTION OF THE 2017 SERIES A AND B BONDS – Redemption" herein.

MATURITIES, AMOUNTS, INTEREST RATES, PRICE OR YIELD AND CUSIP NUMBERS – SEE INSIDE COVER

The 2017 Series A Bonds are being issued to finance the costs of acquisition, expansion and improvement of the Metropolitan Government’s electric transmission and distribution system (the “Electric System”), to fund the Debt Service Reserve Account established under the Bond Resolution (as defined herein) and to pay costs of issuance of the 2017 Series A Bonds. The 2017 Series B Bonds are being issued to refund certain of the Metropolitan Government's outstanding debt as described herein and to pay costs of issuance of the 2017 Series B Bonds. See "PLAN OF FINANCING AND REFUNDING" and "SOURCES AND USES" herein.

The 2017 Series A and B Bonds will be issued pursuant to the Bond Resolution and are limited obligations of the Metropolitan Government, payable from the Pledged Funds (as defined herein), including the Net Revenues (as defined herein) of the Metropolitan Government's Electric System, on a parity with the lien with respect to such Pledged Funds with certain Outstanding Bonds (as defined herein), Additional Bonds (as defined herein) and certain other obligations that may hereafter be issued on a parity of lien with respect to such Pledged Revenues, all as more fully described herein.

The 2017 Series A and B Bonds are not general obligations of the Metropolitan Government, and no holder of the 2017 Series A and B Bonds shall ever have the right to compel the Metropolitan Government to exercise its taxing power to pay principal, redemption price of or interest on the 2017 Series A and B Bonds. See "SECURITY FOR THE BONDS" and "Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION" herein.

The 2017 Series A and B Bonds are offered when, as and if issued by the Metropolitan Government, subject to approval as to legality by Bradley Arant Boult Cummings LLP, Nashville, Tennessee, Bond Counsel. Certain legal matters will be passed upon for the Electric Power Board of The Metropolitan Government of Nashville and Davidson County by Laura Smith, Esq., Vice President – General Counsel to the Board, and for the Underwriters by their counsel, Bass, Berry & Sims PLC, Nashville, Tennessee. Certain other legal matters will be passed upon for the Metropolitan Government by Jon Cooper, Director of Law. It is expected that the 2017 Series A and B Bonds will be available for delivery through the facilities of DTC in New York, New York on or about June __, 2017.

Raymond James

Barclays FTN Financial Capital Markets Jefferies Loop Capital Markets

* Preliminary, subject to change.

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Dated May __, 2017

$109,015,000* ELECTRIC SYSTEM REVENUE BONDS, 2017 SERIES A

Maturity* Principal Amount* Interest Rate Yield CUSIP No.** 5/15/2018 $2,695,000 5/15/2019 2,390,000 5/15/2020 2,510,000 5/15/2021 2,635,000 5/15/2022 2,765,000 5/15/2023 2,905,000 5/15/2024 3,050,000 5/15/2025 3,200,000 5/15/2026 3,365,000 5/15/2027 3,530,000 5/15/2028 3,705,000 5/15/2029 3,890,000 5/15/2030 4,085,000 5/15/2031 4,290,000 5/15/2032 4,505,000 5/15/2033 4,730,000 5/15/2034 4,965,000 5/15/2035 5,215,000 5/15/2036 5,475,000 5/15/2037 5,750,000 5/15/2038 6,035,000 5/15/2039 6,340,000 5/15/2040 6,655,000 5/15/2041 6,990,000 5/15/2042 7,340,000

$65,490,000* ELECTRIC SYSTEM REVENUE REFUNDING BONDS, 2017 SERIES B

Maturity* Principal Amount* Interest Rate Yield CUSIP No.** 5/15/2022 $11,600,000 5/15/2023 12,175,000 5/15/2024 14,690,000 5/15/2025 9,960,000 5/15/2026 9,540,000 5/15/2027 3,670,000 5/15/2028 3,855,000


** These CUSIP numbers have been assigned by Standard & Poor’s CUSIP Service Bureau, a Division of The McGraw Hill Companies, Inc., and are included solely for the convenience of the Bondholders. Neither the Underwriter nor the Metropolitan Government is responsible for the selection or use of these CUSIP numbers, nor is any representation made as to their correctness on the 2017 Series A and B Bonds or as indicated herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2017 Series A and B Bonds as a result of various subsequent actions, including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2017 Series A and B Bonds.


Honorable Megan Barry, Metropolitan County Mayor

Shannon B. Hall, Metropolitan Clerk Talia Lomax-O’dneal, Director of Finance

Jon Cooper, Director of Law

ELECTRIC POWER BOARD

Robert R. Campbell, Jr., Chairman

Robert McCabe, Vice Chairman Irma Paz-Bernstein Samuel H. Howard Carolyn W. Schott

MANAGEMENT

Decosta E. Jenkins, President and Chief Executive Officer

Teresa Broyles-Aplin, Executive Vice President and Chief Financial Officer Laura Smith, Esq., Vice President – General Counsel

FINANCIAL ADVISOR

Public Financial Management, Inc. Arlington, Virginia

AUDITOR

PricewaterhouseCoopers LLP Nashville, Tennessee

FISCAL AND ESCROW AGENT

Regions Bank Nashville, Tennessee

BOND COUNSEL

Bradley Arant Boult Cummings LLP Nashville, Tennessee

For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as the same may be supplemented or amended (collectively, the "Official Statement") from time to time, is an Official Statement with respect to the 2017 Series A and B Bonds described herein that is deemed final by the Metropolitan Government as of the date hereof (or of any such supplement or amendment). It is subject to completion with certain information to be established at the time of the sale of the 2017 Series A and B Bonds as permitted by Rule 15c2-12 of the Securities and Exchange Commission.

This Official Statement is furnished in connection with the sale of securities as referred to herein

and may not be reproduced or used, in whole or in part, for any other purpose. No dealer, broker, sales person or any other person has been authorized to give any information or make any representation, other than those contained herein, in connection with the offering of the 2017 Series A and B Bonds and, if given or made, such information or representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy by any person in any jurisdiction in which it is unlawful for such person to make such offer or solicitation in such jurisdiction.

The information contained in this Official Statement has been obtained from the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the "Board"), the Metropolitan Government, the Tennessee Valley Authority, public documents and records and other sources considered to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. In making an investment decision, investors must rely on their own examination of the Metropolitan Government, the Board and the terms of the offering, including the merits and risks involved. The information and expressions of opinion herein are subject to change without notice. Neither the delivery of this Official Statement nor the sale of any of the 2017 Series A and B Bonds implies that there has been no change in the affairs of the Metropolitan Government, the Board or the Electric System or the other matters described herein since the date hereof. IN CONNECTION WITH THE OFFERING OF THE 2017 SERIES A AND B BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2017 SERIES A AND B BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

NO REGISTRATION STATEMENT RELATING TO THE 2017 SERIES A AND B BONDS HAS BEEN FILED WITH THE SECURITIES EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES AGENCY. THE 2017 SERIES A AND B BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES AGENCY, NOR HAS THE SEC OR ANY STATE SECURITIES AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

TABLE OF CONTENTS

Introduction ................................................................................................................................................. 1

Plan of Financing and Refunding .............................................................................................................. 2

2017 Series A Bonds................................................................................................................................. 2

2017 Series B Bonds ................................................................................................................................. 3

Sources and Uses of Funds ......................................................................................................................... 4

Description of the 2017 Series A and B Bonds ......................................................................................... 4

Principal Amount, Interest, Maturity and Date ........................................................................................ 4

Redemption ............................................................................................................................................... 4

Optional Redemption ............................................................................................................................. 4

Mandatory Redemption from Sinking Fund Installments ..................................................................... 4

Notice of Redemption ............................................................................................................................... 5

Effect of Redemption ................................................................................................................................ 6

Transfer and Exchange ............................................................................................................................. 6

Book-Entry-Only System .......................................................................................................................... 6

Security for the Bonds ................................................................................................................................ 9

Pledge Under the Bond Resolution ........................................................................................................... 9

Debt Service Fund .................................................................................................................................... 9

Debt Service Account .......................................................................................................................... 10

Debt Service Reserve Account ............................................................................................................ 10

Rate Covenant ......................................................................................................................................... 11

Additional Bonds .................................................................................................................................... 12

Parity Debt Obligations ............................................................................................................................ 14

Construction and Financing Program .................................................................................................... 15

Construction Program ............................................................................................................................. 15

Financing Program .................................................................................................................................. 15

The Electric Power Board ........................................................................................................................ 15

Organization and History ........................................................................................................................ 15

Board Members ....................................................................................................................................... 16

Management ............................................................................................................................................ 17

The Electric System .................................................................................................................................. 18

Service Area ............................................................................................................................................ 18

Source of Electric Power ........................................................................................................................ 19

Future Power Supply Arrangements ....................................................................................................... 20

Electric Rates .......................................................................................................................................... 21

Transmission Lines and Substations ....................................................................................................... 29

Electric Distribution System ................................................................................................................... 29

Engineering, Construction and Maintenance .......................................................................................... 30

Smart Grid Initiatives .............................................................................................................................. 30

Prospective Financial Information .......................................................................................................... 30

System Growth........................................................................................................................................ 31

Capital Improvement Plan ...................................................................................................................... 31

Factors Affecting the Electric Utility Industry ...................................................................................... 31

Competitive Environment in Tennessee ................................................................................................. 32

Transmission Access to Wholesale Power ............................................................................................. 32

Federal Energy Policy Act of 2005 ......................................................................................................... 32

NERC Electric Reliability Standards Compliance ................................................................................. 33

TVA and General Industry Risk Factors ................................................................................................ 33

Additional Financial and Operational Information .............................................................................. 34

Pension Plans and Other Post-Employment Benefits ............................................................................. 34

Defined Benefit Pension Plan .............................................................................................................. 34

Defined Contribution Retirement Plan ................................................................................................ 39

Other Post-Employment Benefits ........................................................................................................ 39

Insurance ................................................................................................................................................. 43

Miscellaneous Revenues ......................................................................................................................... 43

Payments-in-Lieu-of-Taxes .................................................................................................................... 43

Selected Financial Data ............................................................................................................................ 45

Number of Customers (not Meters) ........................................................................................................ 46

Sales in kWh and Maximum System Demand in kW ............................................................................. 47

Ten Largest Customers ........................................................................................................................... 48

Summary of Changes in Net Position ..................................................................................................... 49

Debt Service Coverage ........................................................................................................................... 50

Bondholders' Risks ................................................................................................................................... 51

General .................................................................................................................................................... 51

Enforceability of Remedies .................................................................................................................... 51

Additional Obligations ............................................................................................................................ 51

Early Payment Prior to Maturity ............................................................................................................. 51

Loss of Tax Exemption ........................................................................................................................... 51

Future Legislation Could Affect Tax-Exempt Obligations .................................................................... 52

Other Risk Factors .................................................................................................................................. 52

Litigation and Other Proceedings ........................................................................................................... 52

Tax Exemption .......................................................................................................................................... 53

Verification of Mathematical Computations ......................................................................................... 55

Approval of Legal Proceedings................................................................................................................ 55

Underwriting ............................................................................................................................................. 55

Financial Advisor ...................................................................................................................................... 56

Continuing Disclosure .............................................................................................................................. 56

Independent Auditor ................................................................................................................................ 57

Ratings ....................................................................................................................................................... 57

Miscellaneous ............................................................................................................................................ 58

Certification as to Official Statement ..................................................................................................... 59

Appendix A – Audited Financial Statements of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County for the Years Ended June 30, 2016 and June 30, 2015 and Independent Auditor's Report ............................................................................................................ A-1

Appendix B – Unaudited Financial Information for the Six-Month Periods Ended December 31, 2016 and December 31, 2015 ............................................................................................................................ B-1

Appendix C – The Metropolitan Government of Nashville and Davidson County Area – Economic and Demographic Information ......................................................................................................................... C-1

Appendix D – Summary of Certain Provisions of the Bond Resolution ................................................. D-1

Appendix E – Form of Opinion of Bond Counsel ................................................................................... E-1

Appendix F – Form of Continuing Disclosure Agreement....................................................................... F-1

OFFICIAL STATEMENT

Relating to


$109,015,000* Electric System Revenue Bonds, 2017 Series A

$65,490,000* Electric System Revenue Refunding Bonds, 2017 Series B

INTRODUCTION

This Official Statement (including the cover page hereof and the Appendices hereto) is furnished by The Metropolitan Government of Nashville and Davidson County (the "Metropolitan Government") to provide information concerning the electric transmission and distribution system (the "Electric System") operated by the Electric Power Board of The Metropolitan Government of Nashville and Davidson County (the "Board"), which does business as the Nashville Electric Service ("NES"), and the issuance of the Metropolitan Government's $109,015,000* Electric System Revenue Bonds, 2017 Series A (the "2017 Series A Bonds") and the $65,490,000* Electric System Revenue Refunding Bonds, 2017 Series B (the "2017 Series B Bonds" and collectively with the 2017 Series A Bonds, the “2017 Series A and B Bonds”) for the use and benefit of the Board. This Introduction is not a summary of this Official Statement and is intended only for quick

reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to,

more complete and detailed information contained in the entire Official Statement and incorporated by

reference herein, including the cover page and the Appendices hereto, and the documents summarized or

described herein. A full review should be made of the entire Official Statement and of the documents

summarized or described herein. The offering of the 2017 Series A and B Bonds to potential investors is

made only by means of the entire Official Statement, including the Appendices hereto. No person is

authorized to detach this Introduction from the Official Statement or to otherwise use it without the

entire Official Statement, including the Appendices hereto.

The 2017 Series A and B Bonds are being issued by the Metropolitan Government under and pursuant to Chapter 34, Title 7, Tennessee Code Annotated, Sections 7-34-101 through 7-34-118, as amended (the "Act"), the Charter of the Metropolitan Government (the "Metropolitan Charter") which was approved by referendum on June 28, 1962, as amended, and a resolution of the Metropolitan Government adopted on November 5, 1985, entitled "Electric System Revenue Bond Resolution" as amended and supplemented (the "Bond Resolution"), including specifically, as supplemented by the Twenty-Eighth Supplemental Electric System Revenue Bond Resolution adopted by the Metropolitan Government on May 16, 2017 (the "Supplemental Resolution"). The 2017 Series A and B Bonds and all other bonds heretofore and hereafter issued under and pursuant to the Bond Resolution on a parity each with the other and Outstanding are hereinafter referred to as the "Bonds". The 2017 Series A Bonds are being issued to finance the costs of acquisition, expansion and improvement of the Metropolitan Government’s electric transmission and distribution system (the


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“Electric System”), to fund the Debt Service Reserve Account established under the Bond Resolution (as defined herein) and to pay costs of issuance of the 2017 Series A Bonds.

The 2017 Series B Bonds are being issued to refund certain of the Metropolitan Government's outstanding Electric System debt as described herein and to pay costs of issuance of the 2017 Series B Bonds. See "PLAN OF FINANCING AND REFUNDING" and "SOURCES AND USES" herein. The following Bonds issued by the Metropolitan Government under the Bond Resolution have a lien on the Pledged Funds as described under the Bond Resolution: Electric System Revenue Bonds, 1998 Series A (the "1998 Series A Bonds"); Electric System Revenue Bonds, 2008 Series A (the "2008 Series A Bonds"); Electric System Revenue Refunding Bonds, 2008 Series B (the "2008 Series B Bonds"); Electric System Revenue Bonds, 2011 Series A (the "2011 Series A Bonds") (to the extent not refunded by the 2017 Series B Bonds); Electric System Revenue Refunding Bonds, 2011 Series B (the "2011 Series B Bonds"); Electric System Revenue Refunding Bonds, 2013 Series A (the "2013 Series A Bonds"); Electric System Revenue Bonds, 2014 Series A (the "2014 Series A Bonds"); and Electric System Revenue Refunding Bonds, 2015 Series A (the “2015 Series A Bonds” and, collectively with the 1998 Series A Bonds, the 2008 Series A Bonds, the 2008 Series B Bonds, the 2011 Series A Bonds (to the extent not refunded by the 2017 Series B Bonds), the 2011 Series B Bonds, the 2013 Series A Bonds, and the 2015 Series A Bonds, the "Parity Debt Obligations"). See "PARITY DEBT OBLIGATIONS" herein. The 2017 Series A and B Bonds, Parity Debt Obligations and all other Bonds issued under the Bond Resolution are limited obligations of the Metropolitan Government payable solely from and secured as to the payment of the principal, redemption price, if applicable, and interest thereon, in accordance with their terms, and the terms of the Bond Resolution, solely by a pledge of the Pledged Funds on a parity and equality of lien with respect to such Pledged Funds with the Parity Debt Obligations, to the extent such Parity Debt Obligations are outstanding and have not been refunded by the 2017 Series B Bonds. Pledged Funds are defined in the Bond Resolution to include, among other sources, the Net Revenues of the Electric System. See "SECURITY FOR THE BONDS" and "Appendix D - SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION" herein. Unless otherwise defined herein or where the context would clearly indicate otherwise, capitalized terms used herein shall have the meaning set forth in the Bond Resolution. See "Appendix D - SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION". Copies of the Bond Resolution may be obtained from the office of the Executive Vice-President and Chief Financial Officer, Nashville Electric Service, 1214 Church Street, Nashville, Tennessee 37246; telephone (615) 747-3831.

The 2017 Series A and B Bonds are not general obligations of the Metropolitan Government, and no holder of the 2017 Series A and B Bonds shall ever have the right to compel the Metropolitan Government to exercise its taxing power to pay the principal or redemption price of or interest on the 2017 Series A and B Bonds.

PLAN OF FINANCING AND REFUNDING

2017 Series A Bonds The proceeds of the sale of the 2017 Series A Bonds, together with all other available funds, will be used to finance all or a portion of the costs incurred in connection with the acquisition, expansion and improvement of the Electric System in accordance with the Board’s capital improvement plan. For a

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discussion of the Board’s construction program and additional financing requirements for the Electric System, see “CONSTRUCTION AND FINANCING PROGRAM” herein.

The Metropolitan Government through the Board will use the remaining proceeds of the 2017 Series A Bonds to fund the Debt Service Reserve Requirement in the Debt Service Reserve Account with respect to the 2017 Series A Bonds and to pay costs of issuing the 2017 Series A Bonds.

2017 Series B Bonds

The proceeds of the sale of the 2017 Series B Bonds, together with other available funds, if applicable, will be used to refinance (i) all or a portion of the Metropolitan Government's outstanding 2011 Series A Bonds, maturing May 15, 2022 through May 15, 2031 and May 15, 2036 (the "2011 Series A Refunded Bonds"), and (ii) a portion of the Metropolitan Government’s outstanding 2011 Series B Bonds, maturing May 15, 2022 through May 15, 2026 (the "2011 Series B Refunded Bonds" and collectively with the 2011 Series A Refunded Bonds, the "Refunded Bonds").*

The proceeds of the 2017 Series B Bonds will be used to make a deposit to an escrow fund (the "Escrow Fund") created pursuant to an escrow trust agreement, dated as of June __, 2017 (the "Escrow Agreement"), between the Metropolitan Government, the Board and Regions Bank, Nashville, Tennessee, as escrow agent thereunder (the "Escrow Agent"). The Escrow Agent shall invest monies on deposit in the Escrow Fund in direct obligations of, or obligations unconditionally guaranteed by, the United States of America (the "Escrowed Securities"). The principal of and interest on the Escrowed Securities will be verified by Samuel Klein and Company, Certified Public Accountants (see "VERIFICATION OF MATHEMATICAL COMPUTATIONS" herein) to be sufficient to provide for the payment of the principal of and interest and redemption premium, if any, on the Refunded Bonds. Neither the principal of nor the interest on the Escrowed Securities will be available for the payment of the 2017 Series B Bonds or any other Parity Debt Obligations. Upon such deposit of the Escrowed Securities and moneys in the Escrow Fund and in compliance with other provisions of the Bond Resolution, the Refunded Bonds will be deemed paid and will cease to be entitled to any lien, benefit or security under the Bond Resolution and all covenants agreements and obligations of the Metropolitan Government to the holders of the Refunded Bonds shall cease, terminate and become void and be discharged and satisfied. Upon issuance of the 2017 Series B Bonds, the Metropolitan Government will irrevocably instruct Regions Bank, Nashville, Tennessee, as Fiscal Agent (the "Fiscal Agent"), to redeem the Refunded Bonds on their earliest optional redemption date of May 15, 2021. The Metropolitan Government will use the remaining proceeds of the 2017 Series B Bonds to pay costs of issuing the 2017 Series B Bonds.

[Remainder of Page Intentionally Left Blank]


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SOURCES AND USES OF FUNDS

The sources and uses of funds are estimated as follows:

Sources of Funds: 2017 Series A Bonds 2017 Series B Bonds

Bond Par Amount ............................................. [Net] Reoffering Premium ................................ Transfer from Debt Service Account ................ Total Sources .................................................... Uses of Funds: Costs of Issuance .............................................. Underwriters' Discount ..................................... Deposit to Escrow Fund .................................... Deposit to Construction Fund ........................... Deposit to Debt Service Reserve Account ........ Total Uses .........................................................

DESCRIPTION OF THE 2017 SERIES A AND B BONDS

Principal Amount, Interest, Maturity and Date The 2017 Series A and B Bonds will be issued as fully registered bonds in the aggregate principal amount of $174,505,000* and will be initially dated the date of delivery. Interest on the 2017 Series A and B Bonds will be payable semiannually on May 15 and November 15 of each year, commencing November 15, 2017, at the rates set forth on the inside cover page hereof. The 2017 Series A and B Bonds will mature on the dates set forth on the inside cover page hereof.

Redemption Optional Redemption

The 2017 Series A and B Bonds are subject to redemption at the option of the Metropolitan Government, on the direction of the Board, on or after May 15, 20__, in whole or in part at any time at a redemption price of 100% of par plus accrued interest to the redemption date.

Mandatory Redemption from Sinking Fund Installments

2017 Series A Bonds. The 2017 Series A Bond maturing May 15, 20__ (the "2017 Series A Term Bond") is subject to mandatory redemption, in part, on each Sinking Fund Installment due date for the 2017 Series A Term Bond, at a redemption price equal to the principal amount thereof from the Sinking Fund Installments specified below. The following shall be the Sinking Fund Installments for the


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2017 Series A Term Bond. Such Sinking Fund Installments shall be due on May 15 of each of the years set forth in the following table in the respective amounts set forth opposite such years:

2017 Series A Bond Due May 15, 20__ Principal

Year Amount

** Maturity

2017 Series B Bonds. The 2017 Series B Bond maturing May 15, 20__ (the "2017 Series B Term Bond") is subject to mandatory redemption, in part, on each Sinking Fund Installment due date for the 2017 Series B Term Bond, at a redemption price equal to the principal amount thereof from the Sinking Fund Installments specified below. The following shall be the Sinking Fund Installments for the 2017 Series B Term Bond. Such Sinking Fund Installments shall be due on May 15 of each of the years set forth in the following table in the respective amounts set forth opposite such years:

2017 Series B Bond Due May 15, 20__ Principal

Year Amount

** Maturity

If less than all of the 2017 Series A and B Bonds are to be so redeemed, the Board may select the maturity or maturities to be redeemed. If less than all of the 2017 Series A and B Bonds of any maturity are to be redeemed, the particular Bonds of such maturity or portions thereof to be redeemed shall be selected at random by the Fiscal Agent in such manner as the Fiscal Agent in its discretion may deem fair and appropriate. The portion of any Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or an integral multiple thereof, and in selecting portions of such Bonds for redemption, the Fiscal Agent will treat each such Bond as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000.

Notice of Redemption Notice of the redemption of 2017 Series A and B Bonds shall be mailed by the Fiscal Agent, postage prepaid, not less than twenty-five days prior to the redemption date, to the registered holders of any 2017 Series A and B Bonds or portions of 2017 Series A and B Bonds to be redeemed, at their last addresses appearing upon the registration books of the Metropolitan Government, but failure to give any

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such notice by mail or any defect in any such notice shall not affect the validity of the proceedings for the redemption of any other 2017 Series A and B Bonds. Any notice that is mailed in the manner described in the preceding sentence shall be conclusively presumed to have been duly given, whether or not the registered holder receives such notice.

Effect of Redemption If, on the redemption date, moneys for the redemption of all the 2017 Series A and B Bonds to be redeemed, together with accrued interest to the redemption date, shall be held by the Paying Agent so as to be available therefore on the redemption date and if notice of redemption shall have been given as described above, the 2017 Series A and B Bonds or portions of 2017 Series A and B Bonds so called for redemption shall become due and payable at the applicable Redemption Price plus accrued interest; the interest on such 2017 Series A and B Bonds or portions of such 2017 Series A and B Bonds shall cease to accrue; the 2017 Series A and B Bonds or portions of 2017 Series A and B Bonds so called for redemption shall cease to be entitled to any benefit or security under the Bond Resolution; and the registered holders of such 2017 Series A and B Bonds or portions of such 2017 Series A and B Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price thereof plus accrued interest and to receive 2017 Series A and B Bonds for any unredeemed portion of 2017 Series A and B Bonds.

Transfer and Exchange When in book-entry form, ownership of 2017 Series A and B Bonds held by DTC or its nominee, Cede & Co., may be transferred and exchanged in accordance with the rules and procedures of DTC. When not in book-entry form, the 2017 Series A and B Bonds shall be transferable only upon the registration books of the Metropolitan Government, which shall be kept for such purpose at the principal corporate trust office of Regions Bank, Nashville, Tennessee (the "Bond Registrar"), by the registered holder thereof or by his attorney duly authorized in writing, upon surrender thereof together with an instrument of assignment duly executed by the registered holder or his duly authorized attorney, in form satisfactory to such Bond Registrar. The 2017 Series A and B Bonds, upon surrender to the Bond Registrar, may, at the option of the registered holder thereof, be exchanged for an equal aggregate principal amount of registered 2017 Series A and B Bonds of any Authorized Denomination or Denominations. The Metropolitan Government or the Bond Registrar may make a charge for every such exchange or transfer of 2017 Series A and B Bonds sufficient to reimburse it for any tax, fee or other governmental charge required to be paid, but no other charge shall be made to any registered holder for the privilege of exchanging or transferring 2017 Series A and B Bonds.

Book-Entry-Only System

DTC will act as securities depository for the 2017 Series A and B Bonds. The 2017 Series A and B Bonds will be issued as fully-registered 2017 Series A and B Bonds registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2017 Series A and B Bond certificate will be issued for each maturity and will be deposited with DTC.

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DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's rating: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of 2017 Series A and B Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2017 Series A and B Bonds on DTC's records. The ownership interest of each actual purchaser of 2017 Series A and B Bonds ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in 2017 Series A and B Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2017 Series A and B Bonds, except in the event that use of the book-entry system for the 2017 Series A and B Bonds is discontinued.

To facilitate subsequent transfers, all the 2017 Series A and B Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of 2017 Series A and B Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of 2017 Series A and B Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 2017 Series A and B Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory

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requirements as may be in effect from time to time. BENEFICIAL OWNERS SHOULD MAKE APPROPRIATE ARRANGEMENTS WITH THEIR BROKER OR DEALER TO RECEIVE NOTICES (INCLUDING NOTICES OF REDEMPTION) AND OTHER INFORMATION REGARDING 2017 SERIES A AND B BONDS THAT MAY BE SO CONVEYED TO DIRECT PARTICIPANTS AND INDIRECT PARTICIPANTS.

Redemption notices shall be sent to DTC. If less than all of the 2017 Series A and B Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2017 Series A and B Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Metropolitan Government as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts 2017 Series A and B Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds and principal and interest payments on 2017 Series A and B Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the Metropolitan Government or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Metropolitan Government or the Fiscal Agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Metropolitan Government or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to 2017 Series A and B Bonds at any time by giving reasonable notice to the Metropolitan Government or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, certificates for the 2017 Series A and B Bonds are required to be printed and delivered.

The Metropolitan Government may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificates for the 2017 Series A and B Bonds will be printed and delivered.

The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Metropolitan Government believes to be reliable. The Metropolitan Government makes no representation as to the completeness or the accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof.

NEITHER THE METROPOLITAN GOVERNMENT, THE BOARD, THE BOND REGISTRAR NOR THE UNDERWRITER (OTHER THAN IN THEIR CAPACITY, IF ANY, AS A DIRECT PARTICIPANT OR AN INDIRECT PARTICIPANT) WILL HAVE ANY OBLIGATION TO THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO DTC'S PROCEDURES OR ANY PROCEDURES OR

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ARRANGEMENTS BETWEEN DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS AND BENEFICIAL OWNERS.

NEITHER THE METROPOLITAN GOVERNMENT NOR THE BOND REGISTRAR WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, BENEFICIAL OWNERS OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS FOR (1) SENDING TRANSACTION STATEMENTS; (2) MAINTAINING, SUPERVISING OR REVIEWING, THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS; (3) PAYMENT OR THE TIMELINESS OF PAYMENT BY DTC TO ANY PARTICIPANT, OR BY ANY PARTICIPANT OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNER, OF ANY AMOUNT DUE IN RESPECT OF THE PRINCIPAL OF OR INTEREST ON 2017 SERIES A AND B BONDS; (4) DELIVERY OR TIMELY DELIVERY BY DTC TO ANY PARTICIPANT, OR BY ANY PARTICIPANT OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNERS, OF ANY NOTICE (INCLUDING NOTICE OF REDEMPTION) OR OTHER COMMUNICATION WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO HOLDERS OR OWNERS OF 2017 SERIES A AND B BONDS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF 2017 SERIES A AND B BONDS; OR (6) ANY ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF 2017 SERIES A AND B BONDS.

SECURITY FOR THE BONDS

Pledge Under the Bond Resolution The 2017 Series A and B Bonds constitute Bonds as defined in the Bond Resolution. All Bonds are limited obligations of the Metropolitan Government payable solely from and secured as to the payment of the principal and Redemption Price thereof and interest thereon, in accordance with their terms and the terms of the Bond Resolution, solely by a pledge of the Pledged Funds on a parity and equality of lien with respect to such Pledged Funds with Parity Debt Obligations which can include certain Credit/Liquidity Facility Obligations, in addition to Additional Bonds. Pledged Funds are defined in the Bond Resolution to be the Net Revenues of the Electric System and the moneys and Investment Securities held in all funds and accounts established under the Bond Resolution (other than the Rate Stabilization Account), and subject to application as provided in the Bond Resolution. See "Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION".

The 2017 Series A and B Bonds are not general obligations of the Metropolitan Government, and no holder of the 2017 Series A and B Bonds shall ever have the right to compel the Metropolitan Government to exercise its taxing power to pay the principal or Redemption Price of or interest on the 2017 Series A and B Bonds. Debt Service Fund The Bond Resolution creates various funds and accounts, including the Debt Service Fund, which is held by the Fiscal Agent, and consists of the Debt Service Account and the Debt Service Reserve Account. All Revenues of the Electric System are deposited as received into the Revenue Fund, then monthly to the Operating Fund to provide for the next month’s Operating Expenses, and then to the Debt Service Fund. See, Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION – Establishment of Funds and Accounts – Application of Revenues”.

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Debt Service Account

On or before each principal and interest payment date, the Fiscal Agent pays the Paying Agents all amounts required to pay debt service coming due on the Parity Debt Obligations and any Additional Bonds. See, Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION – Application of Revenues – Debt Service Account”.

Debt Service Reserve Account The Bond Resolution requires the Metropolitan Government to accumulate and maintain in the Debt Service Reserve Account an amount equal to the Debt Service Reserve Requirement. Amounts in the Debt Service Reserve Account are to be applied to make up any deficiencies in the Debt Service Account. In the event that there shall be any Debt Service Reserve Account Deficiency, the Debt Service Reserve Account is required to be restored from the General Reserve Fund, the Reserve Contingency Fund and the Subordinated Debt Fund, in that order. Amounts in the Debt Service Reserve Account in excess of the Debt Service Reserve Requirement (after taking into account any surety bond, insurance policy or letter of credit deposited therein pursuant to the Bond Resolution) shall be deposited in the Revenue Fund. After the issuance of the 2017 Series A and B Bonds, the Debt Service Reserve Account for Bonds issued under the Bond Resolution will be fully funded at a total of $____________*, which is an amount equal to the Debt Service Reserve Requirement. The Debt Service Reserve Requirement is an amount equal to the greatest amount of Adjusted Aggregate Debt Service for any fiscal year (subject to certain adjustments relating to Variable Rate Bonds). See "Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION – Definitions" and "– Debt Service Reserve Account." The Metropolitan Government adopted a supplemental resolution on October 18, 2011 that provides for certain amendments to the Bond Resolution (each a "Resolution Amendment") that become effective only after all Bonds Outstanding on the date of adoption of the Resolution Amendments are paid or defeased. Upon payment or defeasance of all Bonds Outstanding on October 18, 2011, one of the Resolution Amendments amends the Bond Resolution to permit the Debt Service Reserve Requirement, if any, to be established separately for each Series of Bonds. In addition, upon effectiveness of and satisfaction of all criteria provided in such Resolution Amendment, the Debt Service Reserve Requirement for a Series of Bonds could be reduced to zero and the monies on deposit consisting of the Debt Service Reserve Requirement for Bonds Outstanding and issued after October 18, 2011 may be released from the lien of the Bond Resolution and used for capital improvements and other authorized purposes. The Debt Service Reserve Requirement applicable to each series of the 2017 Series A and B Bonds, upon effectiveness of said Resolution Amendment, will be as follows:

(1) So long as the Net Revenues for each fiscal year equal or exceed one hundred fifty percent (150%) of the Aggregate Debt Service for each such fiscal year, the Debt Service Reserve Requirement for the 2017 Series A and B Bonds shall be zero.

(2) If for any fiscal year the Net Revenues are less than one hundred fifty percent (150%) of the Aggregate Debt Service for such fiscal year, the Debt Service Reserve Requirement for the 2017 Series A and B Bonds shall be an amount equal to:

* To be determined in accordance with the Bond Resolution at the time of sale.

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(i) Ten percent (10%) of the greatest amount of Aggregate Debt Service for the 2017 Series A and B Bonds for any fiscal year if the Net Revenues for the previous fiscal year were less than one hundred fifty percent (150%), but were greater than or equal to one hundred forty percent (140%), of the Aggregate Debt Service for the previous fiscal year;

(ii) Twenty percent (20%) of the greatest amount of Aggregate Debt Service for the 2017 Series A and B Bonds for any fiscal year if the Net Revenues for the previous fiscal year were less than one hundred forty percent (140%), but greater than one hundred thirty percent (130%), of the Aggregate Debt Service for the previous fiscal year;

(iii) Thirty percent (30%) of the greatest amount of Aggregate Debt Service for the 2017 Series A and B Bonds for any fiscal year if the Net Revenues for the previous fiscal year were less than one hundred thirty percent (130%), but greater than or equal to one hundred twenty percent (120%), of the Aggregate Debt Service for the previous fiscal year;

(iv) Forty percent (40%) of the greatest amount of Aggregate Debt Service for the 2017 Series A and B Bonds for any fiscal year if the Net Revenues for the previous fiscal year were less than one hundred twenty percent (120%), but greater than or equal to one hundred ten percent (110%), of the Aggregate Debt Service for the previous fiscal year; and

(v) Fifty percent (50%) of the greatest amount of Aggregate Debt Service for the 2017 Series A and B Bonds for any fiscal year if the Net Revenues for the previous fiscal year were less than one hundred ten percent (110%) of the Aggregate Debt Service for the previous fiscal year.

Rate Covenant The Bond Resolution provides that the Board shall at all times establish and collect rates, fees and charges for the use or the sale of the output, capacity or service of the Electric System as shall be required in order that in each fiscal year the Net Revenues, together with other available Revenues plus the amount of any transfers from the Rate Stabilization Account to the Operating Fund during such fiscal year minus the amounts, if any, required by the Bond Resolution to be deposited from Net Revenues into the Debt Service Reserve Account, the Subordinated Debt Fund, the Reserve and Contingency Fund and the General Account during such fiscal year shall equal at least (i) the Aggregate Debt Service on the Bonds for such fiscal year, (ii) the Debt Service, if any, on any Credit/Liquidity Facility Obligations for such fiscal year, and (iii) the deposits made into the Rate Stabilization Account during such fiscal year, and in any event, as shall be required, together with other available funds, to pay or discharge all other indebtedness, charges or liens whatsoever payable out of the Revenues under the Bond Resolution. Promptly upon any material change in the circumstances which were contemplated at the time such rates, fees and charges were most recently reviewed, but not less frequently than once in each fiscal year, the Board shall review the rates, fees and charges so established and shall promptly revise such rates, fees and charges as necessary to comply with the foregoing requirements, provided that such rates, fees and charges shall in any event produce moneys sufficient to enable the Metropolitan Government and the Board to comply with all their covenants under the Bond Resolution. The Act requires the Metropolitan Government to prescribe and collect reasonable rates, fees or charges for the services, facilities and commodities of the Electric System, and revise such rates, fees or

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charges from time to time whenever necessary so that the Electric System shall be and always remain self-supporting. The rates, fees and charges prescribed shall be such as will produce revenue at least sufficient (a) to pay when due all Bonds and interest thereon, for the payment of which the Revenues of the Electric System is or shall have been pledged, charged or otherwise encumbered, including reserves therefor, and (b) to provide for all expenses of operation and maintenance of the Electric System, including reserves therefor. Pursuant to the Metropolitan Charter, the Metropolitan Government has vested in the Board exclusive authority to prescribe and collect rates and charges for the Electric System obligations or indebtedness. Upon the payment or defeasance of all Bonds Outstanding on October 18, 2011, a Resolution Amendment shall amend the Bond Resolution to provide that failure to comply with the rate covenant set forth in the Bond Resolution shall not constitute an Event of Default so long as the Board (i) shall, no later than sixty (60) days after discovering such non-compliance and in all events no later than sixty (60) days after receipt by the Board of audited financial statements for a particular fiscal year which show such non-compliance, retain the Consulting Engineer or another independent consultant or firm of consultants having a favorable reputation for skill and experience in the field of reviewing and recommending rates, fees and charges for electric systems (a “Qualified Independent Consultant”), for the purpose of reviewing the Electric System fees, rates, rents, charges and surcharges, (ii) shall either (A) implement the recommendations of such Qualified Independent Consultant with respect to fees, rates, rents, charges and surcharges for the Electric System necessary to comply with the rate covenant, or, (B) if the Qualified Independent Consultant shall be of the opinion that it would be impracticable at the time to charge such fees, rates, rents, charges and surcharges as would provide funds sufficient to comply with the rate covenant, impose such schedule of fees, rates, rents, charges and surcharges as in the opinion of such Qualified Independent Consultant will allow the Board to, as nearly as then practicable, comply with such rate covenant, and (iii) in any event shall be in compliance with such rate covenant no later than the end of the second fiscal year following the fiscal year in which such noncompliance requiring the engagement of the Qualified Independent Consultant occurred. See “Appendix D – SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION – Amendment”.

Additional Bonds Under the Bond Resolution, the Metropolitan Government may issue Bonds (“Additional Bonds”) in addition to the 2017 Series A and B Bonds, the 1998 Series A Bonds, the 1998 Series B Bonds, the 2008 Series A Bonds, the 2008 Series B Bonds, the 2011 Series A Bonds (to the extent not refunded by the 2017 Series B Bonds), the 2011 Series B Bonds, the 2013 Series A Bonds, the 2014 Series A Bonds and the 2015 Series A Bonds and ranking on a parity therewith as to security and payment for the purpose of paying all or a portion of the Cost of Acquisition and Construction of any part of the Electric System. Neither the Metropolitan Government nor the Board shall issue or cause to be issued any Additional Bonds unless an authorized representative of the Board (the “Authorized Board Representative”), files with the Fiscal Agent either (i) a certificate stating that the amount of Net Revenues during any twelve (12) consecutive months selected by the Board of the eighteen (18) months immediately preceding the issuance of said Additional Bonds were not less than one hundred twenty-five percent (125%) of the greatest amount of debt service scheduled to occur in any future fiscal year, with such debt service to be calculated to be the sum of (A) Adjusted Aggregate Debt Service in any future fiscal year on the then Outstanding Bonds and the Additional Bonds then proposed to be issued and (B) the debt service, if any, in any future fiscal year on any Credit/Liquidity Facility Obligations; provided,

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that, in the event that any adjustment in the rates, fees and charges collected by the Board for the services of the Electric System shall be effective at any time on or prior to the date of authentication and delivery of the Bonds then proposed to be issued, the Authorized Board Representative shall reflect in his certificate the Net Revenues he estimates would have been collected in such twelve month period if such new rates, fees and charges had been in effect for the entire twelve month period, or (ii) a certificate of a consulting engineer (the “Consulting Engineer”) stating that the Net Revenues for each of the full fiscal years in the period specified in the next sentence, as such Net Revenues are estimated by the Consulting Engineer in accordance with the Bond Resolution, shall be at least equal to one hundred forty percent (140%) of the sum of (A) the Adjusted Aggregate Debt Service and (B) the debt service, if any, on any Credit/Liquidity Facility Obligations for each such fiscal year, as estimated by the Consulting Engineer in accordance with the Bond Resolution. The period to be covered by such certificate of the Consulting Engineer shall be the period beginning with the fiscal year in which the series of Additional Bonds is authenticated and delivered and ending with the later of (a) the fifth full fiscal year after such date of authentication and delivery or (b) the first full fiscal year in which less than 10% of the interest coming due on Bonds estimated by the Consulting Engineer to be Outstanding is to be paid from deposits made from Bond proceeds in the Debt Service Account in the Debt Service Fund. Under the Bond Resolution, the Metropolitan Government may issue bonds (“Refunding Bonds”) for the purpose of refunding: (i) any Outstanding Bonds; (ii) any subordinate debt; and (iii) any Credit/Liquidity Facility Obligations. Refunding Bonds issued to refund any Outstanding Bonds may be issued without complying with any earnings test whatsoever. Refunding Bonds issued for any other purpose shall comply with the earnings test described in the immediately preceding paragraph. Upon the payment or defeasance of all Bonds Outstanding on October 18, 2011, Resolution Amendments shall amend the Bond Resolution to modify the ratio of historical Net Revenues to Debt Service necessary for the issuance of Additional Bonds from 125% to 110% and modify the ratio of projected Net Revenues to Debt Service necessary for the issuance of Additional Bonds from 140% to 110%. See “Appendix D- SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION – Amendment.” For a more extensive discussion of the terms and provisions of the Bond Resolution, the levels at which the funds and accounts established thereby are to be maintained and the purposes to which moneys in such funds and accounts may be applied, see “Appendix D- SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION.”


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PARITY DEBT OBLIGATIONS As of May 15, 2017

The following are the projected debt service requirements for Bonds payable from Net Revenues of the Electric System following the issuance of the 2017 Series A and B Bonds.*

Outstanding Debt Service**

Plus Debt Service on 2017 Series A Bonds

Less Debt Service on Refunded Bonds

Plus Debt Service on 2017 Series B Bonds

Total Debt Service

Year Ending

May 15

Principal

Interest

Total

Principal

Interest

Total

Principal

Interest

Total

Principal

Interest

Total

Principal

Interest

Total

2018 $24,592,969 $31,208,194 $55,801,163

$24,592,969 $31,208,194 $55,801,163

2019 24,850,847 30,489,416 55,340,263 24,850,847 30,489,416 55,340,263 2020 33,550,000 21,528,063 55,078,063 33,550,000 21,528,063 55,078,063 2021 35,105,000 19,976,513 55,081,513 35,105,000 19,976,513 55,081,513 2022 36,840,000 18,236,138 55,076,138 36,840,000 18,236,138 55,076,138 2023 38,585,000 16,487,963 55,072,963 38,585,000 16,487,963 55,072,963 2024 29,515,000 14,573,900 44,088,900 29,515,000 14,573,900 44,088,900 2025 30,670,000 13,098,150 43,768,150 30,670,000 13,098,150 43,768,150 2026 32,055,000 11,708,938 43,763,938 32,055,000 11,708,938 43,763,938 2027 25,750,000 10,258,863 36,008,863 25,750,000 10,258,863 36,008,863 2028 27,035,000 8,971,363 36,006,363 27,035,000 8,971,363 36,006,363 2029 28,385,000 7,619,613 36,004,613 28,385,000 7,619,613 36,004,613 2030 15,375,000 6,200,363 21,575,363 15,375,000 6,200,363 21,575,363 2031 16,140,000 5,431,613 21,571,613 16,140,000 5,431,613 21,571,613 2032 16,925,000 4,652,250 21,577,250 16,925,000 4,652,250 21,577,250 2033 17,770,000 3,806,000 21,576,000 17,770,000 3,806,000 21,576,000 2034 11,825,000 2,917,500 14,742,500 11,825,000 2,917,500 14,742,500 2035 12,415,000 2,326,250 14,741,250 12,415,000 2,326,250 14,741,250 2036 13,040,000 1,705,500 14,745,500 13,040,000 1,705,500 14,745,500 2037 6,685,000 1,053,500 7,738,500 6,685,000 1,053,500 7,738,500 2038 7,015,000 719,250 7,734,250 7,015,000 719,250 7,734,250 2039 7,370,000 368,500 7,738,500 7,370,000 368,500 7,738,500 2040 0 0 0 0 0 0 2041 0 0 0 0 0 0 2042 0 0 0 0 0 0

Total $491,493,816 $233,337,836 $724,831,652 $491,493,816 $233,337,836 $724,831,652

* Numbers may not total correctly due to rounding. ** Including Refunded Bonds.

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CONSTRUCTION AND FINANCING PROGRAM Construction Program The Board's construction program for the fiscal years ending June 30, 2018 through June 30, 2020 consists of capital improvements and construction of the transmission and distribution facilities described herein under "THE ELECTRIC SYSTEM." The estimated construction costs to be incurred by the Board in each of the fiscal years 2018 through 2020 are set forth herein under "THE ELECTRIC SYSTEM – Capital Improvement Plan." The Board believes that these cost estimates contain sufficient allowances for inflation, cost escalation and other possible increases. However, for a number of reasons, including unforeseen inflation, compliance with governmental procedures and regulations and changes in the Board's plan, actual costs may vary from the construction program estimates.

Financing Program Under the Board's current financing plans, the estimated construction costs shown in "THE ELECTRIC SYSTEM – Capital Improvement Plan" would be funded with proceeds from prior bond issues, internally generated funds and approximately $121,500,000 from the proceeds of the 2017 Series A Bonds. In the opinion of management of the Board, the monies described above will be sufficient to complete the financing of the Board's construction program through fiscal year 2020, including the construction costs summarized above, interest during construction and provisions for reserves, bond discount and other financing expenses. In addition to the debt obligations described above, the Metropolitan Government, acting by and through the Board, has established a $25 million non-revolving line of credit (the “2017 Line of Credit”) with Regions Bank for the purchase of electric power in case of a natural disaster. The 2017 Line of Credit became effective July 1, 2016 and expires on June 30, 2017. There have currently been no borrowings under the 2017 Line of Credit. Any borrowings under the 2017 Line of Credit will bear interest at a variable rate and will be secured by net revenues of the Electric System, subject to the prior pledge of said revenues in favor of the Bonds. In the event of a default in the terms of the 2017 Line of Credit, Regions Bank has the option to accelerate payment of all amounts due under the 2017 Line of Credit. The Metropolitan Government, acting by and through the Board, intends to renew the 2017 Line of Credit upon its expiration. The Metropolitan Government, acting by and through the Board, previously established lines of credit in fiscal years 2015 and 2016 for the emergency purchase of power, and there were no borrowings in either fiscal year.

THE ELECTRIC POWER BOARD

Organization and History The Board was established in 1939 as a separate administrative agency of the City of Nashville pursuant to Chapter 262 of the Private Acts of the Legislature of Tennessee for 1939 (amended by chapter 246 of the Private Acts of 1947 and is now Appendix III of the Charter of the Metropolitan Government) to exercise control and jurisdiction over the Electric System. In 1963, the Metropolitan Government was created, consolidating the governments of the City of Nashville and Davidson County. The provisions of the Charter of the City of Nashville relating to the Board were incorporated into the Metropolitan Charter, which took effect on April 1, 1963. In conducting the operations of the Electric System, the Board does business as Nashville Electric Service ("NES"). The principal objective of the

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Board is to deliver electric power to the homes, businesses, and industries of the service area at the lowest possible cost while maintaining an efficient electrical distribution system with a strong financial base. The Board is composed of five members appointed by the Metropolitan Mayor (the "Mayor") and confirmed by the Metropolitan Council (the "Council"). Members of the Board serve staggered five-year terms without pay with the Chairman and Vice Chairman elected for one-year terms by the Board. Pursuant to the Metropolitan Charter, the Board appoints the President and Chief Executive Officer and certain assistants. The President and Chief Executive Officer is responsible for the day-to-day operation of the Electric System, including the hiring of employees. Except for the appointment of Board members and approval of bond issues, neither the Mayor nor the Council, nor any other board, officer, or agency of the Metropolitan Government, has any control over the operation or management of the Electric System or the Board. NES has no generating capacity and purchases all of its power from the Tennessee Valley Authority ("TVA") pursuant to a Power Contract dated December 19, 1977 (the "Power Contract"). The Power Contract had an initial term of 20 years, but beginning on December 19, 1987, and on each subsequent anniversary thereof, the contract has been and is automatically extended for additional one-year renewal terms beyond its then existing time of expiration. The Power Contract, however, is subject to earlier termination by either party on not less than ten years' written notice. See "THE ELECTRIC SYSTEM" herein.

The Board maintains the funds, accounts, and records relating to the Electric System separate and distinct from all other funds of the Metropolitan Government.

Board Members

Mr. Robert R. Campbell, Jr., Chairman, was appointed to the Board in 2014, and was reappointed in 2015. He is an attorney with Waller Lansden Dortch & Davis, LLP. His practice consists of business and commercial transactions with a heavy emphasis on commercial real estate and public/private partnerships. He is a board member of the Nashville Downtown Partnership and serves various professional and community organizations. He is regularly recognized by Nashville Business Journal’s “Best of the Bar” list and was named Outstanding Commercial Real Estate Attorney in Nashville in 2011. For the last five years, Chambers USA recognized him as one of the top ten commercial real estate attorneys in Tennessee. His term on the Board expires in 2020.

Mr. Robert McCabe, Vice-Chairman, was appointed to the Board in 2009 and was reappointed in 2013. He serves as Chairman of Pinnacle Financial Partners and is currently the Audit Committee Chair of National Health Investors. His numerous civic involvement activities include serving on the Nashville Chamber of Commerce Board, Partnership 2020, Nashville Downtown Partnership, Boy Scouts of America, Cheekwood, and many others. He is past Board Chair of Ensworth School and The Nashville Symphony. His term on the Board expires in 2018.

Ms. Irma Paz-Bernstein, Board Member, was appointed to the Board in 2013. She is co-owner of Las Paletas, which produces gourmet frozen treats similar to an ice pop. She is a native of Guadalajara, Mexico and graduated from the UNIVA in Guadalajara, Mexico in 1992 and then continued her studies at the University of California – Los Angeles, where she started her professional life as a television producer. She started her career as an entrepreneur in Nashville, opening Las Paletas 15 years ago. Her term on the Board expires in 2017.

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Mr. Samuel H. Howard, Board Member, was appointed to the Board in 2009 and was

reappointed in 2014. He serves as Chairman of Phoenix Holdings, Inc. He also serves as Director of Southeast Community Capital, Founder, Director of 100 Black Men of Middle Tennessee, and Chairman Emeritus of the Urban League of Middle Tennessee, Inc. He is a past director of numerous other organizations and was honored as Nashvillian of the Year in 1998 by the Easter Seal Society of Tennessee and as Philanthropist of the Year in 1997 by the National Society of Fundraising Executives. He also has received numerous other awards. His term on the Board expires in 2019.

Ms. Carolyn W. Schott, Board Member, was appointed to the Board in 2015 and was

reappointed in 2016. Ms. Schott is a tax attorney with Sherrard, Roe, Voigt & Harbison, PLC. She is licensed as an attorney in Tennessee and Michigan and a member of the American, Tennessee and Nashville Bar Associations. She advises businesses and individuals in federal and state tax planning, strategy and controversy, estate planning, probate and trust litigation, and state and local tax administrative proceedings and appeals. Her experience includes counsel to companies in the transportation, communications and energy industries before state revenue agencies and local tax assessors. In addition, she regularly counsels nonprofit entities and tax-exempt organizations, including public charities, private foundations, trade and professional associations, and religious and educational organizations on business planning, regulatory compliance, and tax exemption qualification at both federal and state levels. Her term on the Board expires in 2021.

Management

Mr. Decosta E. Jenkins, CPA, President and Chief Executive Officer, has served as President and Chief Executive Officer since 2004. Prior to his promotion, he was the Senior Vice President and Chief Financial Officer and Secretary/Treasurer to the Board. He has been with NES since July 1991. Before joining NES, Mr. Jenkins worked for 11 years with Deloitte & Touche LLP, a national accounting and consulting firm, where he worked in the audit department with both public and private entities. During his time at Deloitte, he assisted companies in accounting and auditing matters, mergers and acquisitions, and filings with the Securities and Exchange Commission including two initial public offerings. He is a graduate of the University of Tennessee with a Bachelor of Science in Accounting. He also has an Associates of Science Degree in Electrical Engineering Technology from Penn Foster College.

Mr. Jenkins serves on the board of Truxton Trust Corporation and serves on the Audit and Ethics

Committee and the Credit Committee for the company. His community involvement includes serving on the boards of The American Public Power Association (APPA), the Community Foundation of Middle Tennessee, Seven States Power Corporation, The Nashville Chamber of Commerce, and the YMCA Middle Tennessee. He also continues to serve on a number of local, regional and national committees addressing civic, energy and climate issues and is a member of the APPA CEO Climate Change and Generation Policy Task Force and the Tennessee Valley Authority’s Customer Planning Council.

Ms. Teresa Broyles-Aplin, CPA, Executive Vice President and Chief Financial Officer, has been with NES since 2006. Her responsibilities include financial reporting, budgeting, supply chain management, fleet, customer service, information technology, and the pension administration. Ms. Broyles-Aplin also serves as the Secretary/Treasurer of the Electric Power Board. Prior to joining NES, Ms. Broyles-Aplin spent approximately 9 years in public accounting with most of that time in the assurance and advisory practice of Deloitte & Touche LLP. While working at Deloitte, she served as the lead manager on the NES audit. Ms. Broyles-Aplin provided consultation services in connection with

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bond offerings and pension accounting for Metropolitan Nashville Airport Authority, Metropolitan Government of Nashville and Davidson County, and Nashville Electric Service. She has also led the internal audit departments of two publicly-traded companies.

Ms. Broyles-Aplin graduated from Belmont University with a Master of Accountancy and from Austin Peay State University with a Bachelor of Business Administration. She is a member of Financial Executives International and the Tennessee Society of Certified Public Accountants. Ms. Broyles-Aplin has acted as a subject-matter expert and guest speaker for educational seminars on the topic of Sarbanes-Oxley compliance and risk management.

Ms. Laura Smith, Esq., Vice President – General Counsel, joined NES in July 1993. She has held several positions in the Legal and Corporate Affairs departments and today oversees all internal and external legal matters, governmental relations, community involvement, and strategic and business continuity planning for NES. Ms. Smith graduated from the University of Florida with a B.A. in Political Science and received her J.D. from the University of Florida College of Law. She serves on the Board of Directors for the Nashville Bar Association and has been named a Fellow of both the Nashville Bar Foundation and the Tennessee Bar Foundation.

Active in community endeavors, Ms. Smith has served as president of FiftyForward, CABLE, Big Brothers of Nashville, WIN, and Nashville Women's Political Caucus. She currently serves on the boards of Center for Nonprofit Management, The Women's Fund of the Community Foundation of Middle Tennessee, and Girl Scouts of Middle Tennessee.

Only the Chairman, Vice Chairman, and Board members, as designated above, have a vote on matters before the Board.

THE ELECTRIC SYSTEM

The Electric System was established in 1939 through the purchase of certain properties of the Tennessee Electric Power Company by the city of Nashville. Pursuant to the Metropolitan Charter, the Electric System is owned by the Metropolitan Government and operated by the Board.

Service Area According to Public Power, a periodic publication of the American Public Power Association, based on 2014 financial data, NES is the eleventh largest public electric utility in America based on customers served and electric revenues and the 20th largest public electric utility in America based on megawatt-hour sales. The service area of the Electric System covers approximately 700 square miles and includes Davidson County and small portions of the adjacent counties of Cheatham, Rutherford, Robertson, Sumner, Wilson and Williamson Counties. The major portions of the adjacent counties listed above are served by cooperative utilities. On June 30, 2016, the Board served approximately 386,000 customers – 345,000 residential and 41,000 commercial and industrial customers. In fiscal year 2016, residential customers accounted for 39.1 percent of kilowatt-hour sales and 41.5 percent of total operating revenue. Commercial and industrial customers accounted for 59.7 percent of kilowatt-hour sales and 55.2 percent of total operating revenue for fiscal year 2016. Street and highway lighting accounted for the remainder of kilowatt-hour sales and 1.6 percent of total operating revenue for fiscal year 2014. Miscellaneous revenue accounted for the remainder of total operating revenue for this period. On December 31, 2016, the Board served approximately 387,000 customers – 346,000 residential and 41,000 commercial and industrial customers. For the six months ended December 31, 2016, residential

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customers accounted for approximately 39.5 percent of kilowatt-hour sales and 42.1 percent of total operating revenue. During this same period, commercial and industrial customers accounted for 59.4 percent of kilowatt-hour sales and 54.7 percent of total operating revenue. Street and highway lighting accounted for the remainder of kilowatt-hour sales and 1.5 percent of total operating revenue for this period. Miscellaneous revenue accounted for the remainder of total operating revenue.

Source of Electric Power

NES has no generating capacity and purchases all of its power from TVA, an agency of the United States Government established in 1933 to develop the resources of the Tennessee Valley. TVA provides electric power to most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky. It also supplies power to small areas of Georgia, North Carolina and Virginia. TVA is the nation's largest public power company, providing power to approximately 9 million residents. TVA also maintains a navigable channel for the Tennessee River, performs flood control on the same river along with assistance to flood control on two other rivers, develops and introduces improved soil fertilizers, and encourages agricultural and industrial development and better forestry in the region. TVA's operations fall into two classes: power and non-power. Most of its revenues and assets are provided by the power program. TVA is a self-supporting entity.

The Board purchases power from TVA pursuant to the Power Contract. The Power Contract had an initial term of 20 years. Each year, the term of the Power Contract is automatically extended for one year. The Power Contract is subject to earlier termination by either party on not less than ten years' prior written notice. Under the Power Contract, TVA agrees to supply the amount of electric power required for service to the Board's customers, and the Board agrees to purchase all of its electric power from TVA. The Power Contract provides that the Board may sell power to all customers in its service area, except federal installations having contract demands greater than 5,000 kW and large customers as determined by a calculation outlined in TVA's Industrial Service Policy whom TVA may serve directly. At the present time, TVA does not directly serve any customer located within the service area of the Electric System.

The Power Contract contains provisions that establish the wholesale rates, resale rates and terms and conditions under which power is to be purchased by TVA and distributed to the customers of NES. Under the Power Contract, TVA, on a monthly basis, may determine and make adjustments in the wholesale rate schedule with corresponding adjustments in resale rate schedules necessary to enable TVA to meet all requirements of the Tennessee Valley Authority Act of 1933, as amended (the "TVA Act"), and the tests and provisions of TVA's bond resolutions.

The Electric System receives its power from TVA at 29 delivery points. The total rated capacity for these 29 delivery points is 6,203 megavolt amperes, providing a substantial margin over the Electric System's highest demand of 2,712 megawatts on August 9, 2007.

TVA generates much of the electrical power and energy distributed to its distributors, including NES, but also purchases some of its electrical power and energy from third parties. The TVA system includes nuclear plants, fossil plants, hydroelectric plants, combustion-turbine plants, solar sites, a wind-energy site, and a methane gas facility. TVA transmits the electrical power and energy over its transmission system and sells such power and energy at wholesale rates to its distributors, of which NES is one. TVA also directly serves a limited number of large customers and federal installations. The power sold to the Board is not supplied by one specific generating facility but from the entire TVA system.

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The Power Contract provides that TVA shall make every reasonable effort to increase the

generating capacity of its system and to provide the transmission facilities required to deliver output thereof so as to be in a position to supply additional power when and to the extent needed by the Board. Neither TVA nor the Board is liable for breach of contract if the availability or use of power is interrupted or curtailed or either is prevented from performing under the Power Contract by circumstances reasonably beyond their control. The amount of power supplied by TVA and the contractual obligation to supply such power are limited by the capacity of TVA's generating and transmission facilities and the availability of power purchased from other generating facilities. The cost and availability of power to the Board may be affected by, among other things, factors relating to TVA's nuclear program, fuel supply, environmental considerations such as stricter emissions standards and future legislation regulating the use of fossil fuel, changes in TVA's wholesale rate design, the construction and financing of future generating and transmission facilities and other factors relating to TVA's ability to supply the power demands of its customers, including NES. NES cannot determine with any precision its future cost of wholesale power purchased from TVA, and the Board's wholesale power costs could be impacted by any combination of the above or other factors.

For more information concerning TVA, its generation capacity and its financial condition, including some of those factors discussed above, see the annual, quarterly and current reports filed by TVA with the Securities and Exchange Commission ("SEC"). Annual financial information about TVA can be found in TVA's Annual Report filed on Form 10-K. Interim financial information can be found in TVA's Quarterly Reports filed on Form 10-Q. Additional information may be found from time to time on TVA's Current Reports filed on Form 8-K. You may read and copy any of these documents at the SEC's public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. In addition, TVA's SEC filings are available to the public

from the SEC's website at www.sec.gov and from TVA's website at www.tva.gov. Information

contained in these reports and on TVA's website shall not be deemed to be incorporated into, or to be a part of, this Official Statement. Future Power Supply Arrangements

NES (along with a number of other TVA distributors) has expressed interest in further revising

the Power Contract to allow it more options respecting the term of the contract and other matters, such as purchasing only a portion of its power requirements from TVA or participating in distributor-owned generation projects.

TVA management has indicated its willingness to discuss options with NES (and other distributors) to accommodate this desire for more flexibility. Recent discussions have focused principally on ways in which NES and other distributors can own interests in generating facilities while TVA remains the principal supplier of their power requirements. These discussions, while still in the early stages, may provide the framework for the distributors of TVA power to own interests in some of the future generating facilities for the Tennessee Valley.

The TVA Board of Directors would have to authorize such amendments, and the TVA Board of Directors has not acted upon or yet authorized any such amendments to the Power Contract with NES or other distributors of TVA power. NES has actively participated in those discussions, and NES may in the future participate in distributor-owned generation projects, either directly or through one or more joint action structures.

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Electric Rates

The Power Contract establishes the retail rates that NES and other distributors charge the ultimate power consumers. These rates are revised from time to time to reflect changes in costs, including changes in the wholesale cost of power. While the wholesale rates are uniformly applicable to all distributors of TVA power under the present power contracts with distributors such as NES, the retail rates will vary among distributors of TVA power depending upon the respective distributor's retail customer distribution costs. The rates of TVA for the sale of electric power in the TVA region and its contracts with distributors, including TVA, are structured with the intent to achieve the TVA Act's objective of the distributors of TVA power, including NES, to operate the respective distribution systems on a nonprofit basis and to provide a wide and ample supply of power at the lowest feasible rates.

The Power Contract provides that NES will use its gross revenues from its electric operations to pay for, in the following order, (1) current operating expenses; (2) current payment of interest and debt, including sinking fund payments, when due; (3) reasonable reserves for renewals, replacements, contingencies, and working capital; and (4) payments-in-lieu-of-taxes. Any revenues remaining over and above the preceding requirements are considered to be surplus, under the terms of the Power Contract, and may be used for Electric System construction or retirement of Electric System indebtedness before maturity. Within certain parameters of discretion concerning various factors affecting the earnings of NES and its future financial needs, rates and charges are to be reduced to practicable levels.

NES' retail rates are subject to TVA's review and approval under the provisions, terms and conditions of the Power Contract. The Power Contract provides for revisions to the retail rates that may be charged by NES when necessary to permit NES to operate on a self-supporting and financially sound basis. NES is not aware of any pending legislation that would propose to make its retail electric rates subject to regulation by any third party or agency other than TVA. The Power Contract further provides that if the retail rates set forth therein do not provide sufficient revenues for the operation and maintenance of the Electric System on a self-supporting, financially-sound basis, including debt service, TVA and NES shall agree to changes in rates to provide increased revenues. Similarly, if the rates and charges produce excess revenues, the Power Contract provides that the parties will agree to appropriate reductions. Since the date of the Power Contract, the wholesale and retail rates have been adjusted from time to time.

Effective October 2011, TVA approved a 3.1% adjustment to wholesale base power rates. This wholesale base rate adjustment resulted in an increase to NES retail rates by approximately $19.4 million or 2.2% to recover the increased cost of purchased power. Effective October 2013, TVA adjusted wholesale base power rates by 2.6%. In conjunction with the TVA rate increase, the Board raised retail rates by 3.8%, which resulted in increased annual revenues of approximately $45.4 million. Effective October 2014, TVA approved a 2.6% adjustment to wholesale base power rates, which resulted in an increase to NES retail rates of 1.5% or approximately $18.0 million. Effective October 2015, TVA approved a 2.6% adjustment to wholesale base power rates, which resulted in an increase to NES retail rates of 1.5% or approximately $21.3 million. Effective October 2016, TVA adjusted wholesale base power rates by 2.4% which resulted in an increase to NES retail rates of 1.5% or approximately $18.0 million. The table below summarizes TVA’s and NES’s wholesale and retail rate adjustments since 2011.

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TVA/NES Historical Rate Increase/Decrease

Month NES Increase TVA Retail Impact Increase (Decrease)

TVA Wholesale Increase (Decrease)

October 2011 0% 2.2% 3.1%

October 2013 3.8% 1.4% 2.6%

October 2014 0% 1.5% 2.6%

October 2015 0% 1.5% 2.6%

October 2016 0% 1.5% 2.4%

Effective April 2011, TVA implemented a seasonal Time-of-Use (TOU) wholesale rate structure. With the TOU rate structure, TVA provides distributors with a monthly wholesale power cost invoice, calculated by applying the respective rates detailed below to usage measured at TVA's wholesale metering points. All usage measured from the 65 separate wholesale metering points are combined by TVA and billed as a single wholesale meter. Qualifying industrial and commercial customer loads are removed from the total wholesale system load being billed on the TOU rate structure. The qualifying industrial and commercial customer loads are billed separately under an End-Use rate structure. In addition, TVA applies a monthly fuel cost adjustment (“FCA”) to TVA’s wholesale rates based upon changing fuel and purchased power costs. The FCA for each month can either increase or decrease electric bills. The FCA is a pass-through to the Electric System’s customers and does not directly affect the Electric System’s operating income. Over the last few years, TVA and distributors have worked collaboratively to develop a Strategic Pricing Plan (SPP) that focuses on TVA’s long-term pricing strategy. The SPP serves as a guide for the long-term direction of TVA’s wholesale rates and provides distributors the knowledge needed to make future business decisions and evaluate technology investments. As part of the SPP, effective October 2015, TVA changed the wholesale rate structure to send improved pricing signals that are more reflective of TVA’s embedded (fixed) and marginal (variable) costs. Additionally, the wholesale rate structure provides more dynamic pricing and encourages technology investment through pricing and assistance with interval metering and data management. As a result to the wholesale rate change, retail customers experience seasonal rates which have different prices during different seasons of the year. The following are the retail electric rates effective December 31, 2016, including the FCA.


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Wholesale Time of Use Rates Effective December 31, 2016 (including FCA)1

1 The above rates include TVA's December 2016 FCA. This adjustment is revised monthly. For December 2016, the

Standard Service and Time Differentiated Hours Use of Demand wholesale FCA rates were $0.00076 and $(0.00052) per kWh.

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Retail Rates Effective December 31, 2016 (with FCA included)

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Current monthly retail rates are determined in accordance with the provisions of the Power Contract. The rates and charges for wholesale power from TVA, effective October 16, 2011, as adjusted by the monthly FCA, pursuant to the latest TVA Contract Amendment, are appropriate rates and charges applicable to municipal and cooperative distributors of TVA power under power contracts currently being entered into or renewed.

The Board assigns retail rates and charges for customers with special load requirements including interruptible and time of day rates. The Board also establishes and collects additional charges for service connections, reconnections, and other services.

TVA has notified local power companies regarding proposed changes to the wholesale rate

structure as a means of passing through additional costs. Such proposed changes could become effective in October of 2018. NES has evaluated the effect of these proposed changes and concluded that the impact will not be material. NES may slightly adjust its retail and commercial rates in response to this rate structure change.

Transmission Lines and Substations The current Electric System is connected to the TVA system at 29 interchange points with a total infeed capacity of 6,202,800 kilovolt amperes. This capacity consists of:

(a) seven bulk 161 kilovolt substations totaling 3,657,600 kilovolt amperes which step the voltage down to the 69 kilovolt level, the 23.9 kilovolt and the 13.8 kilovolt levels;

(b) three industrial customer 161 kilovolt substations totaling 126,000 kilovolt amperes;

(c) two 69 kilovolt hydroelectric plants totaling 156,000 kilowatt amperes; and

(d) seventeen 161-kilovolt-distribution substations totaling 2,329,600 kilovolt amperes, which step the voltage down to 23.9 kilovolt and 13.8 kilovolt levels.

Transmission from the interchange points with TVA into the Electric System consists of approximately 41 pole miles of 161 kilovolt lines and a network of approximately 267 circuit miles of 69 kilovolt lines feeding 40 substations. These substations step the voltage down either to (1) 23.9 kilovolts or 13.8 kilovolts for utilization on distribution circuits or (2) various other voltage levels for industrial customer applications.

Electric Distribution System Approximately 300 distribution circuits operating at 23.9 kilovolts and 13.8 kilovolts originate at the distribution substation busses and are routed throughout Davidson County and into six surrounding counties to feed the Board’s customers.

The concentrated downtown Nashville area is served by an underground network system. Outside the downtown area, new distribution lines are installed both underground and overhead with a preference for underground where they are physically and economically feasible. The distribution infrastructure serves as routes for competitive communication providers who license the electric infrastructure for their use.

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Engineering, Construction and Maintenance Most transmission, substation and distribution engineering is done by NES personnel. Four engineering sections combine efforts to prepare plans that will provide service to new customers, maintain adequate service to existing customers, and prepare long-range plans to accommodate electric loads for customers of the future.

With very few exceptions, NES employees perform all of the construction and maintenance work required. For maintenance and repair of equipment and for making special apparatus of various kinds, the Board has shops, laboratory equipment, test apparatus, and instruments. Two-way radio systems and cellular units provide communications with mobile units.

Smart Grid Initiatives

In 2011, NES entered into a partnership with TVA to implement Advanced Metering Infrastructure, or AMI, and processes that are beneficial to both organizations. TVA provided a portion of the funding for the installation and implementation of smart grid on the NES distribution network. In exchange, NES provides voltage and demand reductions when requested by TVA during summer and winter periods. NES estimates annual savings in purchased power costs in the range of $2.0 to $2.5 million. Savings in any year are dependent upon a number of factors including degree days, weather and other factors.

Since the initial AMI roll-out, NES has installed over 230,000 AMI meters throughout the NES

service territory. The deployment of AMI meters is scheduled to be completed within the next three to five years. Below are a few benefits of transitioning to the AMI infrastructure:

• AMI technology enables meters to be read remotely.

• AMI provides useful information about the distribution network including automated notification of power outages and usage.

• Two-way communication with the electric grid improves service and power reliability.

• Ability to provide customers information on energy usage and patterns in order to better manage consumption.

• Fewer company vehicles are needed, reducing pollution, energy consumption, and traffic.

Prospective Financial Information

NES does not, as a matter of course, make public projections as to future sales, earnings, or other results. However, the management of NES has prepared the prospective financial information set forth below to present anticipated system growth and its capital improvement plan. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of NES management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management's knowledge and belief, the expected course of action and the expected future financial performance of NES. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Official Statement are cautioned not to place undue reliance on the prospective financial information.

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Neither NES' independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

System Growth

From the fiscal years 2007 to 2016, the annual compounded customer growth rate was 0.88 percent, with total average customer increasing from 349,000 in 2007 to 381,000 in 2016. Yearly sales decreased from 12.54 billion kilowatt-hours in fiscal year 2007 to 11.61 billion kilowatt-hours in fiscal year 2016. This represents a 0.77 percent compound annual decrease in kilowatt-hour sales during the period. Sales and customer growth have been impacted in the last 10 years by economic factors, milder weather and energy efficiency. NES prepares an annual forecast of both summer and winter kilowatt peak demand as well as annual megawatt-hours of energy consumption. By 2028, NES system studies have forecasted a 21.3 percent growth in kilowatt peak demand.

Year Forecasted Peak Demand (MW)

2016* 2,423

2017 2,693

2018 2,737

2023 2,874

2028 2,939

*Actual

Capital Improvement Plan

Capital expenditures are budgeted and expected to be approximately at $92,000,000 for fiscal year June 30, 2017. Capital expenditures are forecasted to be budgeted in the amount of $96,900,000 for fiscal year June 30, 2018, $94,250,000 for fiscal year June 30, 2019, and $88,950,000 for fiscal year June 30, 2020, resulting in a total of $280,100,000. The planned allocation to projects is as follows: (i) $51,726,000 to new business construction and installation; (ii) $25,571,000 to Electric System construction; (iii) $131,446,000 to other construction and (iv) $71,357,000 to equipment and facilities. A portion of these capital expenditures include equipment and facilities of approximately $37,100,000 for new software and hardware that is being implemented in phases over the next five years. The Board believes that these estimated construction costs contain sufficient allowances for inflation, cost escalation and other possible increases. However, for a number of reasons, including unforeseen inflation, compliance with governmental procedures and regulations and changes in the Board’s plan, actual costs may vary from the construction program estimates.

FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY The electric utility industry has been and will continue to be affected by a number of factors that

will have an impact on the business, operations and financial conditions of both public and private

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electric utilities, including the Board. These include deregulation, compliance with North American Electric Reliability Corporation's ("NERC") electric reliability standards and Smart Grid initiatives.

In the past, one of these factors was the efforts at both the national and local levels to restructure

the electric utility industry from a heavily regulated monopoly to an industry in which there is more (or open) competition for power supply service at both the wholesale and retail level. Historically, electric utilities have operated as monopolies within their service territories, subject to certain exceptions. Under this arrangement, utilities have generally been able to charge rates primarily determined by their costs of service, rather than by competitive forces. There has been little activity regarding deregulation in recent years due to the perception of rapid escalation of electric rates in areas that have been deregulated. There can be no assurance that this arrangement will continue for the Board, and the Board is already subject to certain competitive forces and other factors as described below.

Competitive Environment in Tennessee In the late 1990s and early 2000s, various regulatory and legislative bodies in Tennessee considered a wide range of issues associated with the advisability of retail competition in the electric utility industry. None of these groups recommended that the State actively pursue full retail competition at that time, and there are no currently pending State legislative or regulatory initiatives to provide for retail competition in Tennessee at this time.

Transmission Access to Wholesale Power The Board's ability to access the wholesale power markets is limited, and TVA currently enjoys substantial insulation from wholesale competition. TVA operates under the Tennessee Valley Authority Act of 1933 (the "TVA Act"). Under the TVA Act, subject to certain minor exceptions, TVA may not currently enter into contracts that would have the effect of making it or the Board and other distributors a source of TVA power supply outside a statutorily-specified area. However, under a special provision of the Energy Policy Act of 1992 (the "anti-cherry-picking provision"), TVA is not required to provide its competitors with access to its transmission system to transmit power for consumption within the area that TVA or the Board and other distributors of TVA's power may serve. Thus, while TVA may not sell power outside its current service area, except for certain pre-existing arrangements, its competitors are not allowed to obtain transmission service from TVA to sell power within TVA's service areas under present law. Pending and future legislative and regulatory actions could impact the Board's ability to access the wholesale market, and modification of TVA's historically protected service area could adversely affect TVA's financial and operating condition.

Federal Energy Policy Act of 2005 The Energy Policy Act of 2005 authorizes the Federal Energy Regulatory Commission ("FERC") to require "unregulated transmitting utilities" to provide open access to their transmission systems on comparable terms and conditions as those "unregulated transmitting utilities" provide transmission service to themselves. While the Board meets the minimum kilowatt-hour sales threshold to be an "unregulated transmission utility" under Section 201(f) of the Federal Power Act, it is unclear the extent to which, if any, the Board's facilities would be considered subject to these requirements. The Board is unable to predict at this time the impact of these requirements on the Board's operations and finances.

The Energy Policy Act of 2005 provides certain "load serving entities" holding firm transmission

rights the ability to continue to use those rights to serve their customers, and one provision of the Energy Policy Act of 2005 purports to provide these rights to wholesale customers of TVA like the Board. It is

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currently unclear whether these or other provisions of the Energy Policy Act of 2005 will fundamentally change the Board's power supply arrangements with TVA or the Board's ability to access the wholesale generation markets at a future point in time.

The Energy Policy Act of 2005 also subjected electric utilities like the Board to certain

amendments to the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The purposes of PURPA in 1978 were, and continue to be, to help the nation facilitate the conservation of energy, optimize efficiency, and provide for the establishment of equitable rates. As originally enacted, PURPA required certain utilities to consider and, if appropriate, adopt certain service practice and rate standards. As amended, PURPA now requires consideration of five new standards: (i) Net Metering; (ii) Fuel Source Diversity; (iii) Fossil Fuel Generation Efficiency; (iv) Smart Metering (time-based metering and communications); and (v) Interconnection Standards for Independent Power Producers. Under the revised PURPA standards, the TVA Board is the Board's regulatory authority for purposes of PURPA. The potential financial implications for some of the standards are currently unknown.

NERC Electric Reliability Standards Compliance With the passage of the Energy Policy Act of 2005 ("EPAct") Congress authorized FERC to

establish an Electric Reliability Organization ("ERO") to protect the reliability of the bulk electric power system in the United States. The North American Electric Reliability Corporation ("NERC") was certified by FERC as the ERO. Owners, operators, and users of the bulk power system are required to be registered with NERC and the appropriate Regional Entities, or in NES’s case, the Southeastern Electric Reliability Corporation ("SERC"). NERC intends to comprehensively and thoroughly protect the reliability of the U.S. power grid. To support this goal, NERC will include in its compliance registry each entity that NERC concludes can materially impact the reliability of the bulk power system. Based on NERC's "functional model", NES has registered with SERC/NERC as a "Distribution Provider" (DP), "Transmission Owner" (TO), and "Transmission Planner" (TP). NES also meets the requirements to register as a "Transmission Operator" (TOp); however, NES has executed an agreement with TVA that delegates the TOp function to TVA.

NES has developed "Policies, Guidelines, & Procedures (PGP's) documents for all applicable

NERC Reliability Standards and their associated requirements. In order to ensure compliance with each of these requirements, NES fosters a "culture of compliance" and has established an organizational structure to provide employees with annual reliability compliance training and to document all related testing and maintenance activities related to NES' electric facilities that can materially impact the bulk electric system.

TVA and General Industry Risk Factors

Because the Board purchases all of its power from TVA, any risk factors affecting or potentially affecting the business operations of TVA may also affect the Board. TVA may mitigate some of these risks by increasing the rates it charges for its power. A discussion of the risk factors affecting TVA's operations can be found in "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in TVA's Annual Report. TVA's Annual Report is available to the public from the SEC's website at www.sec.gov and from the TVA's website at www.tva.gov.

In addition to risks discussed above, the electric utility industry in general has been, or in the

future may be, affected by a number of other factors which could impact the financial condition of the Board. Such factors include, among others, the following: (i) effects of compliance with rapidly

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changing environmental, safety, licensing, regulatory and legislative other than those described elsewhere in this Official Statement; (ii) changes resulting from conservation and load management programs on the timing and use of electric energy; (iii) changes in national, regional or state energy policy; (iv) competition from other utilities, independent power producers, marketers and brokers; (v) competition with customer-owned generation, such as "self-generation" or "distributed generation," which might include microturbines, fuel cells, and other generation resources; (vi) shifts in the availability and relative costs of different fuels, whether such fuels are competitive alternatives to electricity or are used in the generation of electricity; (vii) other federal, state or local legislative or regulatory changes; (viii) loss of large industrial or commercial customers; and (ix) changes in the economy. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any electric utility and will likely affect individual utilities in different ways.

The Board is unable to predict what impact any of the foregoing factors will have on its

operations and financial conditions, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date of this Official Statement. Extensive information on the electric utility industry is available in the public domain, and potential purchasers of the 2017 Series A and B Bonds should obtain and review such information.

ADDITIONAL FINANCIAL AND OPERATIONAL INFORMATION

Pension Plans and Other Post-Employment Benefits The information relating to the Nashville Electric Service Retirement Annuity and Survivors’

Benefit Plan (the “DB Plan”), the Defined Contribution Retirement Plan (the “DC Plan”) and other

post-employment benefits (“OPEB Plan”) (together, the “Plans”) contained herein relies on information

produced by the Plans and their independent actuaries. The actuarial assessments are forward-looking

information that reflect the judgment of the fiduciaries of the Plans. Actuarial assessments are based

upon a variety of assumptions, one or more of which may prove to be inaccurate or be changed in the

future.

Defined Benefit Pension Plan

The DB Plan is a single employer defined benefit pension plan administered by the Board. The DB Plan provides retirement and survivors’ benefits to participants and beneficiaries. The authority to establish and maintain the DB Plan is assigned to the Board by the Charter of the Metropolitan Government. All full-time regular employees hired before July 1, 2012 are eligible to participate in the DB Plan. Employees hired on or after July 1, 2012 are eligible to participate in the NES Defined Contribution Plan (“DC Plan”). As of April 1, 2016, there were a total of 1,768 participants, including 885 currently receiving benefits, and 139 terminated participants entitled to receive benefits in the future. The DB Plan provides for five-year cliff vesting; that is, active employees are not vested until they have earned 5 years of service, at which time they become fully vested. Participants who retire at or after age 65 are entitled to annual retirement benefits payable monthly for life in an amount equal to two percent of final average compensation multiplied by years of participation in the DB Plan up to 35 years. A participant is eligible for early retirement at age 52½ with 15 years of credited service or at age 50 with 30 years of credited service. The amount of the benefit that would otherwise be payable at age 65 is reduced according to a formula specified in the DB Plan. However, if a participant has attained age 55, and the participant’s age plus service totals 80 or greater, there is no reduction for payment of the

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participant’s benefit before age 65. A survivor benefit is paid to the spouse of a participant who dies while employed equal to 35 percent of the participant’s final average compensation, and monthly survivor benefits are paid for certain surviving children until their 23rd birthday.

The Board establishes and may amend the contribution requirements for the DB Plan. All

contributions to the DB Plan are made by the Board; participants are not required or permitted to contribute to the DB Plan (although participant contributions have been required for participation in the past). The Board’s general practice is to fund at least the minimum required contribution as determined by Bryan, Pendleton, Swats & McAllister, LLC, the DB Plan’s independent actuary (the “Plan’s Actuary”). The contribution rate for plan years ended March 31, 2012 through 2016, respectively, was 32.3%, 33.3%, 32.8%, 37.1% and 35.8% of annual payroll of covered employees.

Source: The Plan’s Actuary. The Board’s contributions for plan years ended March 31, 2012 through 2016, respectively, are as follows:

Plan Year Ended March 31

Annual Required Contribution

Actual Employer Contribution

Percentage Contributed

2012 $21,712,909 $21,712,909 100%

2013 $23,074,815 $23,102,268 100%

2014 $22,897,905 $22,812,880 99.6%(1)

2015 $25,746,365 $25,746,366 100%

2016 $24,594,439 $24,600,000 100%

Sources: Actuarial Valuation and Reports for the DB Plan prepared by the Plan’s Actuary for applicable plan years (the “Pension Actuarial Valuations”) and the Board’s Financial Statements for applicable years (the “Financial Statements”). (1) Not at 100% due to subsequent actuarial adjustment.

The annual pension cost as reported on the Board’s financial statements for plan years ended March 31, 2012 through 2013, respectively, was the same as the annual required contribution for such years. The annual pension cost for the years ended June 30, 2014, 2015 and 2016 were $16.1 million, $19.2 million and $40.4 million after the adoption of GASB 68.

Sources: The Pension Actuarial Valuations and the Financial Statements. The minimum required employer contribution and the estimated liability of the DB Plan to pay future benefits are determined by the Plan’s Actuary on an annual basis in accordance with Governmental Accounting Standards Board (“GASB”) Statement No. 68 (“GASB 68”). The Plan’s Actuary uses demographic and other data (such as employee age, salary and service credits) and various assumptions (such as estimated salary increases, interest rates, employee turnover and mortality) to determine the amount that the Board should contribute in a given year in order for the DB Plan to accumulate sufficient funds to pay benefits when due. The Plan’s Actuary then produces Pension Actuarial Valuations, which contain the actuary’s report on the DB Plan’s assets, liabilities and required contribution for the following year.

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The annual required contribution beginning April 1, 2013 and continuing through the current plan year was determined as part of the April 1, 2016 Pension Actuarial Valuation using the entry age method1/. The entry age method looks at each participant based on an individual basis. The actuarial assumptions used by the Plan’s Actuary in compiling the annual Pension Actuarial Valuations include (a) a 7.5 percent investment rate of return and (b) projected salary increases of 4.5 percent each year. The assumptions also include cost-of-living post-retirement benefit increases equal to two percent per year. The effect of short-term volatility in the market value of investments is amortized into expense. This is done by amortizing the effects of differences between the “expected value” of assets on each valuation date (April 1) and actual results over a 5-year period. The actuarial accrued liability (“AAL”), as determined by the Plan’s Actuary, is an estimate of the present value of all future benefits that are based upon employment service performed up to the valuation date and that are expected to be paid from the Plan to current and retired employees. The AAL is based on the valuation methodology and actuarial assumptions that are being used. Any difference between the AAL and the actuarial value of assets is called the “Unfunded Actuarial Accrued Liability” or “UAAL.” The Plan’s Actuary also calculates the “Funded Ratio,” which is the result obtained by dividing the actuarial value of plan assets by the AAL. The “asset smoothing” method described above is an accepted practice under GASB 68. It reduces large fluctuations in the actuarial value of assets and the UAAL that would otherwise occur as a result of market volatility. Effective April 1, 2015, the actuarial valuation method for the DB Plan was changed to the current method. This change was made in accordance with GASB 68 and state law. It set a 25-year period, commencing on April 1, 2015, for amortization of the DB Plan’s UAAL. The Pension Actuarial Valuations 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 and mortality. One or more of these actuarial assumptions may prove to be inaccurate or be changed in the future. As a result of the inaccuracy of actuarial assumptions, the UAAL could be larger or smaller than anticipated. The Board’s contributions are held in trust. Studies and recommendations involving investment allocations are currently provided by SEI Investments Management Corp. (“SEI”). The recommendations from SEI are presented to an investment committee of the Board consisting of two management members and two union members. Recommendations from this committee must be approved by the Board to be implemented. Since the obligations of the DB Plan are long-term in nature, the investment policy is aimed toward performance and return over a number of years. The management of the DB Plan fund is governed by the Statement of Investment Objectives and Guidelines of the Investment Committee, most recently revised January 23, 2008. Benefits for certain retirees who terminated before July 1, 1996 are being paid by John Hancock Insurance Company under a non-participating annuity contract. In addition, a portion of the benefits of retirees attributable to participant contributions to the DB Plan during the time period when such contributions were permitted are and will be paid by John Hancock. Because John Hancock is guaranteeing the payment of these benefits, neither the assets held by John Hancock for payment nor the liability of the DB Plan for these benefits is reflected in the Actuarial Valuations. The present value of these benefits guaranteed by John Hancock is estimated to be $29.4 million. Should the Board ever be

1/ The liability for periods prior to April 1, 2013 was determined using the frozen initial liability method which was an accepted method. The impact of adopting the entry age method prescribed by GASB 68 was not material.

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required to pay for or fund any of these benefits from the DB Plan for these benefits guaranteed by John Hancock, future contributions and the UAAL could be significantly increased. The Actuarial Valuation assumes an investment rate of return equal to 7.5 percent beginning in the 2014 plan year. An investment rate of return equal to 8 percent was assumed for prior plan years. Due to the volatility of the market place, however, the actual rate of return on the assets of the DB Plan will be higher or lower than the assumed rate. If the actual market performance should be less than the assumed rate of 7.5 percent, the liabilities of the DB Plan will be greater than shown in the actuarial valuation, the UAAL will be greater, and the future contributions will have to be increased to enable the DB Plan to pay benefits. The following table shows the actual rate of return on the DB Plan’s assets for

the past 10 years.

Investment Rate of Return

Plan Year Ended March 31 Rate of Return

2007 11.5%

2008 – 3.5%

2009 – 30.5%

2010 41.7%

2011 14.7%

2012 5.0%

2013 11.3%

2014 13.4%

2015 2.9%

2016 -0.1%

Last 3-Year Average Return Per Annum 5.4%



Source: The Plan’s Actuary. In compiling the annual Pension Actuarial Valuation, as noted above, the Plan’s Actuary determines the actuarial value of plan assets under an asset smoothing method. The result is that the actuarial value of assets is different from the market value and does not reflect the true value of DB Plan assets at the time of measurement. As a result, use of the asset smoothing method can be expected to provide a more or less favorable presentation of the DB Plan’s current financial condition than would a method based solely on market value. The tables below show the differences in certain factors in the Pension Actuarial Valuation for the past 5 years by comparing the use of market value versus actuarial value for DB Plan assets. The AAL figures are the same in both tables.

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Historical Funding Progress Actuarial Value ($000 omitted)

Actuarial Valuation

Date April 1

Actuarial Value of Assets

Actuarial Accrued Liability (AAL)

Unfunded AAL

(UAAL)

Funded Ratio

Covered Payroll

UAAL as % of

Covered Payroll

2012 $318,502 $477,101 $158,599 66.8% $69,419 228.5%

2013 $348,341 $502,790 $154,449 69.3% $69,576 222.0%

2014 $382,483 $560,095 $177,612 68.3% $69,410 255.9%

2015 $430,147 $586,489 $156,322 73.3% $68,801 227.2%

2016 $442,406 $641,133 $198,727 69.0% $72,457 274.3%

Sources: The Pension Actuarial Valuations and the Financial Statements.

Historical Funding Progress

Market Value ($000 omitted)

Actuarial Valuation

Date April 1

Market Value of Assets


Unfunded AAL

(UAAL)

Funded Ratio

Covered Payroll

UAAL as % of

Covered Payroll

2012 $327,695 $477,101 $149,406 68.7% $69,419 215.2%

2013 $359,931 $502,790 $142,859 71.6% $69,576 205.3%

2014 $402,689 $560,095 $157,406 71.9% $69,410 226.8%

2015 $429,549 $586,489 $156,940 73.2% $68,801 228.1%

2016 $409,405 $641,133 $236,728 63.9% $72,457 319.8%

Source: The Plan’s Actuary. The tables above also illustrate the changes in the UAAL and the Funded Ratio during the periods indicated. The Funded Ratio and the UAAL are useful in measuring the financial health of the DB Plan. An increasing UAAL or a decreasing Funded Ratio from year to year generally signals a deterioration in the financial health of the DB Plan because it indicates an increasing gap between the liabilities of the DB Plan for future benefit payments and the value of assets available in the DB Plan to pay those liabilities as they become due. Conversely, a decreasing UAAL or an increasing Funded Ratio generally indicates an improvement in the financial health of the DB Plan because such a change reflects a closing of the above-mentioned gap. In 2014, the impact of the change in the discount rate is reflected in the Actuarial Accrued Liability. Under current Tennessee law, as interpreted by the Tennessee Supreme Court, a governmental employer such as the Board is generally not permitted to change the terms of a pension plan to reduce an accrued benefit, or the right to accrue future benefits, of any participant who is eligible to receive benefits under the plan (i.e., any vested participant) unless that participant consents to the decrease or reduction in benefits. However, a pension plan can be amended so as to exclude new employees. In that manner, the risk of future increases in the UAAL, whether anticipated or not, resulting from the entry of new participants can be eliminated.

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The Public Employee Defined Benefit Financial Security Act of 2014 (the "2014 Act") was signed into law by the Governor of Tennessee on May 22, 2014 and, among other things, requires each political subdivision which provides defined benefit plans not administered by the Tennessee Consolidated Retirement System to (a) adopt a resolution delineating a funding policy for fiscal years beginning after June 15, 2015; (b) begin funding any unfunded accrued liability via the level dollar amortization method no later than the plan fiscal year commencing on or before June 15, 2020; (c) annually make a payment to the pension plan of no less than 100% of the actuarially determined annual required contribution that incorporates both the normal cost of benefits and the amortization of the pension plan's unfunded accrued liability (the "ADC"), provided however, the affected political subdivision may make a payment of more than 100% of the ADC. If the political subdivision fails to fund the ADC, the 2014 Act permits the State Commissioner of Finance and Administration, at the direction of the Comptroller of the Treasury, to withhold such amount or part of such amount from any state-shared taxes that are otherwise apportioned to such political subdivision. The money withheld from state-shared taxes will be paid to the political subdivision's pension plan.

The 2014 Act further provides that (a) for all affected employees of the political subdivision hired on or after the effective date of the 2014 Act, the political subdivision may freeze, suspend or modify benefits, employee contributions and plan terms and design on a prospective basis (except as to those employees employed prior to the effective date of the 2014 Act where applicable law provides otherwise); and (b) for any pension plan that is funded below 60%, the affected political subdivision may not establish benefit enhancements unless approved by the State Treasurer.

The Board implemented changes in funding calculations to comply with the minimum requirements beginning in fiscal year 2016.

Defined Contribution Retirement Plan

Effective July 1, 2012, the Board established a Defined Contribution Retirement Plan for all new

employees. The DC Plan is intended to be a defined contribution money purchase pension plan. Its purpose is to provide retirement benefits to eligible employees. All full-time regular employees not vested in the DB Plan are eligible to participate in the DC Plan. Participants who were not vested in the DB Plan as of July 1, 2012 were able to choose whether to continue to participate in the DB Plan or to participate in the new DC Plan.

All contributions to the new DC Plan will be made by the Board; participants will not be required or permitted to contribute to the new DC Plan. The Board will make contributions to the new plan based on the normal cost for the DB Plan under the current actuarial cost method. However, investment risk is shifted from the Board to the participants in the new plan preventing any underfunding exposure to the Board with respect to future employees. As of April 1, 2016, the normal cost for the DB Plan was 13.1% of covered payroll.

Members of the DC Plan are also eligible to participate in the OPEB Plan discussed below.

Other Post-Employment Benefits

The Board also provides post-employment medical, dental and life insurance benefits to eligible

retirees (the “OPEB Plan”). Medical and dental benefits are also provided to their spouses. Retirees are eligible for these post-retirement benefits if they retire at or after age 55 and the sum of their age at retirement and service is at least 70. Retirees eligible for Medicare who reach age 65 after January 1, 2006 are required to enroll in Medicare as primary insurance, but will be covered under the OPEB Plan

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for secondary coverage. Retirees are required to pay a share of the group medical rate for coverage under the OPEB Plan. As of April 1, 2016, approximately 647 retirees met those eligibility requirements. The OPEB Plan was funded on a pay-as-you-go basis prior to June 30, 2008. During that fiscal year, the Board implemented the provisions of GASB Statement No. 45, “Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions” (“GASB 45”). Under GASB 45, the cost of the OPEB Plan is now being accrued over the working careers of the OPEB Plan participants. The Board also established a trust fund to hold its contributions to the OPEB Plan. The contribution rate for plan years ended March 31, 2010 through 2014, respectively, was 25.7%, 20.6%, 21.0%, 21.5% and 24.5% of annual payroll of covered employees.

The independent actuarial firm of Bryan, Pendleton, Swats & McAllister, LLC, which produces the Actuarial Valuations for the DB Plan, also determines the required contribution for the OPEB Plan based on an annual valuation (the “OPEB Actuarial Valuations”). The actuarial method used is the entry age normal method. Under this method, the actuarial present value of the projected benefits of each individual employee is allocated on a level basis over the service of that individual between hire date and assumed retirement date. This is an individual, and not aggregate, actuarial method. The actuarial assumptions include (a) a 7.5 percent investment rate of return beginning in the 2014 plan year (prior plan years were at 8 percent), (b) annual increase in healthcare costs of 5 percent per year for medical and 4 percent for dental, and (c) cost-sharing contributions by participants increasing by 1 percent each year to a level of 20 percent for 2015. The actuarial value of OPEB Plan assets is determined by a technique of asset smoothing analogous to the method described above that is used for the DB Plan. OPEB Actuarial Valuations 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. One or more of these actuarial assumptions may prove to be inaccurate or be changed in the future. If the assumption for healthcare cost trends of a 5 percent increase per year (4 percent for dental) should prove to be less than the actual increases over time for covered medical expenses under the OPEB Plan, and if this increase is not offset through a corresponding increase in the retiree’s cost-sharing obligation, the OPEB Plan’s unfunded actuarial accrued liability (“UAAL”) will be greater than stated in the current financial statements and unanticipated increases in the required contribution would be required in future years.

Source: The OPEB Actuarial Valuation as of April 1, 2016. The annual accounting expense is now the same as the annual required contribution, which is an amount actuarially determined in accordance with the parameters of GASB 45. The annual required contribution represents a level of funding that is projected by the Plan’s Actuary to cover the projected cost of providing benefits under the OPEB Plan over periods that approximate the working lives of the covered employees. It also includes an amount intended to amortize the initial unfunded actuarial liability of approximately $219 million over a 30-year period beginning April 1, 2007. This UAAL resulted from the fact that the OPEB Plan was formerly funded on a pay-as-you-go basis.

The Board will adopt GASB 75 for fiscal 2018 through retroactive application in the first month of fiscal 2017. The purpose of this standard is to improve the transparency of other post-employment benefit obligations (OPEB) and related funding status by presenting the net OPEB liability on the statement of net assets of the plan sponsor. This standard also changes how funding is recognized, and changed the elements of OPEB expense. However, the funding requirements were not impacted by this standard; only the manner in which the funding is recognized in the financial statements. At the date of

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adoption (July 1, 2016) the Net Position will be reduced by approximately $207 million, and a net OPEB liability will be recognized for the same amount.

Administrative and General Expense (before allocations of overhead for capital projects) is expected to increase by a non cash adjustment of approximately $3.7 million. The actual adjustment will differ subject to the difference between actual investment results and actuarial investment results as of June 30, 2017. Funding for fiscal 2017 will remain unchanged at $19.5 million.

See also more detailed discussion of the OPEB plan in Note 8 of the Financial Statements in Appendix A.

The following table shows the components of the annual OPEB Plan cost, the amount actually contributed, and the changes in the net OPEB Plan obligation as of March 31, 2014, 2015 and 2016:

March 31, 2014 March 31, 2015 March 31, 2016

Annual Required Contribution $15,522,600 $16,834,694 $19,168,134

Interest on Net OPEB Plan Obligation $ 0 $ 0 $ 0

Adjustment to Annual Required $ 0 $ 0 $ 0

Annual OPEB Plan Cost (Expense) $15,222,600 $16,834,694 $19,168,134

Estimated Net Contributions Made $15,522,600 $16,834,694 $19,168,134

Changes in Net OPEB Plan Obligation $ 0 $ 0 $ 0

Net OPEB Plan Obligation – Beginning of Year $ 0 $ 0 $ 0

Net OPEB Plan Obligation – End of year $ 0 $ 0 $ 0

Source: The OPEB Actuarial Valuations. The Board’s contributions for the past five years are as follows:

Plan Year Ended March 31

Annual Required Contribution

Actual Employer Contribution

Percentage Contributed

2012 $18,041,316 $18,041,316(1) 100%

2013 $15,361,358 $15,361,358 100%

2014 $15,522,600 $15,522,600 100%

2015 $16,834,694 $16,834,694 100%

2016 $19,168,134 $19,168,134 100%

Sources: The OPEB Actuarial Valuations. (1) See footnote for table above. In compiling the annual OPEB Actuarial Valuations, the Plan’s Actuary determines the actuarial value of plan assets under an asset smoothing method as noted above. As is the case with the DB Plan, use of this asset smoothing method might provide a more favorable or less favorable presentation of the Plan’s current financial condition than would a method based solely on market value. However, because the funding of the OPEB Plan did not commence until 2007, the value of the assets in the trust, as well as any fluctuations in such value due to market volatility, can be expected to be less significant in the near future than in the DB Plan with its greater Funded Ratio.

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The tables below show the difference in certain factors in the OPEB Actuarial Valuations for the past 5 years by comparing the use of market value versus actuarial value for OPEB Plan assets. In 2014, the impact of the change in the discount rate is reflected in the Actuarial Accrued Liability.

Historical Funding Progress Actuarial Value ($000 omitted)

Actuarial Valuation

Date April 1



Unfunded AAL

(UAAL)

Funded Ratio

Covered Payroll

UAAL as % of

Covered Payroll

2012 $ 45,915(1) $223,058 $177,143 20.6% $ 74,623 237.4%

2013 $ 56,486 $227,605 $171,119 24.8% $ 74,086 231.0%

2014 $ 66,597 $245,210 $178,613 27.2% $ 76,241 234.3%

2015 $ 78,069 $249,211 $171,142 31.3% $ 78,156 218.9%

2016 $ 84,325 $278,435 $194,110 30.3% $ 78,206 248.2%

Sources: The OPEB Actuarial Valuations.

(1) A wire failure resulted in half of the Board's contributions being delayed. Because of this wire failure, only half of

the Board's contributions were made by March 31, 2012 and the Board's contributions as of the Plan year ended March 31, 2012 do not match the Board's contributions as of the fiscal year ended June 30, 2012. As of the fiscal year ended June 30, 2012, the Board had contributed 100% of the annual required contribution, and the table above reflects the Board's full contribution.

Historical Funding Progress Market Value ($000 omitted)

Actuarial Valuation

Date April 1

Market Value of Assets


Unfunded AAL

(UAAL)

Funded Ratio

Covered Payroll

UAAL as % of

Covered Payroll

2012 $ 46,653(1) $223,058 $176,405 20.9% $ 74,623 236.4%

2013 $ 58,110 $227,605 $169,495 25.5% $ 74,086 228.8%

2014 $ 70,228 $245,210 $174,982 28.6% $ 74,086 236.2%

2015 $ 80,688 $249,211 $168,523 32.4% $ 78,156 215.6%

2016 $ 81,207 $278,435 $197,228 29.2% $ 78,206 252.2%

Source: The Plan’s Actuary. (1) See footnote for table above.

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Insurance The Board 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. As an agency of the Metropolitan Government, the Board is a governmental entity and is covered under the Tennessee Governmental Tort Liability Act, Tennessee Code Annotated Sections 29-20-101, et seq. Tennessee Code Annotated Section 29-20-403 provides for minimum limits of not less than $300,000 for bodily injury or death of any one person in any one accident, occurrence or act, $700,000 for bodily injury or death of all persons in any one accident, occurrence or act and $100,000 for injury to or destruction of property of others in any one accident. The Board is immune from any award of judgment for death, bodily injury, and/or property damage in excess of the limits described above. Therefore, the Board has not secured insurance coverage in excess of those limits.

The Board has secured property insurance for coverage of all property losses, effective November 1, 2016. The property insurance program is placed with AEGIS Insurance Services, Inc., Munich Re Group, Starr Technical Risks, and Swiss Re America. The insurance companies participate on a quota share basis with each providing capacity of 25%. The limit of liability per insurance company is $150,000,000 and some of the key sub-limits are as follows: Flood per occurrence and in the annual aggregate, except; $150,000,000

Locations in Flood Zone A or V $5,000,000

Earth Movement per occurrence and in the annual aggregate $50,000,000

Miscellaneous Unnamed Locations $1,000,000

Newly Acquired Property (90 days reporting) $5,000,000

Boiler and Machinery $50,000,000

The Board provides health benefits to its employees through a self-insured plan with no lifetime claim limit for essential health benefits and a $2,000,000 lifetime claim limit for non-essential health benefits per insured except for certain survivors.

Miscellaneous Revenues

The Board derives revenues from a variety of sources other than the Electric System, including charges to local telephone and cable television companies for pole attachments. The aggregate revenue from all of these activities was approximately $20,984,000 for the fiscal year ended June 30, 2016.

Payments-in-Lieu-of-Taxes The Board is one of the largest payers of taxes or in-lieu taxes in the Metropolitan Government. The terms and conditions of the Power Contract provide, in part, that the Board may use its revenues to pay taxes or in-lieu-of-taxes to the Metropolitan Government and to other jurisdictions in which it has property and customers. The State of Tennessee has enacted into law specific statutes for the calculation and process for payment of an amount in lieu of taxes for municipal electric systems. In 1987, the Tennessee General Assembly passed and the Tennessee Governor signed into law the Municipal Electric System Tax Equivalent Law of 1987 (the "Tax Equivalent Law of 1987"). The Tax Equivalent Law of 1987 governs the timing, calculation and payment of amounts in lieu of taxes by municipal electric systems in an effort to achieve a more uniform system in Tennessee for the payment of the amounts in lieu of taxes by the municipal electric systems to the municipality that owns such electric systems, as well as payments to other jurisdictions within which such municipal electric systems own property or

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operate their electric systems. For the Electric System's fiscal year ending June 30, 2016, the amounts due for payments-in-lieu-of-taxes to all of the cities and counties in the Electric System's service area was in the approximate aggregate amount of $31,332,000, which sum was equal to approximately 2.60% of Electric System revenues for that fiscal year.


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SELECTED FINANCIAL DATA The following selected financial data of the Board for the fiscal years 2012-2016 has been summarized or derived from the Board's audited financial statements.

Statements of Revenues, Expenses and Changes in Net Position (in Thousands)

Fiscal Year Ended June 30, 2016 2015 2014(1) 2013(2) 2012(2) Operating Revenues $1,201,448 $1,246,632 $1,241,434 $1,174,424 $1,154,512

Operating Expenses 1,152,537 1,166,314 1,158,586 1,123,360 1,087,646

Operating Income 48,911 80,318 82,848 51,064 66,866

Other income and (Deductions) 1,125 995 295 525 399

Income before Interest Charge 50,036 81,313 83,143 51,589 67,265

Interest Expense 21,466 25,500 22,236 23,797 25,251

Extraordinary (Gain) Loss - - - - (2,010)

Net Increase in Net Assets/Change in Net Position 28,570 55,813 60,907 27,792 44,024

Statements of Net Position (in Thousands)

Fiscal Year Ended June 30, 2016 2015 2014(1) 2013(2) 2012(2) Assets and Deferred Outflows of Resources

Utility Plant, net $939,159 $919,884 $901,696 $890,320 $865,013

Investment of Restricted Funds 116,266 145,640 182,801 81,310 128,354

Current Assets 489,629 466,859 437,487 383,072 367,057

Other Non-Current Assets 2,778 3,356 2,804 2,265 1,836

Total Assets 1,547,832 1,535,739 1,524,788 1,356,967 1,362,260

Deferred Outflows of Resources $69,227 $25,401 $15,200 $11,195 $9,018 Total Assets and Deferred Outflows of Resources $1,617,059 $1,561,140 $1,539,988 $1,368,162 $1,371,278 Liabilities and Deferred Inflows of Resources

Long Term Debt, less current portion(3) 568,384 599,342 622,309 529,115 558,058

Current Liabilities 236,238 237,641 239,389 225,236 235,641

Net Pension Liability 233,971 165,435 148,956

Other Non-Current Liabilities 7,030 8,912 12,994 13,557 5,080

Total Liabilities $1,045,623 $1,011,330 $1,023,648 $767,908 $798,779

Deferred Inflows of Resources $- $6,945 $29,288 $- $37 Net Position $571,436 $542,865 $487,052 $600,254 $572,462 Total Liabilities, Deferred Inflows, and Net Position $1,617,059 $1,561,140 $1,539,988 $1,368,162 $1,371,278

(1) 2014 financial information has been presented or restated to conform to the provisions of GASB 68 (2) 2013 and 2012 financial information has been presented or restated to conform to the provisions of GASB 65 (3) Excludes defeased debt

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The following tables represent information relating to the number of customers, kilowatt-hour sales, maximum hourly demand, and data on largest customers. The information is presented for the fiscal year ended June 30 in the years shown.

Number of Customers (not Meters) Ten most recent years

Fiscal Year Ended June 30*

*Data as of the end of the fiscal period presented.


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Sales in kWh and Maximum System Demand in kW

Fiscal Year Ended June 30

FISCAL SMALL

LARGE COMMERCIAL

& MAX HOURLY

DEMAND

YEAR RESIDENTIAL COMMERCIAL INDUSTRIAL LIGHTING TOTAL KWH IN KW

2007 4,809,925,170 842,101,312 6,765,371,108 126,065,753 12,543,463,343 2,613,422

2008 4,964,170,806 851,789,423 6,861,823,752 127,743,445 12,805,527,426 2,701,061

2009 4,782,435,298 830,644,627 6,443,118,110 127,844,632 12,184,042,667 2,546,505

2010 4,825,758,147 825,304,948 6,138,109,995 127,285,288 11,916,458,378 2,434,111

2011 4,976,466,049 781,008,482 6,390,809,091 128,466,849 12,276,750,471 2,627,519

2012 4,527,844,386 770,429,623 6,189,479,142 128,861,545 11,616,614,696 2,561,686

2013 4,686,455,277 783,854,102 6,155,106,129 130,574,174 11,755,989,682 2,511,005

2014 4,912,802,936 808,214,925 6,202,635,803 134,211,759 12,057,865,423 2,713,367

2015 4,850,783,544 805,449,478 6,218,697,610 138,506,086 12,013,436,718 2,566,000

2016 4,539,869,451 794,321,352 6,133,371,471 138,041,618 11,605,603,892 2,422,000

Six months

ended 12/31

2015 2,257,106,185 408,389,177 3,191,159,798 69,145,215 5,925,800,375 2,418,000

2016 2,491,495,929 432,644,204 3,309,877,443 68,755,460 6,302,773,036 2,395,000

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Ten Largest Customers

Fiscal Year Ended June 30,

2016 2015

Group Name kWH Revenue kWH Revenue

AT&T 102,776,069 $ 8,585,695 81,448,774 $ 7,925,678 Bridgestone/Firestone 131,512,751 $ 8,221,379 138,307,879 $ 8,644,494 DuPont Company 242,648,109 $ 14,372,407 244,170,955 $ 14,794,190 HCA 113,635,895 $ 9,804,381 116,327,137 $ 10,287,078 Metropolitan Board of Education 188,813,937 $ 19,043,425 181,652,894 $ 18,571,557 Metropolitan Government (all other departments) 129,522,245 $ 12,806,317 129,188,511 $ 13,033,570 Metropolitan Government District Energy System 106,198,317 $ 12,787,886 106,897,819 $ 13,506,165 Metropolitan Government Water and Sewer 206,978,814 $ 17,290,471 207,866,978 $ 17,947,556 State of Tennessee (all departments) 164,323,842 $ 15,736,006 169,042,653 $ 16,423,261 Vanderbilt University 327,687,570 $ 27,010,540 381,950,257 $ 30,144,991 1,714,097,549 $ 145,658,505 1,756,853,857 $ 151,278,541 NES total kWh and electric sales 11,605,603,892 $ 1,180,460,000 12,013,436,718 $ 1,153,617,000 Portion represented by non-governmental entities 918,260,394 $ 67,994,402 962,205,002 $ 71,796,431

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Summary of Changes in Net Position

FISCAL OPERATING PURCHASED DISTRIBUTION TAXES AND TAX OPERATING OTHER OTHER CHANGES

IN

YEAR REVENUES POWER COSTS(a) DEPRECIATION EQUIVALENTS(b) INCOME INCOME

(c) DEDUCTIONS(d) NET

POSITION

2007 962,826,757 733,735,059 107,433,377 37,002,646 25,238,999 59,416,676 8,788,163 24,203,513 44,001,326

2008 1,030,953,684 794,785,868 119,833,500 40,883,615 24,774,684 50,676,017 5,736,250 22,932,901 33,479,366

2009 1,146,747,000 915,005,093 128,229,582 44,024,191 26,031,122 33,457,012 7,721,783 25,173,862 16,004,933

2010 1,063,155,167 816,151,635 133,313,916 46,034,310 26,806,464 40,848,842 1,327,684 28,471,693 13,704,833

2011 1,199,608,921 927,065,179 142,188,277 47,522,601 27,592,430 55,240,434 513,242 26,866,877 28,886,799

2012* 1,154,512,724 868,452,530 141,289,100 49,275,854 28,627,861 66,867,379 399,424 23,240,434 44,026,369

2013 1,174,424,263 900,916,418 150,748,346 39,483,809 32,211,121 51,064,569 524,677 23,797,052 27,792,194

2014** 1,241,434,000 926,575,000 145,267,000 49,106,000 32,641,000 87,845,000 295,000 22,236,000 65,904,000

2015 1,246,632,000 929,726,000 149,512,000 53,317,000 33,759,000 80,318,000 995,000 25,500,000 55,813,000

2016 1,201,448,000 884,535,000 181,163,000 54,456,000 32,383,000 48,911,000 1,126,000 21,466,000 28,571,000

Six Months Ended 12/31

2015 622,049,000 459,740,000 85,763,000 26,916,000 16,233,000 33,397,000 287,000 10,719,000 22,965,000

2016 671,158,000 497,523,000 93,742,000 27,476,000 16,759,000 35,658,000 673,000 10,153,000 26,178,000

a. Also includes costs relating to customer accounts, sales and administrative and general expenses. b. Tax equivalents are payments made to local government in-lieu-of real property taxes from which the Board is exempt so long as the property is used for its tax-exempt purpose. c. Primarily interest income. d. Primarily interest expense. * As restated for adoption of GASB 65. NES early adopted GASB 65 in 2013, effective July 1, 2011. Effect of adoption resulted in an increase of $1,148,918, and a corresponding decrease in Changes in Net Position. See footnote disclosure in FY 2013 Audited Financial Statements for additional information.

** As restated for adoption of GASB 68. NES adopted GASB 68 in 2015, effective July 1, 2013. Effect of adoption resulted in an increase in Change in Net position of

$5,000,000. See footnote disclosure in FY 2015 Audited Financial Statements for additional information.

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NASHVILLE ELECTRIC SERVICE Debt Service Coverage

(MODIFIED CASH BASIS IN ACCORDANCE WITH BOND RESOLUTION)

FISCAL YEAR ENDED JUNE 30,

INCOME

AVAILABLE DEBT

FISCAL CHANGES IN INTEREST EXTRAORDINARY TAX FOR DEBT SERVICE

YEAR NET POSITION DEPRECIATION EXPENSE (GAINS)LOSSES EQUIVALENTS SERVICE INTEREST (a)(b) PRINCIPAL (c) TOTAL COVERAGE

2007 44,001,326 37,002,646 15,367,763 - 25,238,999 121,610,734 18,786,145 18,706,875 37,493,020 3.24

2008 33,479,366 40,883,615 22,932,902 - 24,774,684 122,070,567 18,525,847 18,968,125 37,493,972 3.26

2009 16,004,933 44,024,191 25,173,862 - 26,031,122 111,234,108 22,720,532 20,930,000 43,650,532 2.55

2010 13,704,833 46,034,310 26,361,900 2,109,793 26,806,464 115,017,300 22,194,375 22,323,676 44,518,051 2.58

2011 28,886,799 47,522,601 24,452,091 2,414,786 27,592,430 130,868,707 21,994,001 21,933,125 43,927,126 2.98

2012 * 44,026,369 49,275,854 25,250,860 (2,010,426) 28,627,861 145,170,518 23,589,914 23,408,125 46,998,039 3.09

2013 27,792,194 39,483,809 23,797,052 - 32,211,121 123,284,176 24,455,794 25,622,500 50,078,294 2.46

2014 ** 65,904,000 49,106,000 22,236,000 - 32,641,000 169,887,000 23,175,000 26,702,000 49,877,000 3.41

2015 55,813,000 53,317,000 25,500,000 - 33,759,000 168,389,000 27,031,000 29,893,000 56,924,000 2.96

2016 28,571,000 54,456,000 21,466,000 - 32,383,000 136,876,000 25,598,000 30,490,000 56,088,000 2.44

As of

31-Dec

2015 22,965,000 26,916,000 10,719,000 - 16,233,000 76,833,000 12,886,000 19,625,000 32,511,000 2.36

2016 26,178,000 27,476,000 10,153,000 - 16,759,000 80,566,000 12,192,000 15,978,000 28,170,000 2.86

a.

b.

c.

EXCLUDES ACCRETED INTEREST EXPENSE ON ELECTRIC SYSTEM REVENUE BONDS, 1998 SERIES A ZERO COUPON BONDS.

INCLUDES ACCRETED INTEREST IN THE YEAR OF MATURITY. CALCULATED ON A PRORATA BASIS AT INTERIM DATES BASED ON BOND INSTRUCTIONS.

NASHVILLE ELECTRIC SERVICE

DEBT SERVICE COVERAGE

PLUS ADJUSTMENTS DEBT SERVICE

EXCLUDES ACCRETED INTEREST EXPENSE ON ELECTRIC SYSTEM REVENUE BONDS, 1996 SERIES A CABS.

* As restated for adoption of GASB 65. NES early adopted GASB 65 in 2013, effective July 1, 2011. Effect of adoption resulted in an increase of $1,148,918, and a corresponding decrease in Changes in Net Position. See footnote disclosure in FY 2013 Audited Financial Statements for additional information. ** As restated for adoption of GASB 68. NES adopted GASB 68 in 2015, effective July 1, 2013. Effect of adoption resulted in an increase in Change in Net position of $5,000,000. See footnote disclosure in FY 2015 Audited Financial Statements for additional information.

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BONDHOLDERS' RISKS

General Set forth below are certain risks purchasers of the 2017 Series A and B Bonds should consider when making an investment decision. All potential risks are not included, and the discussion is not intended to be exhaustive.

Enforceability of Remedies The remedies available to the owners of the 2017 Series A and B Bonds upon an event of default under the Bond Resolution are in many respects dependent upon judicial actions, which are often subject to discretion and delay. The enforceability of remedies or rights with respect to the 2017 Series A and B Bonds may be limited by state and federal laws, rulings and decisions affecting remedies and by bankruptcy, insolvency or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. Under existing constitutional and statutory law and judicial decisions, certain remedies specified by the Bond Resolution may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the 2017 Series A and B Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

Additional Obligations The Metropolitan Government may issue Additional Bonds on a parity of lien with the 2017 Series A and B Bonds and the Parity Debt Obligations with respect to the Pledged Funds or subordinate to the 2017 Series A and B Bonds and the Parity Debt Obligations in accordance with the provisions of the Bond Resolution. The issuance of Additional Bonds would increase the debt service requirements and could adversely affect debt service coverage on the 2017 Series A and B Bonds. See "SECURITY FOR THE BONDS - Additional Bonds."

Early Payment Prior to Maturity The 2017 Series A and B Bonds are subject to optional redemption prior to maturity. See "DESCRIPTION OF THE SERIES 2017 Series A and B Bonds —Redemption – Optional Redemption." A prospective investor should consider these rights when making any investment decision. Following a redemption, the owners of the 2017 Series A and B Bonds may not be able to reinvest their funds at a comparable interest rate.

Loss of Tax Exemption There is no provision for the redemption of the 2017 Series A and B Bonds or for the payment of additional interest on the 2017 Series A and B Bonds in the event that interest on the 2017 Series A and B Bonds becomes includable in gross income for federal income tax purposes. In the event that interest on the 2017 Series A and B Bonds becomes includable in gross income for federal income tax purposes, the value and marketability of the 2017 Series A and B Bonds would likely be adversely affected. The Metropolitan Government and the Board have, however, covenanted not to do anything that would adversely affect the tax-exempt status of the 2017 Series A and B Bonds. See "TAX EXEMPTION."

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Future Legislation Could Affect Tax-Exempt Obligations

The federal government is considering various proposals to reduce federal budget deficits and the amount of federal debt, including proposals that would eliminate or reduce indirect expenditures made through various deductions and exemptions currently allowed by the income tax laws. The exemption for interest on tax-exempt obligations is one of the indirect expenditures that could be affected by a deficit reduction initiative. Some deficit-reduction proposals would completely eliminate the exemption for interest on all tax-exempt obligations. Other proposals would place an aggregate cap on the total amount of exemptions and deductions that may be claimed by a taxpayer, or a cap on the exemption for interest on all tax-exempt obligations. Changes in the rate of the federal income tax, including so-called "flat tax" proposals, could also reduce the value of the exemption.

Changes affecting the exemption for interest on tax-exempt bonds, if enacted, could apply to tax-exempt obligations already outstanding, including the 2017 Series A and B Bonds offered pursuant to this Official Statement, as well as obligations issued after the effective date of such legislation. It is not possible to predict whether Congress will adopt legislation affecting the exemption for tax-exempt bonds, what the provisions of such legislation may be, whether any such legislation will be retroactive in effect, or what effect any such legislation may have on investors in the 2017 Series A and B Bonds. Investors should consult their own tax advisors about the prospects and possible results of future legislation that could affect the exemption for interest on tax-exempt obligations.

Other Risk Factors In the future, the following additional factors, among others, may adversely affect the operations of energy providers, including the Board, to an extent that cannot be determined at this time: (1) The ability of, and costs to, the Board to insure or otherwise protect itself against property damage and general liability claims. See "ADDITIONAL FINANCIAL AND OPERATIONAL INFORMATION – Insurance." (2) TVA's inability to provide electricity and other risk factors relating to the Board's relationship with TVA. See "FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – TVA and General Industry Risk Factors." (3) Proposals to eliminate the tax-exempt status of bonds issued by the Metropolitan Government, or to limit the use of such tax-exempt bonds, as discussed above, which have been made in the past, and which may be made again in the future. The adoption of such proposals would increase the cost to the Board of financing future capital needs.

LITIGATION AND OTHER PROCEEDINGS

There are not now pending, nor to the knowledge of the Metropolitan Government or the Board are there threatened, any legal proceedings restraining, enjoining, or adversely affecting the issuance or delivery of the 2017 Series A and B Bonds, the fixing or collecting of rates and charges for the services of the Electric System, to the pledge of the Pledged Funds, the proceedings and authority under which the 2017 Series A and B Bonds are to be issued, which affect in any way the validity of the 2017 Series A and B Bonds or which in any manner affect or call into question the right of the Board to operate the Electric System.

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The Board, like other similar public bodies, is subject to a variety of lawsuits and proceedings arising in the ordinary conduct of its affairs. After reviewing the current status of all pending and threatened litigation involving the Electric System with its General Counsel, the Board believes that, while the outcome of such litigation and proceedings cannot be predicted, the final resolution of these pending and threatened lawsuits, proceedings and claims against the Board and its officials in such capacity are not expected to have a material adverse effect upon the financial position or results of operations of the Electric System after taking into consideration the Board's insurance and self-insurance arrangements.

TAX EXEMPTION

The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the 2017 Series A and B Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the 2017 Series A and B Bonds to be included in gross income for Federal income tax purposes retroactive to the date of issue of the 2017 Series A and B Bonds. The Metropolitan Government has covenanted in the Bond Resolution to maintain the exclusion of the interest on the 2017 Series A and B Bonds from gross income for Federal income tax purposes pursuant to Section 103(a) of the Code. In the opinion of Bradley Arant Boult Cummings LLP, Nashville, Tennessee, Bond Counsel, under existing law, and assuming compliance with the aforementioned covenant, interest on the 2017 Series A and B Bonds is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that the 2017 Series A and B Bonds are not "specified private activity bonds" within the meaning of Section 57(a)(5) of the Code and, therefore, the interest on the 2017 Series A and B Bonds will not be treated as a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. Interest on the 2017 Series A and B Bonds owned by corporations will, however, be taken into account in determining the alternative minimum tax imposed by Section 55 of the Code on 75 percent of the excess of adjusted current earnings over alternative minimum taxable income (determined without regard to this adjustment and the alternative tax net operating loss deduction). Bond Counsel is further of the opinion that under existing law interest on the 2017 Series A and B Bonds is exempt from all state, county, and municipal taxation in the State of Tennessee, except franchise and excise taxes.

With respect to the 2017 Series A and B Bonds initially offered to the public at prices less than the amounts payable thereon at maturity, the difference between the principal amount of such 2017 Series A and B Bonds and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such 2017 Series A and B Bonds of the same maturity was sold constitutes original issue discount which is excluded from gross income for Federal income tax purposes to the same extent as interest on such 2017 Series A and B Bonds. Such original issue discount accrues actuarially on a constant interest rate basis over the term of each such 2017 Series A and B Bond, and the basis of each such 2017 Series A and B Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount.

With respect to the 2017 Series A and B Bonds initially offered to the public at prices greater

than the amounts payable thereon at maturity, the difference between the principal amount of such 2017 Series A and B Bonds and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a

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substantial amount of such 2017 Series A and B Bonds of the same maturity was sold constitutes original issue premium. As a result of the tax cost reduction requirements of the Code relating to amortization of original issue premium, under certain circumstances an initial owner of such 2017 Series A and B Bonds may realize a taxable gain upon the disposition of such 2017 Series A and B Bonds even though such 2017 Series A and B Bonds are sold or redeemed for an amount equal to such owner's original cost of acquiring such 2017 Series A and B Bonds.

Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the 2017 Series A and B Bonds may affect the tax status of interest on the 2017 Series A and B Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions which could directly or indirectly reduce the benefit of the exclusion of the interest on the 2017 Series A and B Bonds from gross income for Federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any Federal, State or local tax law consequences with respect to the 2017 Series A and B Bonds, or the interest thereon, if any action is taken with respect to the 2017 Series A and B Bonds or the proceeds thereof upon the advice or approval of bond counsel other than Bond Counsel. Although Bond Counsel has rendered an opinion that interest on the 2017 Series A and B Bonds is excluded from gross income for Federal and State income tax purposes, a Bondholder's Federal, state or local tax liability may otherwise be affected by the ownership or disposition of the 2017 Series A and B Bonds. The nature and extent of these other tax consequences will depend upon the Bondholder's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the 2017 Series A and B Bonds should be aware that (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the 2017 Series A and B Bonds or, in the case of the financial institution, that portion of a holder's interest expense allocated to interest on the 2017 Series A and B Bonds, (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the 2017 Series A and B Bonds, (iii) interest on the 2017 Series A and B Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iv) passive investment income, including interest on the 2017 Series A and B Bonds, may be subject to Federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, and (v) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the 2017 Series A and B Bonds. Bond Counsel has expressed no opinion regarding any such other tax consequences.

The foregoing discussion does not address the effects of any applicable federal, state, local or foreign tax laws other than those specifically discussed above. Prospective purchasers are urged to consult their own tax advisor concerning the federal tax consequences of owning and disposing of the 2017 Series A and B Bonds, as well as any consequences under the laws of any state, local or foreign taxing jurisdiction.

See "BONDHOLDERS' RISKS – Loss of Tax Exemption" and "BONDHOLDERS' RISKS – Future Legislation Could Affect Tax-Exempt Obligations" herein for a discussion of certain risk factors relating to investment in the 2017 Series A and B Bonds.

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VERIFICATION OF MATHEMATICAL COMPUTATIONS

Samuel Klein and Company, Certified Public Accountants (the “Verification Agent”), a firm of independent public accountants, will deliver to the Metropolitan Government, on or before the settlement date of the 2017 Series B Bonds, its attestation report indicating that it has examined, in accordance with standards established by the American Institute of Certified Public Accountants, the information and assertions provided by the Metropolitan Government and its representatives. Included in the scope of its examination will be a verification of the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on, the Escrowed Securities in the Escrow Fund to pay, when due, the maturing principal of, interest on and related call premium requirements of the Refunded Bonds; and (b) the mathematical computations supporting the conclusion of Bond Counsel that the 2017 Series A and B Bonds are not “arbitrage bonds” under the Code and the regulations promulgated thereunder. The examination performed by the Verification Agent will be solely based upon data, information and documents provided to the Verification Agent by the Metropolitan Government and its representatives. The Verification Agent report of its examination will state that the Verification Agent has no obligation to update such report because of events occurring, or data or information coming to their attention, subsequent to the date of the report.

APPROVAL OF LEGAL PROCEEDINGS All legal matters incident to the authorization and issuance of the 2017 Series A and B Bonds are subject to the approval of Bradley Arant Boult Cummings LLP, Nashville, Tennessee, Bond Counsel, whose approving opinion in substantially the form attached hereto as Appendix E will be delivered with the 2017 Series A and B Bonds. Certain legal matters with respect to the Board will be passed upon by Laura Smith, Esq., Vice President – General Counsel to the Board, with respect to the Metropolitan Government, by Jon Cooper, Director of Law, and, with respect to the Underwriters, by Bass, Berry & Sims PLC, counsel to the Underwriters.

UNDERWRITING Pursuant to a Bond Purchase Agreement dated May ___, 2017 (the "Bond Purchase Agreement") among the Metropolitan Government, the Board and Raymond James & Associates, Inc., as representative and on behalf of the underwriters (the "Underwriters"), the Underwriters have agreed to purchase the 2017 Series A Bonds at an aggregate purchase price of $__________ (consisting of the par amount of the 2017 Series A Bonds plus/less [net] original issue premium/discount of $__________, and less an Underwriters' discount of $__________). The obligation of the Underwriters to purchase the 2017 Series A Bonds is subject to certain conditions contained in the Bond Purchase Agreement. Pursuant to the Bond Purchase Agreement, the Underwriters have agreed to purchase the 2017 Series B Bonds at an aggregate purchase price of $__________ (consisting of the par amount of the 2017 Series B Bonds plus/less [net] original issue premium/discount of $__________, and less an Underwriters' discount of $__________). The obligation of the Underwriters to purchase the 2017 Series B Bonds is subject to certain conditions contained in the Bond Purchase Agreement. The 2017 Series A and B Bonds will be offered at the respective initial public offering prices shown on the inside cover page of this Official Statement. The Underwriters may offer and sell the 2017 Series A and B Bonds to certain dealers (including dealers depositing the 2017 Series A and B Bonds

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into investment trusts) and others at prices lower than the public offering prices stated on the inside cover page hereof. The initial public offering prices may be changed from time to time by the Underwriters in their discretion.

FTN Financial Capital Markets is a division of First Tennessee Bank National Association and FTB Advisors, Inc. is a wholly owned subsidiary of First Tennessee Bank National Association. FTN Financial Capital Markets has entered into a distribution agreement with FTB Advisors, Inc. for the distribution of the 2017 Series A and B Bonds at the original issue prices. Such arrangement generally provides that FTN Financial Capital Markets will share a portion of its underwriting compensation or selling concession with FTB Advisors, Inc.

Loop Capital Markets LLC (“Loop Capital”), one of the Underwriters of the 2017 Series A and

B Bonds, has entered into a distribution agreement (“Distribution Agreement”) with UBS Financial Services Inc. (“UBSFS”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to the Distribution Agreement, UBSFS will purchase the 2017 Series A and B Bonds from Loop Capital at the original issue prices less a negotiated portion of the selling concession applicable to any 2017 Series A and B Bonds that such firm sells.

Jefferies LLC (“Jefferies”), one of the Underwriters of the 2017 Series A and B Bonds, has

entered into an agreement (the “Agreement”) with E*TRADE Securities LLC (“E*TRADE”) for the retail distribution of municipal securities. Pursuant to the Agreement, Jefferies will sell the 2017 Series A and B Bonds to E*TRADE and will share a portion of its selling concession compensation with E*TRADE.

FINANCIAL ADVISOR Public Financial Management, Inc. (“PFM”) is employed by the Board to perform professional services in the capacity of financial advisor. In its role as financial advisor to the Board, PFM has provided advice on the plan of financing and structure of the 2017 Series A and B Bonds, reviewed certain legal and disclosure documents, including this Official Statement, for financial matters, and reviewed and will give an opinion to the Board on the fairness of the pricing of the 2017 Series A and B Bonds by the underwriting syndicate. PFM has not independently verified the factual information contained in this Official Statement, but relied on the information supplied by the Metropolitan Government and other sources and the Metropolitan Government’s and the Board’s certification as to the Official Statement.

CONTINUING DISCLOSURE

Rule 15c2-12 under the Securities and Exchange Act of 1934, as amended (the "Rule"), prohibits an underwriter from purchasing or selling municipal securities unless it has determined that the issuer or other obligated person of such securities has committed to provide annually certain information, including audited financial information, and notice of various events described in the Rule. The Board has covenanted for the benefit of the holders of the Bonds that, consistent with the Rule, the Board will provide the following: (i) annual financial information for the Board, including audited financial statements of the Board for each fiscal year ending on and after June 30, 2017, in a timely manner; (ii) notices of certain events with respect to the Bonds and (iii) notice of any failure of the Board to provide required annual financial information not later than June 30, 2017 or any June 30 thereafter.

- 57 -

Because of a difference between the filing deadline for the 1996 Series A Bonds and all other Outstanding Bonds, the Board did not timely file its annual financial information for the 1996 Series A Bonds for fiscal years 2010 through 2012 (and instead filed the annual financial information for the 1996 Series A Bonds in accordance with the filing deadline for the other Outstanding Bonds). The 1996 Series A Bonds are no longer outstanding. The Board has timely filed its annual financial information for the 1998 Series A Bonds and 1998 Series B Bonds (collectively, the "1998 Series A and B Bonds") in accordance with the filing deadline provided in the Continuing Disclosure Agreement executed by the Board for the 1998 Series A and B Bonds. This filing deadline, however, is different than the deadline provided in the form of Continuing Disclosure Agreement attached to the Official Statement for the 1998 Series A and B Bonds. While annual financial information of the Board for fiscal years 2013 through 2015 was timely filed, such filings were not linked to CUSIPs for the 1998 Series A Bonds. There was no requirement, however, in the Continuing Disclosure Agreement for the 1998 Series A Bonds to submit identifying information with required filings, and annual financial information for said years was otherwise available from the MSRB. Annual financial information for fiscal year 2016 was linked to CUSIPs for the 1998 Series A Bonds, and the Board has since linked annual financial information for fiscal years 2013 through 2015 to CUSIPs for the 1998 Series A Bonds. Certain bonds issued for the benefit of the Board were or are insured by bond insurance companies that experienced rating changes within the previous five years. Notice of these insured rating changes was not filed by the Board; however, information on these insured rating changes was widely available and reported to the market. The Board has since filed notice of the current rating of the insurer for all insured Outstanding Bonds. The Board has implemented procedures within its finance and accounting staff to ensure that all CUSIPs for Outstanding Bonds are linked to annual financial information filed with the MSRB and that rating changes are timely filed with the MSRB. Otherwise, in the previous five years, the Board has not failed to comply in any material respect with any undertaking in a written contract or agreement specified in the Rule. The proposed form of the Continuing Disclosure Agreement is in Appendix F.

INDEPENDENT AUDITOR The financial statements as of June 30, 2016 and 2015 and for each of the two years in the period ended June 30, 2016, included in this Official Statement, have been audited by PricewaterhouseCoopers LLP, independent auditor, as stated in its report appearing herein.

RATINGS Standard & Poor's Corporation and Fitch Ratings have given the ratings appearing on the front cover of this Official Statement to the 2017 Series A and B Bonds. Such ratings reflect only the view of such organizations, and an explanation of the significance of such rating may be obtained only from the respective rating agency. There is no assurance that such ratings will be maintained for any given period of time or that they will not be revised downward or be withdrawn entirely by the respective rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2017 Series A and B Bonds. Due to the ongoing uncertainty regarding the economy of the United States of America, including, without limitation, matters such as the future political uncertainty regarding the United States debt limit, obligations issued by state and local governments, such as the 2017 Series A and B Bonds, could be subject to a rating downgrade. Additionally, if a significant default or other financial crisis should occur in the affairs of the United States or of any of its agencies or political subdivisions, then such event could also adversely affect the market for and ratings, liquidity, and market value of outstanding debt obligations, including the 2017 Series A and B Bonds.

- 58 -

MISCELLANEOUS The references herein to, and the summaries presented herein, of the Supplemental Resolution, the Bond Resolution, the Act and the Metropolitan Charter are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and reference is made to such documents and the Act for full and complete statements of such provisions. The delivery of this Official Statement by the Board has been authorized by the Metropolitan County Council. The Fiscal Agent and its counsel have not participated in the preparation of this Official Statement, except for confirming the accuracy of any description of the Fiscal Agent contained herein, and hereby disclaim any responsibility for the accuracy or completeness of the information set forth in this Official Statement.

[Certification Page Follows]

- 59 -

CERTIFICATION AS TO OFFICIAL STATEMENT The Metropolitan Government and the Board will represent to the Underwriter in the Bond Purchase Agreement that (i) the information and statements, including financial statements of or pertaining to the Metropolitan Government or the Board, contained in this Official Statement were and are correct in all material respects, and (ii) insofar as the Metropolitan Government or the Board and their affairs, including their financial affairs, are concerned, this Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. THE METROPOLITAN GOVERNMENT OF ELECTRIC POWER BOARD OF THE NASHVILLE AND DAVIDSON COUNTY METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY

By: /s/ By: /s/ Title: Metropolitan Mayor Title: Board Chairman

[Page Intentionally Left Blank]

APPENDIX A

Audited Financial Statements of the Electric Power Board of the Metropolitan Government

of Nashville and Davidson County for the Years Ended June 30, 2016 and June 30, 2015 and

Independent Auditor's Report

ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF

NASHVILLE AND DAVIDSON COUNTY

FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015

ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY TABLE OF CONTENTS

Page

SCHEDULE OF EXECUTIVE MANAGEMENT AND BOARD MEMBERS 1

REPORT OF INDEPENDENT AUDITORS 2 - 3

MANAGEMENT’S DISCUSSION AND ANALYSIS 4 - 13 FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015:

Statements of Net Position 14 - 15

Statements of Revenues, Expenses and Changes in Net Position 16

Statements of Cash Flows 17 - 19

Notes to Financial Statements 20 – 57

REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016

Schedule of Changes in Net Pension Liability 59

Schedule of Contributions 60

Schedule of Investment Returns 61

Schedule of Funding Progress 62

OTHER SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016

Schedule of Insurance Coverage 64 - 65

Schedule of Utility Rates in Force 66 - 76

Schedule of Number of Customers 77

Schedule of Investments 78

Schedule of Long-Term Debt, Principal and Interest Sinking Fund Requirements by Fiscal Year 79 - 81

Schedule of Expenditures of Federal Awards 82 – 83

REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN

ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 84 - 86

PricewaterhouseCoopers LLP, 150 3rd Avenue South, Suite 1400, Nashville, TN 37201 T: (615) 503 2860, F: (615) 503 2870, www.pwc.com/us

Report of Independent Auditors

To the Electric Power Board of the Metropolitan Government of Nashville and Davidson County Nashville, Tennessee Report on Financial Statements We have audited the accompanying statement of net position of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Electric Power Board”), a component unit of the Metropolitan Government of Nashville and Davidson County, Tennessee, as of June 30, 2016 and 2015, and the related statements of revenues, expenses, and changes in net position and of cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Electric Power Board 's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Electric Power Board 's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Electric Power Board as of June 30, 2016 and 2015, and the changes in its net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information The accompanying management’s discussion and analysis on pages 4 through 13 and supplemental schedules on pages 59-62, respectively, are required by accounting principles generally accepted in the United States of America 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 the 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 audits 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. Other Matter Our audit was conducted for the purpose of forming opinions on the basic financial statements. The supplementary information on pages 64 through 83 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information on pages 64 through 83 is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 20, 2016 on our consideration of the Electric Power Boards internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Electric Power Board’s internal control over financial reporting and compliance.

Nashville, Tennessee October 20, 2016

4

MANAGEMENT’S DISCUSSION AND ANALYSIS As financial management of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Board”), we offer readers of these financial statements this narrative overview and analysis of the financial activities of the Board for the fiscal years ended June 30, 2016 and 2015 as compared to fiscal years 2015 and 2014, respectively. In conducting the operations of the electrical distribution system, the Board does business as Nashville Electric Service (“NES”). NES is a component unit of the Metropolitan Government of Nashville and Davidson County, Tennessee (the “Metropolitan Government”). We refer to our infrastructure as “the Electric System.” This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the financial statements taken as a whole. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to NES’ financial statements, which are comprised of the basic financial statements and the notes to the financial statements. Since NES is comprised of a single enterprise fund, no fund-level financial statements are shown. The Company adopted GASB 72, Fair Value Measurement and Application. This Statement defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Statement also provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. This standard did not have any impact on net position. The main impact of this standard was expanded disclosures around the risk characteristics of investments held by the Board. The Board has investments related to bond retirements and capital projects. The Board also has investments in the Nashville Electric Service Retirement Annuity and Survivors Plan, and in the Nashville Electric Service Other Post-Employment Benefit (OPEB) Plan. Basic Financial Statements The basic financial statements are designed to provide readers with a broad overview of NES’ finances in a manner similar to that of a private-sector business. The statements of net position present information on all of NES’ assets and deferred outflows of resources, liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of NES is improving or deteriorating. Net position increases when revenues exceed expenses. Increases to assets without a corresponding increase to liabilities result in increased net position, which indicates an improved financial position. The statements of revenues, expenses and changes in net position present information showing how NES’ net position changed during the fiscal year. All changes in net position are reported as soon as the underlying event occurs, regardless of timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave).

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

5

The statements of cash flows present changes in cash and cash equivalents resulting from operating, financing, and investing activities. These statements present cash receipts and cash disbursements information, without consideration as to the timing for the earnings event, when an obligation arises, or depreciation of capital assets.

Summary of Changes in Net Position Assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $571.4 million at June 30, 2016, and $542.9 million at June 30, 2015. This represents an increase of $28.6 million in 2016 and $55.8 million in 2015. The largest portion of the Board’s net position reflects its investment in capital assets less any related debt used to acquire those assets that is still outstanding. The Board uses these capital assets to provide service and consequently, these assets are not available to liquidate liabilities or for other spending. An additional portion of the Board’s net position represents resources that are subject to external restrictions on how they may be used. These restrictions include bond proceeds to be used for construction projects and reserve funds required by bond covenants.

STATEMENTS OF NET POSITION ($000 omitted)

June 30,

2016 2015 2014

ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS $489,629 $466,859 $437,487 INVESTMENT OF RESTRICTED FUNDS 116,266 145,640 182,801 UTILITY PLANT, NET 939,159 919,884 901,696 OTHER NON-CURRENT ASSETS 2,778 3,356 2,804 TOTAL ASSETS 1,547,832 1,535,739 1,524,788 DEFERRED OUTFLOWS OF RESOURCES 69,227 25,401 15,200 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $1,617,059 $1,561,140 $1,539,988


6

STATEMENTS OF NET POSITION ($000 omitted) continued

June 30,

2016 2015 2014

LIABILITIES AND DEFERRED INFLOWS OF RESOURCES

CURRENT LIABILITIES $ 206,408 $ 200,358 $ 205,494

CURRENT LIABILITIES PAYABLE

FROM RESTRICTED ASSETS 29,830 37,283 33,895

LONG-TERM DEBT, LESS CURRENT PORTION 568,384 599,342 622,309

NET PENSION LIABILITY 233,971 165,435 148,956

OTHER NON-CURRENT LIABILITIES 7,030 8,912 12,994

TOTAL LIABILITIES 1,045,623 1,011,330 1,023,648

DEFERRED INFLOWS OF RESOURCES - 6,945 29,288

NET POSITION

Net investment in capital assets 410,691 384,058 375,144

Restricted for debt services 63,953 63,730 62,979

Unrestricted 96,792 95,077 48,929

TOTAL NET POSITION 571,436 542,865 487,052

TOTAL LIABILITIES, DEFERRED OUTFLOWS OF RESOURCES

AND NET POSITION $1,617,059 $1,561,140 $1,539,988

Liquidity and Capital Resources

The Board has sufficient debt capacity and a strong financial position. Therefore, the tax-exempt bond

market is expected to be a future source of liquidity to supplement cash flows from operations. On May

19, 2015, the Board closed on the sale of the Metropolitan Government of Nashville and Davidson County,

Tennessee Electric System Revenue Refunding Bonds, 2015 Series A. The 2015 Series A Bonds were issued

to refinance significantly all outstanding 2008 Series A Bonds, and significant portions of outstanding 2008

Series B bonds. Proceeds from the sale of the bonds were used to fund the escrow account pursuant to

the Escrow Agreement, and to pay costs of issuance of the bonds. The bonds have an aggregate principal

amount of $112.9 million, and mature annually on May 15, 2019 through 2033. The 2015 Series A Bonds

were issued at a premium totaling $23.4 million and resulted in future interest expense savings of

approximately $9.0 million.

In addition to operating cash flow and proceeds from tax-exempt bonds, the Board has a $25 million line-

of-credit, which is renewed each year. The credit facility is not a source of liquidity for ongoing operations.

It is available as an additional funding source in the event of a natural catastrophe.


7

The Board’s financing cost may be impacted by short-term and long-term debt ratings assigned by independent rating agencies. During the fiscal year ended June 30, 2016, the Board’s revenue bonds were rated at AA+ by both Standard & Poor’s and Fitch. In issuing bond ratings, agencies typically evaluate financial operations, rate-setting practices, and debt ratios. Higher ratings aid in securing favorable borrowing rates, which result in lower interest costs. Debt ratings are based, in significant part, on the Board’s performance as measured by certain credit measures. In order to maintain its strong credit ratings, the Board has adopted certain financial goals. Such goals provide a signal to the Board as to the adequacy of rates for funding ongoing cash flows from operations. One such goal is a cash goal of 16.5 percent of purchased power, and operating and maintenance expense. This goal was met every month of the fiscal year 2016. That percentage was 30.1 percent as of June 30, 2016, and 28.2 percent as of June 30, 2015. The Board also has a goal of maintaining a debt coverage ratio of at least 2 to 1. The Board’s debt coverage ratio for the 12 months ended June 30, 2016, was 2.7 to 1. The Board continues to exceed its goals. The outlook on all debt ratings is stable as of June 30, 2016.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2012 2013 2014 2015 2016Cash $198,756 $221,722 $267,994 $303,851 $322,078

Goal $103,837 $173,525 $176,854 $178,074 $176,416

Comparison of Cash Balances to NES' Goals ($000 omitted)


8

Operations Summary Revenue & Expense Data ($000 omitted)

Year Ended June 30, Change in Year Ended

June 30, Change in 2016 2015 Net Position 2014 Net Position Operating revenues, net $1,201,448 $1,246,632 $(45,184) $1,241,434 $5,199 Purchased power (884,535) (929,726) 45,191 (926,575) (3,151) Operating revenues, net, less Purchased power 316,913 316,906 7 314,859 2,048 Operating expenses (181,163) (149,512) (31,651) (145,267) (4,246) Depreciation and Tax equivalents (86,839) (87,076) 237 (81,747) (5,329) Interest income 1,303 995 308 295 700 Interest expense, net (21,643) (25,500) 3,857 (22,236) (3,264) Increase in Net position 28,571 55,813 (27,242) 65,904 (10,091) Effect of adoption of GASB 68 - - - (4,997) 4,997 Increase in Net position, as previously stated $ 28,571 $ 55,813 $ (27,242) $ 60,907 $ (5,094)

Note: During fiscal 2015 the Board adopted the provisions of Governmental Accounting Standards Board (GASB) No. 68, Accounting and Financial Reporting for Pensions. The effects of the adoption are shown for 2014 as required by the pronouncement.

2016 and 2015 Results of Operations

Operating Revenues. Operating revenues decreased by $45.2 million, or 3.7 percent, when compared to 2015. Total electric sales were $1.2 billion for each year. The average realized rate on electric sales was $0.1019 compared to $0.1023 per kilowatt-hour in 2015. Megawatt-hours sold in 2016 decreased by 3.4 percent when compared to 2015. Weather plays an important part in determining revenue for any year. The impact of weather is reflected in the comparison of degree-days from one period to the next. Degree-days represent the difference between the weather’s average daily temperatures minus 65 degrees. Temperatures above 65 degrees are considered cooling degree-days; temperatures below 65 degrees are considered heating degree-days. Total cooling degree-days were 1,916 compared to 1,791 in 2015. Total heating degree-days were 2,735 compared to 3,790 in 2015. Total heating and cooling degree-days were 4,651 compared to 5,581 in 2015, or a decrease of approximately 16.7 percent. Residential revenue decreased $31.7 million or 5.9 percent compared to the previous year. Residential revenue is highly correlated to degree days. Commercial and industrial revenue decreased $13.3 million or 1.9 percent compared to the prior year. Commercial and industrial revenue is not as strongly correlated to degree days as is residential. Total average number of active year-to-date customers increased by 1.6 percent when compared to 2015. Revenue in Excess of Net Bills (Late Charges) decreased by $0.7 million, and Rentals of Electric Property (primarily pole attachments) increased by $0.9 million.


9

Non-operating Revenues. Interest Income was $1.3 million compared to $1.0 million in 2015. The average rate of return on the General Fund was 0.22 percent in 2016 compared to 0.10 percent in 2015. The average monthly balance of the General Fund was $290.3 million in 2016 compared to $255.6 million in 2015, an increase of 13.6 percent. In addition, interest income from the bond funds increased to $0.3 million over the previous year. Operating Expenses. The Board purchases all of its power from TVA under an all-requirements contract that had an initial term of 20 years. Beginning on December 19, 1989, and on each subsequent anniversary thereafter, the contract is automatically extended for an additional one-year period. The contract is subject to earlier termination by either party on not less than 10 years’ prior written notice. Purchased power was $884.5 million for the period compared to $929.7 million last year. The average realized rate on purchased power was $0.076 per kilowatt-hour in 2016 compared to $0.077 in 2015. Megawatt-hours purchased were 11.9 million in 2016 compared to 12.4 million in 2015.

Distribution expenses for the period were $62.6 million compared to $59.5 million last year. This is an increase of $3.1 million or 5.2 percent. The change is primarily attributable to increases in the following expense categories: tree trimming, $4.5 million; operation and maintenance of miscellaneous expense, $0.6 million; operation and maintenance of street light and signal system, $0.3 million; load dispatching, $0.1 million; line transformers, $0.1 million; and private lights, $0.1 million. These increases were offset by decreases in the following expense categories: operation and maintenance of overhead lines, $0.6 million; operation and maintenance of station equipment, $0.4 million; storms, $0.4 million; emergency service, $0.3 million; operation and maintenance of supervision and engineering, $0.3 million; operation and maintenance of underground lines, $0.3 million; and operation and maintenance of meters, $0.3 million.

Customer Accounts expense and Customer Service and Information expenses combined were $22.9 million for the period compared to $21.9 million last year or an increase of $1.0 million or 5.0 percent. This is primarily the result of an increase in meter reading, $0.9 million; data processing, $0.6 million;

11,200,000

11,400,000

11,600,000

11,800,000

12,000,000

12,200,000

2012 2013 2014 2015 2016Megawatt-Hours Sold 11,617,000 11,756,000 12,058,000 12,013,000 11,606,000

Megawatt-Hours Sold


10

customer orders and service, $0.4 million; customer assistance, $0.3 million; offset by decreases in customer records and collections, $1.1 million.

Administrative and General (A&G) expenses were $95.6 million for the period compared to $68.2 million last year. This was an increase of $27.4 million or 40.2 percent. The change is primarily attributable to increases in the following expense categories: employee pensions, $22.6 million; employee health insurance, $1.4 million; administrative and general salaries, $1.0 million; data processing, $1.0 million; allocated overhead, $0.5 million; miscellaneous general expense, $0.3 million; maintenance of general plant, $0.3 million; injuries and damages, $0.3 million; and employee welfare, $0.1 million. These increases were offset by a decrease in employee life insurance, $0.1 million. Depreciation and Taxes and Equivalents were $54.5 million and $32.4 million, respectively, for 2016, compared to $53.3 million and $33.8 million, respectively, for 2015. The increase in depreciation was the result of the capitalization of North Service Center. Tax equivalents consist primarily of payments in–lieu-of taxes to the Metropolitan Government and the surrounding counties. Such payments are calculated based on a prescribed formula that takes into consideration utility plant value and the average of the Board’s last three years’ operating margin. The decrease in payments in-lieu-of taxes was the result of decreases in tax rates offset to some extent by increased investment in the utility plant. 2015 and 2014 Results of Operations

Operating Revenues. Operating revenues increased by $5.2 million, or 0.4 percent, in 2015 when compared to 2014. Total electric sales were $1.2 billion for both years. The average realized rate on electric sales was $.1023 per kilowatt-hour in 2015 compared to $.1014 per kilowatt-hour in 2014. Megawatt-hours sold in 2015 decreased by 0.4 percent when compared to 2014. Weather plays an important part in determining revenue for any year. The impact of weather is reflected in the comparison of degree-days from one period to the next. Degree-days represent the difference between the weather’s average daily temperatures minus 65 degrees. Temperatures above 65 degrees are considered cooling degree-days; temperatures below 65 degrees are considered heating degree-days. Total cooling degree-days were 1,791 in 2015 compared to 1,820 in 2014. Total heating degree-days were 3,790 in 2015 compared to 3,930 in 2014. Total heating and cooling degree-days were 5,581 in 2015 when compared to 5,750 in 2014, or a decrease of approximately 2.9 percent. Total average number of active year-to-date customers increased in 2015 by 1.6 percent when compared to 2014. Revenue in Excess of Net Bills (Late Charges) decreased by $0.2 million, and Rentals of Electric Property (primarily pole attachments) decreased by $1.0 million. Non-operating Revenues. Interest Income was $1.0 million in 2015 compared to $0.3 million in 2014. The average rate of return on the General Fund was 0.10 percent in 2015 compared to 0.09 percent in 2014. The average monthly investible balance of the General Fund was $255.6 million in 2015 compared to $219.6 million in 2014, an increase of 16.4 percent. Interest income increased due to the investment of Special Construction Funds from the 2014 Series A Electric Service Revenue Bond issuance previously held as cash at June 30, 2014. Operating Expenses. The Board purchases all of its power from TVA under a full-requirements contract that had an initial term of 20 years. Beginning on December 19, 1989, and on each subsequent anniversary thereafter, the contract is automatically extended for an additional one-year period. The contract is subject to earlier termination by either party on not less than 10 years’ prior written notice. Purchased power in 2015 was $929.7 million compared to $926.6 million in 2014. The average realized


11

rate on purchased power was $.077 per kilowatt-hour in both 2015 and 2014. Megawatt-hours purchased were 12.4 million in 2015 compared to 12.5 million in 2014. Distribution expenses for the period were $59.5 million in 2015 compared to $61.9 million in 2014. This is a decrease of $2.4 million or 0.4 percent. The change is primarily attributable to decreases in the following expense categories: Tree trimming, $2.7 million; operation and maintenance miscellaneous, $0.8 million; storm restoration, $0.3 million; operation and maintenance of street light and signal systems, $0.3 million; and operation and maintenance of private lights, $0.1 million. These decreases were offset by increases in the following expense categories: Operation and maintenance of overhead lines, $1.1 million; operation and maintenance of supervision and engineering, $0.5 million; operation and maintenance of load dispatching, $0.2 million; and operation and maintenance of station equipment, $0.1 million. Customer Accounts expense and Customer Service and Information expenses combined were $21.9 million in 2015 compared to $21.5 million in 2014 or an increase of $0.4 million or 0.02 percent. This is primarily the result of increases in the following expense categories: Customer assistance, $0.5 million; data processing, $0.3 million; and customer orders and service, $0.1 million. These increases were offset by decreases in the following expense categories: Meter reading, $0.3 million; customer records and collections, $0.2 million; and supervision, $0.1 million.

Administrative and General (A&G) expenses were $68.2 million in 2015 compared to $61.9 million in 2014. This was an increase of $6.3 million or 10.2 percent. The increase is attributable to increases in the following expense categories: Employee pension, $3.2 million; employee health insurance, $1.5 million; injuries and damages, $0.6 million; outside services employed, $0.6 million; data processing, $0.4 million; miscellaneous general expenses, $0.2 million; maintenance of general plant, $0.1 million; and office supplies and expenses, $0.1 million. These increases were offset by decreases in the following expense categories: Employee welfare, $0.3 million; and duplicate credit charges, $0.2 million. Depreciation and Taxes and Equivalents were $53.3 million and $33.8 million, respectively, for 2015, compared to $49.1 million and $32.6 million, respectively, for 2014. The increase in depreciation was the result of a net increase in investments of depreciable property of $69.3 million. Tax equivalents consist primarily of payments in–lieu-of taxes to the Metropolitan Government and the surrounding counties. Such payments are calculated based on a prescribed formula that takes into consideration utility plant value and the average of the Board’s last three years’ operating margin. The increase in payments in-lieu-of taxes was the result of increases in tax rates coupled with increased investment in the utility plant.


12

The following table shows the composition of the operating expenses of the Board by major classifications of expense for the last three years: Major Classifications of Expense ($000 omitted) Description

Fiscal 2016

Fiscal 2015

Increase (Decrease)

Fiscal 2014

Increase (Decrease)

Labor $ 69,046 $ 68,600 0.7% $ 63,371 8.3%

Benefits 67,482 42,613 58.4% 37,699 13.0%

Tree-trimming 11,254 6,951 61.9% 9,561 (27.3%)

Outside Services 11,454 10,571 8.4% 9,990 5.80%

Materials 2,416 2,128 13.5% 2,242 (5.1%)

Transportation 4,082 4,539 (10.1%) 4,488 1.1%

Security/Police 1,400 1,401 (0.1%) 1,167 20.1%

Rentals 961 999 (3.8%) 959 4.2%

Professional Fees 1,244 1,061 17.2% 925 14.7%

Insurance Premiums 1,172 1,283 (8.7%) 1,184 8.4%

Other 10,652 9,366 13.7% 13,680 (31.5%)

$181,163 $149,512 21.2% $145,266 2.9%

The Board’s total operating expenses increased 21.2 percent from June 30, 2015 to June 30, 2016. Labor for fiscal year 2016 totaled $69.0 million, which remained stable due to increases in cost-of-living and merit adjustment, along with employee step increases, offset by a temporary reduction in workforce due to a large number of retirements during the year. Benefits increased from fiscal year 2015 primarily due to adoption of cost-of-living adjustments for partial lump sum payouts, changes in the pension plan benefit terms resulting from the recently approved joint petition and amortization expense of deferred outflows for pension investment income and actuarial differences. Tree trimming increased for the period as compared to June 30, 2015, as a result of an increase in tree trimming to accommodate for prior year contractor delays and an increased cost per circuit mile. Outside services increased primarily due to increased customer engineering and system operations contractor requirements in 2016. Materials increased due to additional requirements for the North Service Center and Training Facility. Transportation costs decreased due to a reduction in large truck requirements in 2016. Security/Police and Rentals remained stable from 2015 to 2016. Professional fees increased due to increases in professional consulting services for Human Resources, Facilities, and Finance in 2016. Insurance decreased due to a slight increase in the amount of insurance allocated to overhead clearing accounts. The Other category contains a wide array of smaller expense types. There were no major fluctuation in these categories.


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Capital Assets and Debt Administration The Board’s transmission and distribution facilities serve more than 700 square miles and include the Metropolitan Government of Nashville and Davidson County, Tennessee. The Board also serves portions of the adjacent counties of Cheatham, Rutherford, Robertson, Sumner, Wilson, and Williamson. Such facilities require significant annual capital and maintenance expenditures. The Board’s target is to have the capital expenditures funded equally from cash flows from operations and proceeds from tax-exempt bonds. The Board’s investment in utility plant, less accumulated depreciation, at June 30, 2016 was $939.2 million compared to $919.9 million at June 30, 2015. Major projects during fiscal year 2016 included completion of the North Service Center, $15.1 million; new business installations, $14.6 million; $13.3 million in capital maintenance and $7.7 million in substation improvements.

The Board has outstanding bonds payable of $593.7 million at June 30, 2016 compared to $630.6 million at June 30, 2015. The decrease is due to scheduled principal debt payments of $31.2 million and the effects of accretion and amortization of $5.6 million. More details about the Board’s capital assets and debt can be found in the notes to the financial statements.

Respectfully submitted,

Teresa Broyles-Aplin Executive Vice President and Chief Financial Officer

ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY

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STATEMENTS OF NET POSITION ($000 OMITTED) JUNE 30, 2016 AND 2015 2016 2015 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS: Cash and cash equivalents $ 322,078 $ 303,851 Customer and other accounts receivable, less allowance for doubtful accounts of $427 and $469 respectively 141,589 136,613 Materials and supplies 18,971 19,483 Other current assets 6,991 6,912 TOTAL CURRENT ASSETS 489,629 466,859 INVESTMENT OF RESTRICTED FUNDS: Cash and cash equivalents 44,774 30,729 Other investments 71,492 114,911 TOTAL INVESTMENT OF RESTRICTED FUNDS 116,266 145,640 UTILITY PLANT: Electric plant, at cost 1,570,656 1,519,141 Less: Accumulated depreciation (631,497) (599,257) TOTAL UTILITY PLANT, NET 939,159 919,884 OTHER NON-CURRENT ASSETS 2,778 3,356 TOTAL ASSETS 1,547,832 1,535,739 DEFERRED OUTFLOWS OF RESOURCES: Deferred amount on refunding of debt 17,434 19,393 Difference between projected and actual pension earnings 22,288 - Difference between projected and actual pension experience 29,505 6,008 TOTAL DEFERRED OUTFLOWS OF RESOURCES 69,227 25,401 TOTAL ASSETS AND DEFERRED OUTLFOWS OF RESOURCES 1,617,059 1,561,140 See notes to financial statements.


15

STATEMENTS OF NET POSITION ($000 OMITTED) JUNE 30, 2016 AND 2015 (continued)

2016 2015

LIABILITIES AND DEFERRED INFLOWS OF RESOURCES

CURRENT LIABILITIES: Accounts payable for purchased power 153,305 160,455 Trade accounts payable 20,708 10,606 Accrued expenses 16,511 14,857 Customer deposits 15,884 14,440

TOTAL CURRENT LIABILITIES 206,408 200,358

CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS: Construction contracts payable 1,425 2,894 Accrued interest payable 3,048 3,159 Current portion of long-term debt 25,357 31,230

TOTAL CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS 29,830 37,283

LONG-TERM DEBT, LESS CURRENT PORTION 568,384 599,342

NET PENSION LIABILITY 233,971 165,435

OTHER NON-CURRENT LIABILITIES 7,030 8,912

TOTAL LIABILITIES 1,045,623 1,011,330

DEFERRED INFLOWS OF RESOURCES Difference between projected and actual pension earnings - 6,945 TOTAL DEFERRED INFLOWS OF RESOURCES - 6,945

NET POSITION Net investment in capital assets 410,690 384,058 Restricted for debt services 63,954 63,730 Unrestricted 96,792 95,077 TOTAL NET POSITION 571,436 542,865 TOTAL LIABILITIES, DEFERRED INFLOWS, AND NET POSITION $ 1,617,059 $ 1,561,140

See notes to financial statements.


16

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ($000 OMITTED) YEARS ENDED JUNE 30, 2016 AND 2015

2016 2015

OPERATING REVENUES: Residential $ 498,458 $ 530,169 Commercial and industrial 662,727 676,002 Street and highway lighting 19,275 19,996 Other 20,988 20,465

Total operating revenues, net 1,201,448 1,246,632

PURCHASED POWER 884,535 929,726

Operating revenues, net, less purchased power 316,913 316,906

OPERATING EXPENSES 181,163 149,512 TAX EQUIVALENTS 32,383 33,759 DEPRECIATION 54,456 53,317

Operating income 48,911 80,318 NON-OPERATING REVENUE (EXPENSE): Interest income 1,303 995 Loss on conveyance of property (177) - Interest expense, net (21,466) (25,500) Total non-operating expense (20,340) (24,505)

NET INCREASE IN NET POSITION 28,571 55,813

NET POSITION, beginning of year 542,865 487,052

NET POSITION, end of year $ 571,436 $ 542,865 See notes to financial statements.


17

STATEMENTS OF CASH FLOWS ($000 OMITTED) YEARS ENDED JUNE 30, 2016 AND 2015

2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 1,198,453 $ 1,254,943 Payments to suppliers for goods and services (990,103) (1,037,471) Payments to employees (55,913) (55,705) Payments for tax equivalents (31,332) (32,937)

Net cash provided by operating activities 121,105 128,830

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: Proceeds from sale of revenue bonds - 136,300 Payment on defeased debt - (121,265) Deferred outflow debt defeasance - (14,337) Net cash provided by non-capital financing activities - 698

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition and construction of utility plant (77,108) (68,725) Utility plant removal costs (5,824) (9,942) Salvage received from utility plant retirements 758 746 Contributions in aid of construction 5,161 3,451 Principal payments on revenue bonds (31,230) (29,700) Interest payments on revenue bonds (25,219) (27,132)

Net cash (used in) provided by capital and related financing activities (133,462) (131,302)

CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities (60,279) (171,054) Proceeds from sales and maturities of investment securities 103,820 97,274 Interest on investments 1,088 473 Net cash provided by (used in) investing activities 44,629 (73,307)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32,272 (75,081)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 334,580 409,661

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 366,852 $ 334,580



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STATEMENTS OF CASH FLOWS ($000 OMITTED) YEARS ENDED JUNE 30, 2016 AND 2015 (continued) 2016 2015 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 48,911 $ 80,318 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 54,456 53,317 Pension 40,408 19,242 Accrual for uncollectible accounts 2,059 2,836 Changes in assets and liabilities: (Increase) decrease in customer and other accounts receivable (7,035) 4,876 Decrease in materials and supplies 512 240 (Increase) decrease in other current assets 130 (1,208) (Increase) decrease in other non-current assets 578 (552) (Decrease) in accounts payable for purchased power (7,150) (4,807) Increase (decrease) in trade accounts payable 10,102 (2,200) Increase (decrease) in accrued expenses 1,654 764 Increase in customer deposits 1,444 1,107 Increase (decrease) in other non-current liabilities (364) 643 Pension contributions (24,600) (25,746) Net cash provided by operating activities $ 121,105 $ 128,830

NON-CASH OPERATING ACTIVITIES, CAPITAL AND RELATED FINANCING ACTIVITIES:

Accounts payable associated with the acquisition and construction of utility plant was $1.4 million in 2016 and $2.9 million in 2015.

Allowances for funds used during constructions (AFUDC), approximates NES’ current weighted average cost of debt. AFUDC was capitalized as a component of the cost of utility plant. AFUDC was $0.6 million in both 2016 and 2015. During 2016 and 2015, NES charged $18.1 million and $17.3 million, respectively, to accumulated depreciation representing the cost of retired utility plant.

During 2016 and 2015, $7.3 million and $5.5 million, respectively, was credited to interest expense for amortization of net bond premiums and discounts in each year. NES expensed debt issuance costs of $0.9 million in 2015.


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NON-CASH OPERATING ACTIVITIES, CAPITAL AND RELATED FINANCING ACTIVITIES (continued):

During 2015, the 2015 Series A Bonds were issued to refund significantly all of the 2008 Series A and 2008 Series B bonds for $78.9 million and $42.4 million. The advance refunding resulted in a deferred outflow of $14.3 million due to the difference between the reacquisition price and net carrying amount of the debt and financing expense of $1.0 million.


ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND 2015

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Board”) was established in 1939 when the City of Nashville purchased certain properties of the Tennessee Electric Power Company for the purpose of exercising control and jurisdiction over the electric distribution system. In conducting the operations of the electric distribution system, the Board does business as Nashville Electric Service (“NES”). NES is a component unit of The Metropolitan Government of Nashville and Davidson County, Tennessee (the “Metropolitan Government”), and is operated by a five-member board appointed by the Mayor and confirmed by the Council of the Metropolitan Government. Members of NES serve five-year staggered terms without compensation. In accordance with the Charter of the Metropolitan Government, NES exercises exclusive control and management, except NES must obtain the approval of the Council before issuing revenue bonds. The Board establishes rates. Such rates are approved by the Tennessee Valley Authority (“TVA”). The Metropolitan Government does not assume liability for the financial obligations of NES. In addition, the assets of NES (our infrastructure or “the Electric System”) cannot be encumbered to satisfy obligations of the Metropolitan Government. NES appoints a chief executive officer, who is charged with the responsibility for the day-to-day operations, including the hiring of employees.

The financial statements of NES have been prepared in conformity with accounting principles generally accepted in the United States of America. NES maintains its accounts in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission using the economic measurement focus and the accrual basis of accounting. NES is not subject to the jurisdiction of federal or state energy regulatory commissions.

Recently Adopted Accounting Pronouncements

The Company adopted GASB 72, Fair Value Measurement and Application. This Statement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Statement also provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. This standard did not have any impact on net position. The main impact of this standard is expanded disclosures around the risk characteristics of investments held by the Board. The Board has investments related to bond retirements and capital projects. The Board also has investments in trusts for the Nashville Electric Service Retirement Annuity and Survivors Plan, and in the Nashville Electric Service Other Post-Employment Benefit (OPEB) Plan. The significant accounting policies followed by NES are outlined below.

Use of Estimates

Estimates used in the preparation of financial statements are based on management’s best judgments. The most significant estimates relate to useful lives of capital assets, employee benefit plan obligations, and unreported medical claims. These estimates may be adjusted as information that is more current becomes available.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash, commercial paper, U.S. Treasury Bills and certificates of deposit with an original maturity of three months or less.

Restricted Assets

Restricted assets of NES represent bond proceeds designated for construction and other monies required to be restricted for debt service. As of June 30, 2016 and 2015, amounts restricted for debt service were $63.9 million and $63.7 million, respectively. NES releases capital debt funds quarterly based on expected draws for that quarter. As of June 30, 2016 and 2015, amounts restricted for construction were $49.3 million and $78.8 million, respectively. NES generally makes disbursements for all capital projects out of its unrestricted operating funds. When restricted resources for capital projects exist, NES reimburses the unrestricted operating fund from the restricted resources according to a quarterly funding schedule. At that time such funds are considered applied to capital projects. The funding release schedule is based on expected capital expenditures which are typically over a three-year period, or may be based upon specific bond terms.

Utility Plant

Electric plant is stated at original cost. Such cost includes applicable overhead such as general and administrative costs, depreciation of vehicles used in the construction process, and payroll and related costs such as pensions, taxes and other fringe benefits related to plant construction. Interest cost incurred during the period of construction of certain plant is capitalized.

When plant assets are disposed of at salvage value, NES charges the amount to accumulated depreciation. Costs of depreciable retired utility plant, plus removal costs, less salvage, are charged to accumulated depreciation. Depreciation is provided at rates that are designed to amortize the cost of depreciable plant (including estimated removal costs) over the estimated useful lives ranging from 7 to 50 years. The composite straight-line rates expressed as a percentage of average depreciable plant were as follows for June 30, 2016 and 2015:

2016 2015 Distribution plant, 8 to 40 years 3.5% 3.5% Structure and improvements, 40 to 50 years 2.0% 2.1% Office furniture and equipment, 7.1 to 16.7 years 10.5% 10.9% Transportation equipment, 8 to 10 years 6.3% 6.3% Other equipment, 8 to 33.3 years 5.9% 6.6%


22


Maintenance and repairs, including the cost of renewals of minor items of property, are charged to maintenance expense accounts. Replacements of property are charged to utility plant accounts. Contributions in Aid of Construction (CIAC)

Payments are received from customers and TVA for construction costs primarily relating to the expansion or improvement of the capabilities of the Electric System. FERC guidelines are followed in recording CIAC, which direct the reduction of utility plant assets by the amount of contributions received toward the construction of utility plant. CIAC earned and recovered in the plant costs was $6.7 million in 2016 and $8.0 million in 2015. Investments of Restricted Funds

Investments and cash equivalents (including restricted assets) consist primarily of short-term U.S. Government securities or mortgage-backed securities from agencies chartered by Congress and cash equivalents which are investments with an original maturity of three months or less, respectively. Investments are reflected at their fair value except those investments that have a remaining maturity at the time of purchase of one year or less and certificates of deposit, which are reflected at amortized cost and cost, respectively. Materials and Supplies

Materials and supplies are stated at weighted average cost, which approximates actual cost. Compensated Absences

NES recognizes a liability for employees’ accumulated vacation days. The general policy of NES permits the accumulation, within certain limitations, of unused vacation days. This amount is included in other accounts payable and accrued expenses in the Statement of Net Position. Net Position The Net Investment in Capital Assets is the portion of net position that consists of capital assets, net of accumulated depreciation, plus deferred outflows of resources reduced by outstanding debt and construction contracts payable that are attributable to the acquisition, construction, or improvement of those assets. In the event that there are unspent proceeds from a bond issuance for the stated purpose of capital improvement, the debt outstanding is reduced by the amount that has not been used for capital projects as of period end. As of June 30, 2016 and 2015, Net Investment in Capital Assets included $49.3 million and $78.2 million, respectively of cash and investments restricted for capital projects.


23


The Restricted net position is the portion of net position over which there are externally imposed constraints as to its use. Restricted net position relates to bond sinking fund requirements and consists of restricted cash and investments reduced by any accrued interest payable and deferred inflows of resources related to the bonds. As of June 30, 2016 and 2015 the Restricted net position consisted of Cash of $34.0 million and $29.2 million, respectively, reduced by accrued interest payable of $3.0 million and $3.2 million in 2016 and 2015. Restricted net position also included investments of $32.9 million and $37.7 million at June 30, 2016 and 2015, respectively, for debt service. There were no amounts of Restricted net position for capital projects unrelated to prior bond issuances for either period. Unrestricted net position is the share of net position that is neither restricted nor invested in capital assets. Revenues and Accounts Receivables

Revenues and related receivables for residential, commercial and industrial customers are recognized from meters read on a monthly cycle basis. Service that has been rendered from the latest date of each meter-reading cycle to month end is estimated and accrued as unbilled revenue receivable. Such revenues are derived soley from customers in the NES distribution network, primarily in Davidson County, TN. As of June 30, 2016 and 2015, such unbilled revenues were $49.0 million and $48.7 million, respectively. In addition to a base rate, NES collects and recognizes a variable fuel cost adjustment based upon changing fuel and purchased power costs, which is a pass-through from TVA. NES collects sales tax from a majority of its commercial customers and such amounts are presented net in revenues. Revenues are presented net of allowances for uncollectible accounts of $2.1 million and $2.8 million for the years ended June 30, 2016 and 2015, respectively. Substantially, all uncollectible accounts are from residential sales. Purchased Power

NES purchases electric power from the TVA. TVA’s rate structure is a wholesale Time of Use rate structure, which includes a variable fuel charge component. Retail customers are billed under a seasonal rate structure. Wholesale rates are billed based on energy use and demand charges.

Asset Retirement Obligations

Asset retirement obligations are periodically reviewed and management has concluded that, at present, NES does not have any such asset retirement obligations. Operating and Non-operating Revenues and Expenses

Operating revenues include the sale of power and rental of electric property less accruals for uncollectible accounts. Operating expenses include direct and indirect costs to operate and maintain the electric distribution system, including purchased power, fuel, depreciation, customer accounts, tax equivalents, and general and administrative costs. Non-operating revenues and expenses consist of interest income and expense and gains or losses on the disposal of certain assets.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes

NES is not subject to federal or state income taxes. While NES is not subject to property tax, NES pays tax equivalents in-lieu-of taxes to the Metropolitan Government and surrounding counties. Such payments are calculated based on a prescribed formula that takes into consideration utility plant value and the average of the Board’s last three years’ operating margin, which is the operating revenues, net, less purchased power expenses.

Fair Value of Financial Instruments

Fair value of financial instruments has been determined by NES using available market information. The carrying amounts of cash and short-term investments, investments of special funds, accounts receivable and accounts payable are a reasonable estimate of their fair value. The fair value of NES’ long-term debt is estimated to be $633.4 million and $643.8 million at June 30, 2016 and 2015, respectively, based on pricing models derived from trading activity of similar long-term municipal debt, which are a reasonable estimate of their fair value. However, judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the fair values of debt are not necessarily indicative of the amounts that NES could realize in a current market exchange. Recent Accounting Pronouncements In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, (GASB 75) which requires governments to report the net liability on the face of the financial statements for the OPEB that they provide. This statement will also require the presentation of more extensive note disclosures and required supplementary information about their OPEB liabilities and investments. The provisions in GASB 75 are effective for financial statements for fiscal years beginning after June 15, 2017. The main impact of this standard, similar to the effects of GASB 68, will be the presentation of the Post Employment Benefit Obligation related to NES’ retiree health plan on the statement of Net Position net of the fair value of investments in that plan. The Board is evaluating the effects of the adoption of GASB 75 and expects to record a net liability of approximately $200 million. Additionally, disclosures about the postemployment plan will change.


25

2. UTILITY PLANT AND ACCUMULATED DEPRECIATION

Utility plant activity for the years ended June 30, 2016 and 2015 was as follows ($000 omitted):

Balance Transfers & Balance June 30, 2015 Additions Retirements June 30, 2016 Distribution plant $ 1,333,243 $ 47,475 $ (13,191) $ 1,367,527 Land and land rights 3,901 - - 3,901 Structures and improvements 52,920 15,523 - 68,443 Office furniture and equipment 29,805 2,383 (1,611) 30,577 Transportation equipment 7,410 351 (257) 7,504 Other equipment 45,246 5,572 (3,090) 47,728 Construction work-in-progress (a) 46,616 - (1,640) 44,976

$ 1,519,141 $ 71,304 $ (19,789) $ 1,570,656

Balance Transfers & Balance June 30, 2014 Additions Retirements June 30, 2015 Distribution plant $ 1,292,528 $ 54,409 $ (13,694) $ 1,333,243 Land and land rights 3,901 - - 3,901 Structures and improvements 52,239 681 - 52,920 Office furniture and equipment 28,047 3,803 (2,045) 29,805 Transportation equipment 7,411 95 (96) 7,410 Other equipment 41,904 4,758 (1,416) 45,246 Construction work-in-progress (a) 47,145 - (529) 46,616

$ 1,473,175 $ 63,746 $ (17,780) $ 1,519,141

(a) Represents the net activity to the construction work-in-progress account after transfers to plant accounts.


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2. UTILITY PLANT AND ACCUMULATED DEPRECIATION (continued)

The related activity for accumulated depreciation for the years ended June 30, 2016 and 2015 was as follows ($000 omitted):

Balance Original Cost of Balance June 30, 2015 Provision Cost Removal Salvage June 30, 2016 Distribution plant $ 528,977 $ 47,902 $ (13,191) $ (5,824) $ 512 $ 558,376 Structures and 20,933 1,215 - - - 22,148 improvements Office furniture 22,481 3,170 (1,611) - - 24,040 and equipment Transportation 2,429 466 (257) - 36 2,674 equipment Other equipment 24,437 2,731 (3,090) - 181 24,259

$ 599,257 $ 55,484 $ (18,149) $ (5,824) $ 729 $ 631,497

Balance Original Cost of Balance June 30, 2014 Provision Cost Removal Salvage June 30, 2015 Distribution plant $ 505,319 $46,623 $ (13,692) $ (9,942) $ 669 $ 528,977 Structures and 19,823 1,110 - - - 20,933 improvements Office furniture 21,381 3,145 (2,045) - - 22,481 and equipment Transportation 2,044 469 (97) - 13 2,429 equipment Other equipment 22,912 2,877 (1,416) - 64 24,437

$ 571,479 $ 54,224 $ (17,250) $ (9,942) $ 746 $ 599,257

Depreciation is either capitalized as a cost of utility plant for equipment used in the construction of assets or reported as depreciation expense in the statements of revenues, expenses and changes in net position. Depreciation capitalized was $1.0 million and $0.9 million in 2016 and 2015, respectively.


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3. CASH AND INVESTMENTS

Cash and investments consist of the following ($000 omitted):

2016

Cash Bond

Funds Special

Construction Total

Weighted Average

Maturity (Years)

Cash and cash equivalents $ 322,078 $ 34,015 $ 10,759 $ 366,852 -

U.S. Treasury Investments - - 9,822 9,822 0.77

Securities from Agencies Chartered by Congress

-

32,987

28,682

61,669

0.52

$ 322,078 $ 67,002 $ 49,263 $ 438,343

2015

Cash Bond Funds Special

Construction Total

Weighted Average

Maturity (Years)

Cash and cash equivalents $ 303,851 $ 29,217 $ 1,512 $ 334,580 - U.S. Treasury Investments - - 9,857 9,857 1.53 Securities from Agencies Chartered by Congress

-

37,672

67,382

105,054

0.97

$ 303,851 $ 66,889 $ 78,751 $ 449,491

NES categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair values of investments classified as Level 1 are priced using quoted market prices in active markets for identical assets as of the balance sheet date. The fair values of investments classified as Level 2 are priced using a matrix pricing model. Inputs into these valuation techniques include benchmark yields, reported trades, broker/dealer quotes, and other similar data.


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3. CASH AND INVESTMENTS (continued) Investments as of June 30, 2016, are categorized as follows:

Level 1

Level 2

Fair Value Measurement

Total Securities from Agencies Chartered by Congress $42,454 $19,215 $61,669 U.S. Treasury Securities 9,822 9,822 Total $42,454 $29,037 $71,491

Investments as of June 30, 2015, are categorized as follows:

Level 1

Level 2

Fair Value Measurement

Total Securities from Agencies Chartered by Congress $29,270 $75,784 $105,054 U.S. Treasury Securities 9,857 9,857 Total $29,270 $85,641 $114,911

Custodial Credit Risk

As of June 30, 2016 and 2015, NES’ cash and cash equivalents held by financial institutions was $366.9 million and $334.5 million, respectively. Bank balances for such accounts totaled $319.7 million and $256.0 million, respectively. Deposits in financial institutions are required by State of Tennessee (“State”) statute to be secured and collateralized by the institutions. The collateral must meet certain requirements and have a total minimum market value of 105 percent of the value of the deposits placed in the institutions less the amount protected by federal depository insurance. Collateral requirements are not applicable for financial institutions that participate in the State’s collateral pool but rather are set by the State as described below. As of June 30, 2016 and 2015, all of NES’ deposits were held by financial institutions, which participate in the bank collateral pool administered by the State Treasurer. Participating banks determine the aggregated balance of their public-fund accounts for the Metropolitan Government. The amount of collateral required to secure these public deposits is a certain percentage set by the State, depending on the financial institution, and must be at least that percentage of the average daily balance of public deposits held. Collected securities required to be pledged by the participating banks to protect their public-fund accounts are pledged to the State Treasurer on behalf of the bank collateral pool. The securities pledged to protect these accounts are pledged in the aggregate rather than against each individual account. The members of the pool may be required by agreement to pay an assessment to cover any deficiency. Under this additional assessment agreement, public-fund accounts covered by the pool are considered to be insured for purposes of credit risk disclosure. At June 30, 2016, the Tennessee Bank Collateral Pool was rated AAA by both Standard and Poor’s and Fitch.


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3. CASH AND INVESTMENTS (continued) Credit Risk

NES is authorized to invest in obligations of the U.S. Treasury and U.S. governmental agencies, securities from agencies chartered by Congress, certificates of deposit, commercial paper rated A1 or equivalent and bonds of the State of Tennessee. Each of these investments is registered or held by NES or its agent in NES’ name. Concentration of Credit Risk

NES has a policy prohibiting investment of greater than $5 million or 20.0 percent of the total investment portfolio in any one issue, except for the U.S. Government or any of its agencies. In 2016, 86.2 percent of NES’ investments were held in Securities from Agencies Chartered by Congress. In 2015, 91.0 percent of NES’ investments were in Securities from Agencies Chartered by Congress.

Interest Rate Risk

NES restricts its investments other than for construction, debt service, and pensions to those with maturities less than two years from the date of settlement as a means of managing exposure to fair value losses arising from changes in interest rates.


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4. LONG-TERM DEBT

Long-term debt for the year ended June 30, 2016, is as follows ($000 omitted):

Additions/ Balance Deductions/ Amortization/ Balance June 30, 2015 Repayments Accretion June 30, 2016

Electric System Revenue Bonds, 1998 Series A, bear interest at rates from 5.125% to 5.40%, maturing through May 15, 2023, interest paid semiannually.

30,492 - 1,669 32,161

Electric System Revenue Bonds, 1998 Series B, bear interest at rates from 4.75% to 5.50%, maturing through May 15, 2017, interest paid semiannually.

12,443 (6,015) (56) 6,372

Electric System Revenue Bonds, 2008 Series A, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2033, interest paid semiannually. 10,278 (3,290) (14) 6,975

Electric System Revenue Bonds, 2008 Series B, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2023, interest paid semiannually. 18,886 (11,025) (173) 7,688

Electric System Revenue Bonds, 2011 Series A, bear interest at rates from 1.50% to 5.00%, maturing through May 15, 2036, interest paid semiannually. 98,417 (2,755) (673) 94,988

Electric System Revenue Bonds, 2011 Series B, bear interest at rates from 2.00% to 5.00%, maturing through May 15, 2026, interest paid semiannually. 140,864 (5,650) (2,205) 133,009

Electric System Revenue Bonds, 2013 Series A, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2029, interest paid semiannually. 61,100 - (315) 60,786

Electric System Revenue Bonds, 2014 Series A, bear interest at rates from 2.00% to 5.00%, maturing through May 15, 2039, interest paid semiannually. 122,119 (2,495) (1,261) 118,363

Electric System Revenue Bonds, 2015 Series A, bear interest at 5.00%, maturing through May 15, 2033, interest paid semiannually.

135,973 - (2,573) 133,400

630,572 $ (31,230) $ (5,601) 593,741

Less current portion of long-term debt (31,230) (25,357)

$ 599,342 $ 568,384


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4. LONG-TERM DEBT (continued)

Long-term debt for the year ended June 30, 2015, is as follows ($000 omitted): Additions/ Balance Deductions/ Amortization/ Balance June 30, 2014 Repayments Accretion June 30, 2015 Electric System Revenue Bonds, 1998 Series A, bear interest at rates from 5.125% to 5.40%, maturing through May 15, 2023, interest paid semiannually.

28,910 - 1,582 30,492 Electric System Revenue Bonds, 1998 Series B, bear interest at rates from 4.75% to 5.50%, maturing through May 15, 2017, interest paid semiannually.

18,224

(5,700) (81) 12,443 Electric System Revenue Bonds, 2008 Series A, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2033, interest paid semiannually. 94,269 (82,080) (1,911) 10,278 Electric System Revenue Bonds, 2008 Series B, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2023, interest paid semiannually. 73,231 (52,895) (1,450) 18,886 Electric System Revenue Bonds, 2011 Series A, bear interest at rates from 1.50% to 5.00%, maturing through May 15, 2036, interest paid semiannually. 101,793 (2,675) (701) 98,417 Electric System Revenue Bonds, 2011 Series B, bear interest at rates from 2.00% to 5.00%, maturing through May 15, 2026, interest paid semiannually. 148,608 (5,440) (2,304) 140,864 Electric System Revenue Bonds, 2013 Series A, bear interest at rates from 3.25% to 5.00%, maturing through May 15, 2029, interest paid semiannually. 61,403 - (303) 61,100 Electric System Revenue Bonds, 2014 Series A, bear interest at rates from 2.00% to 5.00%, maturing through May 15, 2039, interest paid semiannually. 125,571

(2,175) (1,277) 122,119

Electric System Revenue Bonds, 2015 Series A, bear interest at 5.00%, maturing through May 15, 2033, interest paid semiannually. - - 135,973 135,973 652,009 $ (150,965) $ 129,528 630,572 Less current portion of long-term debt (29,700) (31,230) $ 622,309 $ 599,342


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NES issues Revenue Bonds to provide funds primarily for capital improvements and for refundings of other bonds. All bond issues are secured by a pledge and lien on the net revenues of NES on parity with the pledge established by all bonds issued. Annual maturities on all long-term debt and related interest are as follows for each of the next five fiscal years and in five-year increments thereafter ($000 omitted):

Year Principal Interest

2017 $ 25,357 $ 31,906 2018 24,593 31,208 2019 24,851 30,489 2020 33,550 21,528 2021 35,105 19,977

2022-2026 167,665 74,105 2027-2031 112,685 38,481 2032-2036 71,975 15,408 2036-2039 21,070 2,141

516,851 $ 265,243 Unamortized premium 76,891

Total long-term debt $ 593,742

On May 19, 2015, the Board issued $112.9 million in Electric System Revenue Refunding Bonds, 2015 Series A, with an interest rate of 5.0 percent to advance refund $121.3 million of outstanding 2008 Series A and 2008 Series B bonds with interest rates of 4.25 percent to 5.0 percent and 4.75 percent to 5.0 percent, respectively. The Board completed the advance refunding to reduce its total debt service payments over the next 18 years. The advance refunding resulted in a $9.0 million savings in future interest expense. The refunded portion represents significantly all of the outstanding 2008 Series A Bonds, and a significant portion of outstanding 2008 Series B bonds. The net proceeds of $135.6 million (after payment of $0.9 million in underwriting fees and other issuance costs) plus an additional $0.3 million of monies transferred from the Debt Service Fund were placed in escrow. These funds were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the refunded portion of 2008 A and 2008 B Series Revenue Bonds. Funds deposited with the escrow agent were used to purchase U.S. Treasury Obligations. As a result, $78.9 million of the 2008 Series A and $42.4 million of 2008 Series B outstanding bonds are considered defeased and the liability for those bonds have been removed from the Statements of Net Position as of June 30, 2015.


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The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $14.3 million, which is reported as a component of deferred outflows on the Statements of Net Position at June 30, 2015. The bonds have an aggregate principal amount of $112.9 million, were issued at a premium totaling $23.4 million, and mature annually on May 15, 2019 through 2033. NES had a $25 million unsecured line-of-credit for fiscal year 2016 and 2015 to be used for purchased power in case of a natural disaster. Borrowings under this line of credit bore a negotiated interest rate. There were no borrowings under this line-of-credit in 2016 or 2015. The line-of-credit is renewable annually. The Company established a new line of credit effective July 1, 2016, with an expiration date of June 30, 2017. Borrowings under the renewed line-of-credit bears interest at the rate of LIBOR plus 30 basis points. All bonds are subject to customary covenants restricting the Board from, among other things: (1) issuing additional bonds if certain financial ratios are not met, or (2) selling or leasing or otherwise disposing components of the Electric System except in certain circumstances, and (3) reporting selected financial data annually. Additionally, the Board is required, among other things, to: (1) charge and collect rates, fees and charges to meet the cash flow requirements of the organization and (2) maintain the System including completing necessary improvements. Events of default under the Bonds include, but are not limited to: (1) failure to make principal payments when due and payable, (2) failure to make an installment of interest or sinking fund payment, (3) failure to make payment of an Option bond when duly tendered, and (4) failure to report selected financial data annually. NES is not in violation of any covenants at June 30, 2016. 5. OTHER NON-CURRENT LIABILITIES

NES’ other non-current liabilities consist primarily of TVA energy conservation program loans and customer or TVA contributions in aid of construction. The following table shows the activity for the year ($000 omitted):

Balance

Repayments / Earned Balance

June 30, 2015 Contributions Additions June 30, 2016 TVA Energy Conservation Loans $ 3,118 $ (941) $ 577 $ 2,754 Contributions in Aid of Construction 5,794 (7,362) 5,844 4,276

$ 8,912 $ (8,303) $ 6,421 $ 7,030


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5. OTHER NON-CURRENT LIABILITIES (continued)

Balance

Repayments / Earned Balance

June 30, 2014 Contributions Additions June 30, 2015 TVA Energy Conservation Loans $ 2,476 $ (838) $ 1,480 $ 3,118 Contributions in Aid of Construction 10,518 (8,288) 3,564 5,794

$ 12,994 $ (9,126) $ 5,044 $ 8,912

NES is a fiscal intermediary for the TVA energy conservation programs whereby loans are made to NES’ customers to be used in connection with TVA’s Residential Energy Services Program. Pursuant to the terms of an agreement with TVA, the energy conservation loans made to NES’ customers are funded and guaranteed by TVA. NES acts as a loan servicer and collects the principal and interest for these loans, which are then remitted to TVA’s lender. Included in Other Non-Current Assets are receivables from NES customers equal to the aforementioned liabilities.

6. PENSION PLAN

The Nashville Electric Service Retirement Annuity and Survivors’ Plan (the “Plan”) is a single employer defined benefit pension plan administered by NES. The Plan provides retirement and survivors’ benefits to members and beneficiaries. Cost-of-living adjustments are provided to members and beneficiaries annually. The Charter of the Metropolitan Government assigns the authority to establish and amend benefit provisions to NES. The Plan is not required to issue a separate financial report.

In August 2015, the Plan Sponsor approved an agreement between the Employee Association of NES and management for a period of five years, effective July 1, 2015. The amendment related to the early retirement option was effective for all who retire on or after January 1, 2016 and changed the eligibility for unreduced early retirement (as early as age 52.5 and satisfying the Rule of 80), changed the eiligibility for reduced early retirement (as early as age 52.5 and completing 15 years of service), and decreased the early retirement reduction factor from 3% to 1% per year. The current year impact of this amendment increased the net pension liability by $6.0 million. The cost-of-living (COLA) amendment, effective April 1, 2015, clarified that the cost-of-living increase of at least 2% must be provided each year, provided explicitly for including the minimum annual cost-of-living increase in the calculation of the amount of the partial lump sum, specified that a disabled participant shall not be required to comment retirement benefits until 3 months after meeting the Rule of 85 (not the Rule of 80), and clarified that a disabled participant as of January 1, 2016 is also covered by the amendment related to the early retirement options. The impact of this amendment in fiscal year 2016 was an increase to net pension liability of $2.6 million.

As permitted by GASB 68, upon adoption, NES determined that it was impractical to present ten years of data as required by certain disclosures: The Plan actuarial measurements are made on March 31 of each year and the results are rolled forward to the reporting date of June 30. Additionally, during the adoption of GASB 68, the previous method of determining the pension liability, while permitted under the previous


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6. PENSION PLAN (continued)

standards, was not the Entry Age Actuarial Method required by GASB 68. The Plan Sponsor determined that the cost to recompute all historical data using the Entry Age Method was prohibitive for the disclosure benefits obtained. Accordingly, cumulative tables present data from the date of adoption, July 1, 2013.

All full-time regular employees hired before June 30, 2012, and under age 65 were eligible to participate in the Plan. Employees hired after June 30, 2012, are eligible to participate in the Nashville Electric Service Defined Contribution Plan. The vesting provision of the Plan provides for five-year cliff vesting. NES employees who retire at or after age 65 are entitled to annual retirement benefits payable monthly for life in an amount equal to 2 percent of final average compensation multiplied by years in the Plan not in excess of 35 years.

Final average compensation is the average compensation in the 36 consecutive months in which compensation is highest. Unused sick leave may be used to increase credited service and benefit percentage under certain circumstances. Early retirement is an option beginning at age 52.5 with 15 years of credited service or at age 50 with 30 years of credited service with reduced monthly benefits.

If the participant has attained age 52.5, and his/her age plus service is 80 or greater, then there is no reduction for early receipt of the benefit. However, a participant cannot use accumulated sick leave to increase effective age to meet the requirements for this unreduced benefit. For a participant with 25 or more years of service, the minimum pension benefit is $1,800 per month.

At April 1, 2016, the following employees were covered by the benefit terms of the Plan:

Inactive employees or beneficiaries currently receiving benefits 855 Inactive employees entitled to but not yet receiving benefits 139 Active employees 774 1,768

The contribution requirements of NES are established and may be amended by NES. The Plan is currently non-contributory. NES’ policy, which is consistent with State of Tennessee regulations, is to fund new liability layers over a funding period of not more than 25 years.

The current rate is 36 percent of annual covered payroll. NES contributed 100 percent of the required contribution for both of the Plan years 2016 and 2015, respectively.

The NES net pension liability was measured using the Entry Age actuarial cost method. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of April 1, 2016, which was rolled forward to the measurement date of June 30, 2016.


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The total pension liability was determined using certain actuarial assumptions, applied to all periods included in the measurement. The actuarial assumptions included (a) 7.5 percent investment rate of return and (b) projected salary increases of 4.5 percent. Both (a) and (b) included an inflation component. The long-term rate of return was determined using the Plan’s specific asset returns over the past ten years and historical long-term returns of the broader U.S. markets. The assumptions include cost-of-living post-retirement benefit increases equal to 2 percent per year. Mortality rates are based on the RP-2000 Healthy Combined Mortality Table. The base mortality rates have been adjusted by applying the Projection Scale AA for seven years beyond the valuation date to reflect mortality improvements.

The Plan Sponsor conducted an experience study in fiscal year 2016 on the withdrawal rate and rate of retirement. Effects of the study were incorporated into the net pension liability calculation at June 30, 2016. The overall impact of this change in assumptions to net pension liability was an increase of $17.7 million, of which $2.8 million was recognized in pension expense at June 30, 2016.

The Plan Sponsor’s investment policy mandates that investments in pooled fund holdings, including mutual funds, should substantially follow guidelines established by the policy for equity investments and fixed income investments. These guidelines also address concentrations of credit risk. The policy manages investment principle preservation and return risks through an overall long-term investment strategy that employs a diversified portfolio of actively traded stock and bond mutual fund investments. This results in sufficient liquidity through the ability to buy and sell in active markets. The investments are governed by total return objectives of the portfolio. The investments are typically rebalanced annual to achieve long-term asset allocation targets.

All of the investments below are classified in Level 1 of the fair value hierarchy established by generally accepted accounting principles because they are valued using prices quoted in active markets for those investments. None are subject to any substantive redemption restrictions.

Equity Investments through / in mutual funds ($000 omitted) Investments by fair value level June 30, 2016 Registered Investment Companies – Mutual Funds

SEI S&P 500 Index Fund $ 148,021

SEI Small Mid Cap Fund 33,315

SEI World Equity Ex-US Fund 84,226


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S&P 500 Index Fund The S&P 500 Index fund aims to produce investment results that correspond to the aggregate price and dividend performance of the securities in the S&P 500 Index. The Fund invests substantially all of its assets in securities that are members of the S&P 500 Index. The sub-advisor selects the Fund’s securities, but does not actively manage the Fund in the traditional sense of trying to outperform its benchmark. Instead, the sub-advisor generally gives the same weight to each stock as its weight in the S&P 500 Index. The investments are primarily subject to market fluctuation risks of U.S. large cap stocks. Small Mid Cap Equity Fund The Small/Mid Cap Equity Fund aims to provide long-term capital appreciation. Under normal circumstances, the Fund will invest primarily in U.S. small- and mid-cap stocks with market capitalization ranges similar to those found in its benchmark, the Russell 2500 Index. The Fund’s sub-advisors may include both value and growth managers. The investments are primarily subject to market fluctuation risks of U.S. stocks of medium and small sized companies. World Equity Ex-US Fund The World Equity Ex-US Fund seeks to provide long-term capital appreciation. Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of foreign countries. The Fund will invest in securities of foreign issuers located in developed countries as well as emerging-market countries, although no more than 30% of its assets will be invested in equity securities of emerging-market issuers. It is expected that the Fund will invest at least 40% of its assets in companies domiciled in foreign countries. The investments are primarily subject to market fluctuation risks of non-U.S. based economies.

Fixed Income Investments through / in mutual funds ($000 omitted) Investments by fair value level June 30, 2016 Registered Investment Companies – Mutual Funds

SEI Core Fixed Income Fund $ 102,619

SEI Emerging Markets Debt Fund 16,929

SEI High Yield Bond Fund 25,714

Core Fixed Income Fund The Core Fixed Income Fund seeks current income consistent with the preservation of capital. The Fund will invest at least 80% of its net assets in U.S. fixed-income securities. The Fund will invest primarily in investment-grade U.S. corporate and government fixed-income securities, including mortgage- and asset-backed securities. Investment-grade securities are those with an equivalent rating of BBB- or higher from a nationally recognized credit rating agency. To a limited extent, the Fund may invest in unrated securities or securities rated below investment grade. The investments are primarily subject to interest rate risk.


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Emerging Markets Debt Fund The Emerging Markets Debt Fund seeks to maximize total return. It normally invests at least 80% of its assets in fixed income securities, in both U.S. dollar and local currency denominated debt of government, government-related, and corporate issuers in emerging market countries, as well as entities organized to restructure the debt of those issuers. Although it is a non-diversified strategy, the Fund will invest in a number of countries and industries in order to limit its exposure to a single emerging market economy. The investments are primarily subject to interest rate risks for non-U.S. based economies. High Yield Bond Fund The High Yield Bond Fund seeks to provide total return by investing in riskier, higher-yielding fixed income securities. Under normal circumstances, the Fund will invest at least 80% of its net assets in high-yield fixed income securities, primarily in securities rated below investment grade (also known as junk bonds), including corporate bonds and debentures, convertible and preferred securities, and zero coupon obligations. The Fund’s securities are diversified as to issuers and industries. The Fund’s weighted average maturity may vary but will generally not exceed ten years. The investments are primarily subject to interest rate risk. Risk Disclosures

Credit Risk For an investment, credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. Both equity and fixed income investments are subject to credit risk. State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations (NRSROs). It is NES policy to limit its investments in these investment types to the top rating issued by NRSROs. The Plan’s investments in mutual funds are not rated by agencies such as Standards and Poor’s, or Fitch. However, the funds are rated by Morningstar, which is a risk-based performance measurement for the funds compared to similar funds. Morningstar rates the investments between 3-stars and 5-stars.

Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, NES will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. NES does not have any custodial credit risk. Concentration of Credit Risk For an investment, concentration of credit risk is the risk of loss attributed to the magnitude of a governments investment in a single issuer. Significant concentration guidelines are as follows: Equity Investments through/in mutual funds The Trust's investment policy mandates that no more than 10 percent of the Trust assets shall be invested in the securities of one company, and that no more than 25 percent of the Trust assets be invested in any single industry.


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Fixed Income Investments through/in mutual funds The Trust's investment policy mandates that, except for U.S. Treasury and agency obligations, no more than 10 percent of the Trust assets shall be invested in the securities of a single company or foreign government. Except for U.S. Treasury and agency obligations, no portfolio should invest more than 10 percent of the fund assets in the securities of a single company or foreign government.

Interest rate risk For an investment, interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Fixed Income Investments are subject to interest rate risk as follows:

The following are risk characteristics for the Core Fixed Income Fund as of June 30, 2016:

Characteristic Portfolio

Effective duration 5.1 years

Average maturity 8.8 years

Average Moody’s quality Aa2, with 68.2% of portfolio rated Aa or higher

Bond duration 5 years or less, 64.1%

The following are risk characteristics for the Emerging Markets Debt Fund as of June 30, 2016:


Modified duration 9.4 years


Average Moody’s quality Baa3, with 55.8% of portfolio rated Baa or higher

The following are risk characteristics for the High Yield Bond Fund as of June 30, 2016:




Average Moody’s quality B1, with 66.0% of portfolio rated B or higher


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Foreign Currency Risk For an investment, foreign currency risk is the risk that the changes in exchange rates will adversely affect the fair value of an investment. The Plan’s investments are not subject to any significant foreign currency risk.

The long-term expected rate of returns on Plan investments were calculated using the Modified Dietz method of calculation, which considers the timing of cash flows during the year and assumes a constant rate of return over the period. Annual performance is based on daily return streams, geometrically linked as of the specified time period. The asset classes used for these calculations approximate the actual asset class allocation of the plan’s investments as follows:

Asset Class

Asset Allocation

Long-Term Expected Rate of Return

Equity 65% 10.8%

Fixed Income 35% 6.5%

The discount rate used to measure the total pension liability was 7.5 percent. The undiscounted future payment assumptions for the Plan are as follows:

Projected Schedule of Benefit Payments ($000 omitted)

Year Number Retiring Total Payouts

2016-2020 314 $ 192,627

2021-2025 191 252,283

2026-2030 134 306,418

2031-2035 81 354,646

2036-2040 69 387,555

2041-2045 26 388,675

Total projected benefit payments $ 1,882,204


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Changes in Net Pension Liability

($000 omitted) Increase (Decrease)

Total Pension Liability

(a)

Plan Fiduciary Net

Position (b)

Net Pension Liability (a)–(b)

Balance at June 30, 2015 $ 592,007 $426,572 $ 165,435

Changes for the year:

Service Costs 10,083 10,083

Interest 43,983 43,983

Changes in benefit terms 8,619 8,619

Differences between expected and actual experience

11,291 11,291

Changes in assumptions 17,741 17,741

Contributions – employer 24,600 (24,600)

Net investment income (622) 622

Benefit payments / refunds (38,753) (38,753)

Administrative expenses (797) 797

Net Change 52,964 (15,572) 68,536

Balance at June 30, 2016 $ 644,971 $ 411,000 $ 233,971

The following presents the net pension liability of NES, calculated using the discount rate of 7.5 percent, as well as what NES’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate.

1% Decrease (6.5%)

Current Rate (7.5%)

1% Increase (8.5%)

Net Pension Liability ($000 omitted) $311,121 $233,971 $169,061


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For the year ended June 30, 2016, NES recognized pension expense of $40.4 million. At June 30, 2016, NES reported deferred outflows of resources and deferred inflows of resources related to pension from the following sources:

Deferred Outflows of Resources

Deferred Inflows of Resources

Difference between expected and actual experience $ 14,721

Changes in assumptions 14,784

Net difference between projected and actual earnings on pension plan investments $ 22,288 $ -

Total $ 51,793 $ -

Amounts reported as deferred outflows (inflows) of resources related to pensions will be recognized in pension expense as follows:

Years Ending June 30:

2017 $ 8,392

2018 8,392

2019 15,709

2020 11,940

2021 5,128

Thereafter 2,233


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6. PENSION PLAN (continued) There are no deferred outflows that will be recognized as a reduction in the net pension liability. In 1994, NES established a non-qualified Supplemental Executive Retirement Plan (the “SERP”). The SERP was limited to certain employees of NES. Benefits accrued at the rate of 5 percent of salary for each year of credited service not to exceed 12 years and vests at the rate of 20 percent for each year of service, reduced by the percentage accrued and vested under NES’ qualified plan. Effective April 1, 2005, the Board merged the SERP with the NES Retirement Annuity and Survivors’ Benefit Plan.

Adding the SERP benefits to the Plan increased the funding requirements for the Plan, but the amounts that had accumulated in the SERP Trust were transferred to the Plan in order to offset those increased costs. Future payments that would have been made into the SERP Trust will be directed into the Plan.

At the time of conversion, no benefits had been paid from the SERP. Any change in funding requirements is reflected in the above schedule.

7. DEFINED CONTRIBUTION PENSION PLAN Nashville Electric Service established a single-employer Defined Contribution Retirement Plan (the “DC Plan”) in 2012. This plan is intended to be a defined contribution money purchase pension plan. Its purpose is to provide retirement benefits to eligible employees and their beneficiaries. NES has sole responsibility for administration of the DC Plan and the authority to amend benefit provisions. The DC Plan is not required to issue a separate financial report. All full-time regular employees hired on or after July 1, 2012 , and under age 65 are eligible to participate in the DC Plan. Employees are fully vested after five continuous 12-month periods of participation in the DC Plan. Retirement benefits for employees who retire at or after age 65 are paid in one-lump sum payment. The DC Plan is a non-contributory plan. NES is required to make an employer basic contribution to the DC Plan for each Plan Year. The amount of the contribution is calculated by applying a uniform percentage, actuarially determined, to each participant’s compensation for the Plan Year. At December 31, 2015, the DC Plan had approximately 107 participants. For plan years ended December 31, 2016 and 2015, the contribution percentage was 13.16% and 11.54%, respectively. NES contributed $0.7 million and $0.4 million to the DC Plan in the fiscal year ended June 30, 2016 and June 30, 2015. The NES investment policy mandates that investments in pooled fund holdings, including mutual funds, should substantially follow guidelines established by the policy for equity investments and fixed income investments. These guidelines also address concentrations of credit risk. The policy manages investment principle preservation and return risks through an overall long-term investment strategy that employs a diversified portfolio of actively traded stock and bond mutual fund investments. This results in sufficient liquidity through the ability to buy and sell in active markets. The investments are governed by total return objectives of the portfolio. The investments are typically rebalanced annual to achieve long-term asset allocation targets.


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7. DEFINED CONTRIBUTION PENSION PLAN (continued) All of the investments below are classified in Level 1 of the fair value hierarchy established by generally accepted accounting principles because they are valued using prices quoted in active markets for those investments. None are subject to any substantive redemption restrictions.

Equity Investments through / in mutual funds ($000 omitted) Investments by fair value level June 30, 2016 Registered Investment Companies – Mutual Funds

SEI S&P 500 Index Fund $ 458

SEI Small Mid Cap Fund 108

SEI World Equity Ex-US Fund 266

S&P 500 Index Fund The S&P 500 Index fund aims to produce investment results that correspond to the aggregate price and dividend performance of the securities in the S&P 500 Index. The Fund invests substantially all of its assets in securities that are members of the S&P 500 Index. The sub-advisor selects the Fund’s securities, but does not actively manage the Fund in the traditional sense of trying to outperform its benchmark. Instead, the sub-advisor generally gives the same weight to each stock as its weight in the S&P 500 Index. The investments are primarily subject to market fluctuation risks of U.S. large cap stocks. Small Mid Cap Equity Fund The Small/Mid Cap Equity Fund aims to provide long-term capital appreciation. Under normal circumstances, the Fund will invest primarily in U.S. small- and mid-cap stocks with market capitalization ranges similar to those found in its benchmark, the Russell 2500 Index. The Fund’s sub-advisors may include both value and growth managers. The investments are primarily subject to market fluctuation risks of U.S. stocks of medium and small sized companies. World Equity Ex-US Fund The World Equity Ex-US Fund seeks to provide long-term capital appreciation. Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of foreign countries. The Fund will invest in securities of foreign issuers located in developed countries as well as emerging-market countries, although no more than 30% of its assets will be invested in equity securities of emerging-market issuers. It is expected that the Fund will invest at least 40% of its assets in companies domiciled in foreign countries. The investments are primarily subject to market fluctuation risks of non-U.S. based economies.


45

7. DEFINED CONTRIBUTION PENSION PLAN (continued)

Fixed Income Investments through / in mutual funds ($000 omitted) Investments by fair value level June 30, 2016 Registered Investment Companies – Mutual Funds

SEI Core Fixed Income Fund $ 295

SEI Emerging Markets Debt Fund 50

SEI High Yield Bond Fund 105

Core Fixed Income Fund The Core Fixed Income Fund seeks current income consistent with the preservation of capital. The Fund will invest at least 80% of its net assets in U.S. fixed-income securities. The Fund will invest primarily in investment-grade U.S. corporate and government fixed-income securities, including mortgage- and asset-backed securities. Investment-grade securities are those with an equivalent rating of BBB- or higher from a nationally recognized credit rating agency. To a limited extent, the Fund may invest in unrated securities or securities rated below investment grade. The investments are primarily subject to interest rate risk. Emerging Markets Debt Fund The Emerging Markets Debt Fund seeks to maximize total return. It normally invests at least 80% of its assets in fixed income securities, in both U.S. dollar and local currency denominated debt of government, government-related, and corporate issuers in emerging market countries, as well as entities organized to restructure the debt of those issuers. Although it is a non-diversified strategy, the Fund will invest in a number of countries and industries in order to limit its exposure to a single emerging market economy. The investments are primarily subject to interest rate risks for non-U.S. based economies. High Yield Bond Fund The High Yield Bond Fund seeks to provide total return by investing in riskier, higher-yielding fixed income securities. Under normal circumstances, the Fund will invest at least 80% of its net assets in high-yield fixed income securities, primarily in securities rated below investment grade (also known as junk bonds), including corporate bonds and debentures, convertible and preferred securities, and zero coupon obligations. The Fund’s securities are diversified as to issuers and industries. The Fund’s weighted average maturity may vary but will generally not exceed ten years. The investments are primarily subject to interest rate risk.


46

7. DEFINED CONTRIBUTION PENSION PLAN (continued) Risk Disclosures


Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, NES will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. NES does not have any custodial credit risk. Concentration of Credit Risk For an investment, concentration of credit risk is the risk of loss attributed to the magnitude of a governments investment in a single issuer. Significant concentration guidelines are as follows: Equity Investments through/in mutual funds The Trust's investment policy mandates that no more than 10 percent of the Trust assets shall be invested in the securities of one company, and that no more than 25 percent of the Trust assets be invested in any single industry. Fixed Income Investments through/in mutual funds The Trust's investment policy mandates that, except for U.S. Treasury and agency obligations, no more than 10 percent of the Trust assets shall be invested in the securities of a single company or foreign government. Except for U.S. Treasury and agency obligations, no portfolio should invest more than 10 percent of the fund assets in the securities of a single company or foreign government. Interest rate risk For an investment, interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Fixed Income Investments are subject to interest rate risk as follows:


47

7. DEFINED CONTRIBUTION PENSION PLAN (continued) The following are risk characteristics for the Core Fixed Income Fund as of June 30, 2016:


















48

8. POST-EMPLOYMENT BENEFITS

NES provides post-retirement medical, dental, and life insurance benefits to all employees who retire from NES under the provisions of the qualified plan and supplemental executive retirement plan and have completed a minimum of five years of service. Medical and dental benefits are also provided to their spouses. As of June 30, 2016, approximately 647 retirees met the eligibility requirements. Expenses for these post-retirement benefits have previously been recognized as retirees report claims. Those incurred claims totaled $14.8 million and $13.0 million for the years ended June 30, 2016 and 2015, respectively. The total expenses that were recognized were $16.8 million and $16.5 million during the years ended June 30, 2016 and 2015, respectively.

The NES OPEB Plan is a single-employer defined benefit plan funded through an irrevocable trust that was established during the year ended June 30, 2008. The OPEB Plan is not required to issue a separate financial report. NES’ annual OPEB cost (expense) is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a 30-year period beginning April 1, 2009. The current rate is 21.5% percent of annual projected payroll. NES contributed 100 percent of the required contribution for the 2016 and 2015 Plan years. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts regarding the funded status of the plan and the annual required contributions of NES are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress presented below provides multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Projections of benefits are based on the substantive plan (the plan as understood by NES and plan members) and include the types of benefits in force at the valuation date and the pattern of sharing benefit costs between NES and the plan members to that point. The Plan was amended during 2016 to provide accident and outpatient surgery at the same level of cost sharing as for inpatient surgery and other major medical benefits. The cost sharing will phase in over seven years beginning January 1, 2017. NES conducted an experience study in fiscal year 2016 on the withdrawal rate and rate of retirement. Effects of the study were incorporated into the actuarial calculations for June 30, 2016.

Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets.


49

8. POST-EMPLOYMENT BENEFITS (continued)

Significant methods and assumptions were as follows:

Actuarial valuation date: April 1, 2016

Actuarial cost method: Entry age, normal method

Amortization method: Level percentage of pay, open

Remaining amortization period: 30 years, closed

Asset valuation method: Adjust expected assets on the valuation date toward market value of assets by an amount equal to one-third of the difference between expected and market asset values. The actuarial assumptions included (a) 7.5 percent investment rate of return and (b) projected salary increases of 4.5 percent. Both (a) and (b) included an inflation component. The assumptions include medical health care cost trend rate increases equal to 5.0 percent per year and dental health care cost trend rates of 4.0 percent per year. Schedule of employer contributions for the past three years are listed below:

Plan Year Annual Required Contribution Percentage Contributed 2016 $ 16,835 100% 2015 16,493 100% 2014 15,222 100%

Schedule of funding progress for the past three years is shown below ($000 omitted):

Actuarial Valuation

Date


Actuarial Accrued Liability

(AAL) Entry Age

Unfunded Actuarial Accrued Liability (UAAL)

Funded Percentage

Covered Payroll

Unfunded Actuarial Accrued

Liability as a Percent of

Covered Payroll

(a) (b) (b-a) (a/b) (c) (b-a)/c 4/1/2016 $ 84,325 $ 278,435 $ 194,110 30.3% $ 78,207 248.2% 4/1/2015 78,069 249,211 171,142 31.3% $ 78,176 218.9% 4/1/2014 66,597 245,210 178,613 27.2% $ 76,241 234.3%

The NES OPEB Plan’s investment policy mandates that investments in pooled fund holdings, including mutual funds, should substantially follow guidelines established by the policy for equity investments and fixed income investments. These guidelines also address concentrations of credit risk. The policy manages investment principle preservation and return risks through an overall long-term investment strategy that employs a diversified portfolio of actively traded stock and bond mutual fund investments.


50


This results in sufficient liquidity through the ability to buy and sell in active markets. The investments are governed by total return objectives of the portfolio. The investments are typically rebalanced annually to achieve long-term asset allocation targets. Significant concentration guidelines are as follows:

Equity Investments through/in mutual funds At June 30, 2016, equity investments consisted of the following mutual stated at fair value (in 000’s omitted):

Registered Investment Companies – Mutual Funds SEI S&P 500 Index Fund $ 30,997 SEI Small Mid Cap Fund 6,974 SEI World Equity Ex-US Fund 17,662

S&P 500 Index Fund The S&P 500 Index Fund aims to produce investment results that correspond to the aggregate price and dividend performance of the securities in the S&P 500 Index. The Fund invests substantially all of its assets in securities that are members of the S&P 500 Index. The sub-advisor selects the Fund’s securities, but does not actively manage the Fund in the traditional sense of trying to outperform its benchmark. Instead, the sub-advisor generally gives the same weight to each stock as its weight in the S&P 500 Index. The investments are primarily subject to market fluctuation risks of U.S. large cap stocks. Small Mid Cap Equity Fund The Small/Mid Cap Equity Fund aims to provide long-term capital appreciation. Under normal circumstances, the Fund will invest primarily in U.S. small- and mid-cap stocks with market capitalization ranges similar to those found in its benchmark, the Russell 2500 Index. The Fund’s sub-advisors may include both value and growth managers. The investments are primarily subject to market fluctuation risks of U.S. stocks of medium and small sized companies.

World Equity Ex-US Fund The World Equity Ex-US Fund seeks to provide long-term capital appreciation. Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of foreign countries. The Fund will invest in securities of foreign issuers located in developed countries as well as emerging-market countries, although no more than 30% of its assets will be invested in equity securities of emerging-market issuers. It is expected that the Fund will invest at least 40% of its assets in companies domiciled in foreign countries. These investments are primarily subject to market fluctuation risk of non-U.S. based economies.


51


Fixed Income Investments through/in mutual funds At March 31, 2016, fixed income investments consisted of the following mutual stated at fair value (in 000’s omitted):

Registered Investment Companies – Mutual Funds SEI Core Fixed Income Fund $ 21,476 SEI Emerging Markets Debt Fund 3,553 SEI High Yield Bond Fund 5,381

Core Fixed Income Fund The Core Fixed Income Fund seeks current income consistent with the preservation of capital. The Fund will invest at least 80% of its net assets in U.S. fixed-income securities. The Fund will invest primarily in investment-grade U.S. corporate and government fixed-income securities, including mortgage- and asset-backed securities. Investment-grade securities are those with an equivalent rating of BBB- or higher from a nationally recognized credit rating agency. To a limited extent, the Fund may invest in unrated securities or securities rated below investment grade. The investments are primarily subject to interest rate risk.

Emerging Markets Debt Fund The Emerging Markets Debt Fund seeks to maximize total return. It normally invests at least 80% of its assets in fixed income securities, in both U.S. dollar and local currency denominated debt of government, government-related, and corporate issuers in emerging market countries, as well as entities organized to restructure the debt of those issuers. Although it is a non-diversified strategy, the Fund will invest in a number of countries and industries in order to limit its exposure to a single emerging market economy. The investments are primarily subject to interest rate risks for non-U.S. based economies.

High Yield Bond Fund The High Yield Bond Fund seeks to provide total return by investing in riskier, higher-yielding fixed income securities. Under normal circumstances, the Fund will invest at least 80% of its net assets in high-yield fixed income securities, primarily in securities rated below investment grade (also known as junk bonds), including corporate bonds and debentures, convertible and preferred securities, and zero coupon obligations. The Fund’s securities are diversified as to issuers and industries. The Fund’s weighted average maturity may vary but will generally not exceed ten years. The investments are primarily subject to interest rate risk. Fair Value Disclosures All of the investments above are classified in Level 1 of the fair value hierarchy established by generally accepted accounting principles because they are valued using prices quoted in active markets for those investments. None are subject to any substantive redemption restrictions.


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Risk Disclosures


Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, NES will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. NES does not have any custodial credit risk. Concentration of Credit Risk For an investment, concentration of credit risk is the risk of loss attributed to the magnitude of a governments investment in a single issuer. Significant concentration guidelines are as follows: Equity Investments through/in mutual funds The Trust's investment policy mandates that no more than 10 percent of the Trust assets shall be invested in the securities of one company, and that no more than 25 percent of the Trust assets be invested in any single industry. Fixed Income Investments through/in mutual funds The Trust's investment policy mandates that, except for U.S. Treasury and agency obligations, no more than 10 percent of the Trust assets shall be invested in the securities of a single company or foreign government. Except for U.S. Treasury and agency obligations, no portfolio should invest more than 10 percent of the fund assets in the securities of a single company or foreign government. Interest rate risk For an investment, interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Fixed Income Investments are subject to interest rate risk as follows:


53


The following are risk characteristics for the Core Fixed Income Fund as of June 30, 2016:


















54

9. DEFERRED COMPENSATION AND RETIREMENT PLANS NES has a deferred compensation plan (the “457 Plan”) created in accordance with Internal Revenue Code (“IRC”) Section 457. The 457 Plan, which is available to all full-time employees, permits employees to defer a portion of their salary until future years. Employees may contribute up to the legal limit of their compensation to the 457 Plan with NES providing a matching contribution of up to 3 percent of compensation. The 457 Plan provides that assets or income of the 457 Plan shall be used for the exclusive purpose of providing benefits for participants and their beneficiaries or defraying reasonable expenses of administration of the 457 Plan. Since the assets of the 457 Plan are held in custodial and annuity accounts for the exclusive benefit of 457 Plan participants, the related assets of the 457 Plan are not reflected on the Statements of Net Position. Employees contributed $3.7 million and $3.6 million to the plan for the years ended June 30, 2016 and 2015, respectively. NES contributed $2.1 million and $2.0 million to the 457 Plan for the years ended June 30, 2016 and June 30, 2015. 10. LEASES Total rental expense entering into the determination of net position amounted to approximately $1.0 million in both 2016 and 2015. Rental expense consists primarily of payments for facilities rental and leasing arrangements for software licensing. NES leases these facilities and software under various cancelable lease agreements. The majority of these leases are cancelable by either party within six to twelve months. Therefore, future minimum rentals under these leases are $2.7 million in 2017.

Rental income is received under pole-attachment leases, which are accounted for as operating leases. Rental income from telephone provider pole-attachments totaled $2.5 million for each of the years ended June 30, 2016 and 2015, respectively. Rental income from cable provider pole-attachments totaled $2.9 million at June 30, 2016, and $2.5 million at June 30, 2015. The net book value of the poles for use in the rental activity was $131.6 million and $131.8 million at June 30, 2016 and 2015, respectively. Accumulated depreciation on poles was $83.3 million at June 20, 2016 and $77.5 million at June 30, 2015.

11. RISK MANAGEMENT AND LIABILITY

NES is exposed to various risks of loss related to torts; theft or damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. NES is an agency of the Metropolitan Government and is covered under the Tennessee Governmental Tort Liability Act, TCA 29-20-101, et al, (the “Act”) and is self-insured under the act for tort liability. NES is immune from any award or judgment for death, bodily injury and/or property damage in excess of the limits as set forth in the Act. Therefore, NES has not secured insurance coverage in excess of such limits. NES is not a participant in the Metropolitan Government Insurance Pool (the “Pool”) for coverage of most property losses. With some of the sub-limits of the Pool coverage being reached as a result of the damage sustained by many participants of the Pool during the flood of 2010, NES deemed it prudent to withdraw from the Pool and obtain commercial property insurance that would no longer have shared sub-limits.


55

11. RISK MANAGEMENT AND LIABILITY (continued)

NES is self-insured for employee medical, dental and vision claims and self-insured up to $100,000 for employee medical claims. The changes in the insurance reserves for medical, dental and vision benefits for active employees and retirees for the years ended June 30, 2016 and 2015 are as follows ($000 omitted):

Balance – June 30, 2014 $ 2,984 Payments (22,899) Incurred Claims 23,056

Balance – June 30, 2015 $ 3,141 Payments (24,542) Incurred Claims 25,193

Balance – June 30, 2016 $ 3,792

NES continues to carry commercial insurance for all other risks of loss, including a retention with excess workers’ compensation coverage and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

NES is party to various lawsuits filed against it in the normal course of business. Management does not believe that damages, if any, arising from outstanding litigation, will have a material effect on the financial position of NES.

12. RELATED PARTY TRANSACTIONS

NES has related party balances and transactions as a result of providing electric power to the Metropolitan Government and entities of the Metropolitan Government, as well as making tax-equivalent payments to the Metropolitan Government and other payments to entities of the Metropolitan Government.

These balances and transactions as of and for the years ended June 30, 2016 and 2015 are summarized as follows ($000 omitted):

2016 2015 Balances: Accounts receivable $ 4,587 $ 3,763 Transactions: Commercial and industrial revenue – Metropolitan Government Entities 63,132 64,799 Outdoor lighting – Metropolitan Government Entities 8,217 9,179 Tax equivalents operating expense – Metropolitan Government Entities 29,804 31,396


56

12. RELATED PARTY TRANSACTIONS (continued)

NES and the Metropolitan Government of Nashville agreed that NES would install traffic lights and related traffic controls at the North Service Center facility upon its completion. The fixtures were installed during fiscal year 2016 and subsequently contributed to Metro. The conveyance of the traffic controls resulted in a recognized loss for NES of $0.2 million in 2016. During 2015, NES and the Metropolitan Government of Nashville agreed to split the cost of the development of the underground infrastructure that would serve the West Riverfront Park and Amphitheater. Installation of this additional infrastructure provides a more reliable level of service for the facility while expanding the existing downtown network. The total contribution made by NES was $0.2 million. 13. COMMITMENTS

NES has no generating capacity and purchases all of its power from the Tennessee Valley Authority ("TVA") pursuant to a Power Contract dated December 19, 1977 (the "Power Contract"). The Power Contract had an initial term of 20 years, but beginning on December 19, 1987, and on each subsequent anniversary thereof, the contract has been and is automatically extended for additional one year renewal terms beyond its then existing time of expiration. The Power Contract, however, is subject to earlier termination by either party on not less than ten years' written notice. The Power Contract provides that the Board may sell power to all customers in its service area, except federal installations having contract demands greater than 5,000 kW and large customers as determined by a calculation outlined in TVA's Industrial Service Policy whom TVA may serve directly. At the present time, TVA does not directly serve any customer located within the service area of the Electric System. The Power Contract contains provisions that establish the wholesale rates, resale rates and terms and conditions under which power is to be purchased by TVA and distributed to the customers of NES. Under the Power Contract, TVA, on a monthly basis, may determine and make adjustments in the wholesale rate schedule with corresponding adjustments in resale rate schedules necessary to enable TVA to meet all requirements of the Tennessee Valley Authority Act of 1933, as amended (the "TVA Act"), and the tests and provisions of TVA's bond resolutions.

NES purchased power totaling $884.5 million from TVA during the year ending June 30, 2016. The Power Contract establishes the resale rates that NES and other distributors charge the ultimate power consumers. These rates are revised from time to time to reflect changes in costs, including changes in the wholesale cost of power. While the wholesale rates are uniformly applicable to all distributors of TVA power under the present power contracts with distributors such as NES, the retail resale rates will vary among distributors of TVA power depending upon the respective distributor's retail customer distribution costs. The rates of TVA for the sale of electric power in the TVA region and its contracts with distributors, including TVA, are structured with the intent to achieve the TVA Act's objective of the distributors of TVA power, including NES, to operate the respective distribution systems on a nonprofit basis and to provide a wide and ample supply of power at the lowest feasible rates.


57

13. COMMITMENTS (continued)

NES' retail resale rates are subject to TVA's review and approval under the provisions, terms and conditions of the Power Contract. The Power Contract provides for revisions to the resale rates that may be charged by NES when necessary to permit NES to operate on a self-supporting and financially sound basis. NES is not aware of any pending legislation that would propose to make its retail electric rates subject to regulation by any third party or agency other than TVA. The Power Contract further provides that if the resale rates set forth therein do not provide sufficient revenues for the operation and maintenance of the Electric System on a self-supporting, financially-sound basis, including debt service, TVA and NES shall agree to changes in rates to provide increased revenues. Similarly, if the rates and charges produce excess revenues, the Power Contract provides that the parties will agree to appropriate reductions. Since the date of the Power Contract, the wholesale and resale rates have been adjusted periodically. 14. SUBSEQUENT EVENTS

NES has evaluated subsequent events through October 20, 2016, the issuance date of the financial statements, and has determined that there are no other subsequent events that require disclosure.


REQUIRED SUPPLEMENTARY INFORMATION


59

Retirement Annuity and Survivors Plan Schedule of Changes in Net Pension Liability (Unaudited)

Years ended June 30, 2016 2015 2014 Total Pension Liability Service Costs $ 10,082,534 $ 10,791,995 $ 9,934,862 Interest 43,982,739 41,399,061 39,288,033 Changes in benefit terms 8,619,615 Differences between expected and actual experience 11,291,250 1,767,775 6,127,296 Changes of assumptions 17,740,812 - - Benefit Payments / Refunds (38,753,201) (28,720,035) (27,104,368) Net Change in Total Pension Liability $ 52,963,749 $ 25,238,796 $ 28,245,823 Total Pension Liability, beginning 592,006,589 $ 566,767,793 $ 538,521,970 Total Pension Liability, ending (a) $ 644,970,338 $ 592,006,589 $ 566,767,793 Plan Fiduciary Net Position Contributions – employer $ 24,600,000 $ 25,746,366 $ 22,812,880 Net investment income (622,257) 12,207,239 63,101,612 Benefit Payments / Refunds (38,753,201) (28,720,035) (27,104,368) Administrative expenses (796,558) (682,629) (450,603) Net Change in Plan Fiduciary Net Position ($ 15,572,016) $ 8,550,941 $ 58,359,521 Plan Fiduciary Net Position – beginning 426,572,641 418,021,700 359,662,179 Plan Fiduciary Net Position – ending (b) $ 411,000,625 $ 426,572,641 $ 418,021,700 Net Pension Liability – ending (a) – (b) $ 233,969,713 $ 165,433,947 $ 148,746,093 Plan Fiduciary Net Position as a % of the Total Pension Liability 64% 72% 74% Covered –employee payroll $ 69,336,555 $ 68,800,950 $ 69,409,887 Net Pension Liability as a % of covered-employee payroll 337% 240% 214%

Notes to Schedule:

The Plan Sponsor conducted an experience study in fiscal year 2016 on the withdrawal rate and rate of retirement. Effects of the study were incorporated into the net pension liability calculation at June 30, 2016. The overall impact of this change in assumptions to net pension liability was an increase of $17.7 million, of which $2.8 million was recognized in pension expense at June 30, 2016.

As permitted by GASB 68, upon adoption, NES determined that it was impractical to present ten years of data as required by certain disclosures: the previous method of determining the pension liability, while permitted under the previous standards, was not the Entry Age Actuarial Method required by GASB 68. The Plan Sponsor determined that the cost to recompute all historical data using the Entry Age Method was prohibitive for the disclosure benefits obtained. Accordingly, cumulative tables present data from the date of adoption, July 1, 2013.


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In computing the table above, actuarial assumptions included (a) 25-year funding level, (b) 7.5 percent investment rate of return and discount rate, and (c) projected salary increases of 4.5 percent. Both (b) and (c) included an inflation component. The long term rate of return was determined using the Plan’s specific asset returns over the past ten years and historical long-term returns of the broader U.S. markets. The assumptions include cost-of-living post-retirement benefit increases equal to 2 percent per year. Mortality rates are based on the RP-2000 Healthy Combined Mortality Table. The base mortality rates have been adjusted by applying the Projection Scale AA for seven years beyond the valuation date to reflect mortality improvements.

Retirement Annuity and Survivors Plan Schedule of Contributions (Unaudited) Years ended June 30, 2016 2015 2014

Actuarially determined contribution $24,594,439 $25,746,365 $22,897,905

Contributions in relation to the actuarially determined contribution 24,600,000 25,746,366 22,812,880

Contribution deficiency (excess)

($5,561) ($1) $85,025

Covered employee payroll $69,336,555 $68,800,950 $69,409,887

Contributions as a percentage of covered-employee payroll 35% 37% 33%


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Retirement Annuity and Survivors Plan Schedule of Investment Returns (Unaudited)

Annual money-weighted rate of return, net of investment expense:

Year Ended June 30 Return

2016 -0.15%

2015 2.97%

2014 17.75%


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Other Post Employment Benefit Plan Schedule of Funding Progress (Unaudited)

Actuarial Valuation

Date


Actuarial Accrued Liability

(AAL) Entry Age

Unfunded Actuarial Accrued Liability (UAAL)

Funded Percentage

Covered Payroll

Unfunded Actuarial Accrued

Liability as a Percent

of Covered Payroll

(a) (b) (b-a) (a/b) (c) (b-a)/c 4/1/2016 $84,324,863 $278,434,774 $194,109,911 30.3% $78,206,706 248.2% 4/1/2015 78,069,285 249,211,205 171,141,920 31.3% 78,175,709 218.9% 4/1/2014 66,596,617 245,210,065 178,613,448 27.2% 76,241,228 234.3%


OTHER SUPPLEMENTARY INFORMATION


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SCHEDULE OF INSURANCE COVERAGE YEAR ENDED JUNE 30, 2016 (UNAUDITED)

Amount of

Type of Coverage Coverage

Property Insurance General plant, contents, substations and construction in progress $150,000,000 Boiler & Machinery Limit per Accident $50,000,000 Electronic Data Processing and Computer Equipment $15,000,000

Vehicle Coverage Automobile physical damage: $150,000,000 Vehicles subject to 24-hour take home Liability $2,000,000 Medical $5,000 Uninsured motorist $1,000,000 Excess liability on 24-hour NES vehicles $4,000,000

Workers’ Compensation Excess coverage over $400,000 retention Workers' compensation second layer Statutory Employers liability $35,400,000

Directors and Officers Liability/Public Officials Liability Employment practices liability $50,000,000

Fiduciary/Pension Trust Liability $15,000,000 Excess fiduciary $10,000,000 Crime Coverage (Per nature of crime) Employee theft $3,000,000 Loss inside $3,000,000 Loss outside $3,000,000 Money order/counterfeit $3,000,000 Forgery or alteration $3,000,000 Computer crime $3,000,000 Funds transfer fraud $3,000,000 Group Travel 24-hour business trip for all full-time employees and non-employee member of EPB

$400,000

Extortion $3,000,000


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SCHEDULE OF INSURANCE COVERAGE YEAR ENDED JUNE 30, 2016 (UNAUDITED) Terrorism $134,000,000 Environmental Liability $2,000,000 Cyber & Privacy Liability $1,000,000 Flood Buildings & Contents West Service Center $2,477,400 Other locations (per location)

$1,472,200

Note: Policy period for Flood Insurance Coverage for West Service Center is 11/27/15 -11/27/16. Flood Insurance Coverage for all other locations is 12/8/15-12/8/16. Policy period for all other coverages is 11/1/15-10/31/16.


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SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) RS Residential Customer Charge (per delivery point per month) $11.83 Summer Season - Energy Charge (per kWh) 0.10158 Winter Season - Energy Charge (per kWh) 0.09850 Transition Season - Energy Charge (per kWh) 0.09659 SRS Supplemental Residential Customer Charge (per delivery point per month) $13.43 Summer Season - Energy Charge (per kWh) 0.10753 Winter Season - Energy Charge (per kWh) 0.10445 Transition Season - Energy Charge (per kWh) 0.10254 General Power Rate Schedules GSA1 (Small Commercial – 0-50 kW) Customer Charge - One Phase Meter (per delivery point per month) $25.38 Customer Charge - Three Phase Meter (per delivery point per month) $30.00 Demand Charge (per delivery point per month) 0 – 50 kW 1.50 Summer Season - Energy Charge (per kWh) 0.11117 Winter Season - Energy Charge (per kWh) 0.10810 Transition Season - Energy Charge (per kW) 0.10619 GSA2 (Large Commercial - 51-1,000 kW) Customer Charge (per delivery point per month) $156.87 Summer Season Demand Charge (per delivery point per month) 0 – 50 kW 1.50 51 – 1000 kW 14.14 Energy Charge (per kWh)

1st 15,000 kWh Energy 0.10728 All Additional kWh Energy 0.06200

Winter Season Demand Charge (per delivery point per month)

0 – 50 kW 1.50 51 – 1000 kW 13.25

Energy Charge (per kWh) 1st 15,000 kWh Energy 0.10421 All Additional kWh Energy 0.06200


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SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Transition Season Demand Charge (per delivery point per month) 0 – 50 kW 1.50 51 – 1000 kW 13.25 Energy Charge (per kWh) 1st 15,000 kWh Energy 0.10230 All Additional kWh Energy 0.06200 GSA3 (Large Commercial - 1001 – 5000 kW) Customer Charge (Per delivery point per month) $818.95 Summer Season

Demand charge (per delivery point per month) 0 - 1,000 kW 13.96 1,001 - 5,000 kW 16.04 Energy Charge All kWh (per kWh) 0.06138

Winter Season Demand charge (per delivery point per month) 0 - 1,000 kW 13.07 1,001 - 5,000 kW 15.15 Energy Charge All kWh (per kWh) 0.06138

Transition Season Demand charge (per delivery point per month) 0 - 1,000 kW 13.07 1,001 - 5,000 kW 15.15 Energy Charge All kWh (per kWh) 0.06138

LS - Outdoor Lighting Customer Charge (Per delivery point per month) $2.50 Summer Season

Energy Charge - All kWh 0.06844 Winter Season

Energy Charge - All kWh 0.06537 Transition Season

Energy Charge - All kWh 0.06345


68

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Time of Day Rate Classes TGSA1 (Demand 0-50kW) Customer Charge (Per delivery point per month) $326.79 Summer Season Demand Charge 0 – 50 kW 1.50

Energy Charge (<= 15,000 kWh) On-peak kWh Energy 0.11956 Off-peak kWh Energy 0.10725

Winter Season Demand Charge 0 – 50 kW 1.50

Energy Charge (<= 15,000 kWh) On-peak kWh Energy 0.11258 Off-peak kWh Energy 0.10697

Transition Season Demand Charge 0 – 50 kW 1.50 Energy Charge (<= 15,000 kWh)

On-peak kWh Energy 0.10619 Off-peak kWh Energy 0.10619

TGSA2 (Demand = 51-1,000 kW) Customer Charge (Per delivery point per month) $326.79 Summer Season

Demand Charge 1st 50 kW 1.50 Over 50 kW 14.14 Energy Charge On-peak kWh Energy 0.11567 Off-peak kWh Energy 0.10336

Winter Season

Demand Charge 1st 50 KW 1.50 Over 50 kW 13.25 Energy Charge On-peak kWh Energy 0.10869 Off-peak kWh Energy 0.10308

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED)


69

Transition Season

Demand Charge 1ST 50 KW 1.50 Over 50 kW 13.25 Energy Charge On-peak kWh Energy 0.10230 Off-peak kWh Energy 0.10230

TGSA3 (Demand = 1,001-5,000 kW) Customer Charge $818.95 Summer Season

Demand Charge 1st 1,000 kW 13.96 Excess over 1,000 16.04 Energy Charge On-peak kWh Energy 0.06978 Off-peak kWh Energy 0.05747

Winter Season Demand Charge 1st 1,000 kW 13.07 Excess over 1,000 15.15 Energy Charge On-peak kWh Energy 0.06588 Off-peak kWh Energy 0.06026

Transition Season Demand Charge 1st 1,000 kW 13.07 Excess over 1,000 15.15 Energy Charge On-peak kWh Energy 0.06138 Off-peak kWh Energy 0.06138

Time Differentiated Hours Use of Demand (TDHUD) (Time of Use Service) TDHUD GSA (Demand = 1,001 - 5,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season

On-Peak kW 10.17 Maximum Demand Charge 7.13 Energy Charge - On Peak 0.09259 Energy Charge - Off Peak First 200 hours 0.06147 Energy Charge - Off Peak Next 200 hours 0.02201 Energy Charge - Off Peak Additional kWh 0.01919


70

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Winter Season


Transition Season On-Peak kW 9.27 Maximum Demand Charge 7.13 Energy Charge - On Peak 0.06533 Energy Charge - Off Peak First 200 hours 0.06533 Energy Charge - Off Peak Next 200 hours 0.02201 Energy Charge - Off Peak Additional kWh 0.01919

TDHUD GSB (Demand = 5,001 - 15,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season


Winter Season On-Peak kW 9.22 Maximum Demand Charge 5.09 Energy Charge - On Peak 0.07885 Energy Charge - Off Peak First 200 hours 0.06830 Energy Charge - Off Peak Next 200 hours 0.02306 Energy Charge - Off Peak Additional kWh 0.01989



71

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) TDHUD GSC (Demand = 15,001 - 25,000 kW Customer Charge (per delivery point per month) $2,000.00 Summer Season




TDHUD GSD (Demand = > 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season




72

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Transition Season On-Peak kW 9.22 Maximum Demand Charge 5.08

Energy Charge - On Peak 0.06594 Energy Charge - Off Peak First 200 hours 0.06594 Energy Charge - Off Peak Next 200 hours 0.02200 Energy Charge - Off Peak Additional kWh 0.01989

TDHUD MSA (Manufacturing) (Demand = 1,001 - 5,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season



Transition Season On-Peak kW 8.63

Maximum Demand Charge 5.57 Energy Charge - On Peak 0.04904 Energy Charge - Off Peak First 200 hours 0.04904 Energy Charge - Off Peak Next 200 hours 0.02069 Energy Charge - Off Peak Additional kWh 0.01831


73

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) TDHUD MSB (Manufacturing) (Demand = 5,001 - 15,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season





TDHUD MSC (Demand = 15,001 - 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season On-Peak kW 9.52




74

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Transition Season On-Peak kW 8.63


TDHUD MSD (Demand = > 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season






75

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) Seasonal Demand and Energy (SD&E) SD&E GSB (Demand = 5,001 - 15,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 19.65 Energy - All kWh 0.04734 Winter Season Demand -All kW 16.56 Energy - All kWh 0.04293 Transition Season Demand - All kW 13.50 Energy - All kWh 0.04193 SD&E GSC (Demand = 15,001 - 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 19.65 Energy - All kWh 0.04676 Winter Season Demand - All kW 16.56 Energy - All kWh 0.04225 Transition Season Demand - All kW 13.50 Energy - All kWh 0.04128 SD&E GSD (Demand = > 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 19.64 Energy - All kWh 0.04446 Winter Season Demand - All kW 16.55 Energy - All kWh 0.04052 Transition Season Demand - All kW 13.49 Energy - All kWh 0.03964


76

SCHEDULE OF UTILITY RATES IN FORCE JUNE 30, 2016 (UNAUDITED) SD&E MSB (Demand = 5,001 - 15,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 16.52 Energy - All kWh 0.03854 Winter Season Demand - All kW 13.45 Energy - All kWh 0.03355 Transition Season Demand - All kW 10.39 Energy - All kWh 0.03238 SD&E MSC (Demand = 15,001 - 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 16.52 Energy - All kWh 0.03769 Winter Season Demand - All kW 13.45 Energy - All kWh 0.03302 Transition Season Demand - All kW 10.39 Energy - All kWh 0.03189 SD&E MSD (Demand = > 25,000 kW) Customer Charge (per delivery point per month) $2,000.00 Summer Season Demand - All kW 19.63 Energy - All kWh 0.03002 Winter Season Demand - All kW 16.56 Energy - All kWh 0.02626 Transition Season Demand - All kW 13.49 Energy - All kWh 0.02534


77

SCHEDULE OF NUMBER OF CUSTOMERS

JUNE 30, 2016 (UNAUDITED)

Residential 345,051 Small Commercial 33,667 Large Commercial and Industrial 6,858 Street and Highway Lighting 508 Total Customers 386,084


78

SCHEDULE OF INVESTMENTS JUNE 30, 2016 (UNAUDITED)

Face Value Description Fair Value Securities From Agencies Chartered by Congress

$10,390,000 FHLB, 0.8755%, Matures 05/24/17 $10,418,157 $12,000000 FHLB, 0.625%, Matures 05/30/17 $12,005,520 $2,800,000 FHLB, 0.875%, Matures 05/24/17 $2,807,588 $7,750,000 FHLB, 0.625%, Matures 06/08/17 $7,755,890

$667,000 Federal National Mortgage, Zero Coupon, Matures 11/15/16 $657,029 $921,000 Federal National Mortgage, Zero Coupon, Matures 05/15/17 $900,205

$8,341,000 Federal National Mortgage, Zero Coupon, Matures 06/01/17 $8,143,144 $7,184,000 Federal National Mortgage,1.25%, Matures 09/28/16 $7,198,224

$485,000 Federal Home Loan Mortgage, 1.0%, Matures 03/08/17 $486,591 474,000 Fannie Mae, 5.375%, Matures 06/12/17 $495,065 117,000 TVA, Zero Coupon, Matures 07/15/16 $115,558 117,000 TVA, Zero Coupon, Matures 01/15/17 $114,779

2,398,000 U.S. Guaranteed Notes, Zero Coupon, Matures 09/15/16 $2,367,387 8,375,000 U.S. Guaranteed Notes, Zero Coupon, Matures 03/15/17 $8,205,104

Total Securities from Agencies Chartered by Congress $61,670,241 U.S. Treasury Investments

$9,031,000 United States Treasury, 0.875%, Matures 12/31/16 $9,051,862 $767,000 Unites States Treasury, 1.0%, Matures 03/31/17 $769,846

Total U.S. Treasury Investments $9,821,708 Total Investments $71,491,949


79

SCHEDULE OF LONG-TERM DEBT, PRINCIPAL AND INTEREST SINKING FUND REQUIREMENTS BY FISCAL YEAR JUNE 30, 2016 (UNAUDITED)

YEAR 1998 SERIES A CABS 1998 SERIES B 2008 SERIES A 2008 SERIES B

ENDING 5/15/xx PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST

2017 4,311,609 7,523,391 6,345,000 348,975 3,415,000 269,863 - 361,562

2018 4,087,927 7,747,073 - - 3,545,000 141,800 - 361,562

2019 3,875,844 7,959,156 - - - - - 361,562

2020 - - - - - - 1,750,000 361,562

2021 - - - - - - 1,835,000 274,063

2022 - - - - - - 1,925,000 182,313

2023 - - - - - - 2,025,000 86,063

2024 - - - - - - - -

2025 - - - - - - - -

2026 - - - - - - - -

2027 - - - - - - - -

2028 - - - - - - - -

2029 - - - - - - - -

2030 - - - - - - - -

2031 - - - - - - - -

2032 - - - - - - - -

2033 - - - - - - - -

2034 - - - - - - - -

2035 - - - - - - - -

2036 - - - - - - - - 2037 - - - - - - - - 2038 - - - - - - - -

2039 - - - - - - - -

TOTAL 12,275,380 23,229,620 6,345,000 348,975 6,960,000 411,663 7,535,000 1,988,687

ACCRETION 19,886,394 (19,886,394) - - - - - -

DISC/ PREM - - 27,185 (27,185) 14,818 (14,818) 153,135 (153,135)

GROSS $ 32,161,774 $ 3,343,226 $ 6,372,185 $ 321,790 $ 6,974,818 $ 396,845 $ 7,688,135 $ 1,835,552


80

SCHEDULE OF LONG-TERM DEBT, PRINCIPAL AND INTEREST SINKING FUND REQUIREMENTS BY FISCAL YEAR (continued) JUNE 30, 2016 (UNAUDITED)

YEAR 2011 SERIES A 2011 SERIES B 2013 SERIES A 2014 SERIES A

ENDING 5/15/xx PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST

2017 2,840,000 4,167,363 5,880,000 5,890,975 - 2,530,813 2,565,000 5,168,800

2018 2,945,000 4,060,263 11,345,000 5,655,775 - 2,530,813 2,670,000 5,066,200

2019 3,035,000 3,971,913 11,915,000 5,088,525 - 2,530,813 2,805,000 4,932,700

2020 3,170,000 3,838,663 12,510,000 4,492,775 - 2,530,813 2,915,000 4,820,500

2021 3,265,000 3,743,563 13,075,000 3,929,825 - 2,530,813 3,060,000 4,674,750

2022 3,410,000 3,595,188 13,730,000 3,276,075 - 2,530,813 3,215,000 4,521,750

2023 3,555,000 3,449,863 14,340,000 2,658,225 - 2,530,813 3,375,000 4,361,000

2024 3,735,000 3,272,113 18,045,000 1,941,225 - 2,530,813 3,545,000 4,192,250

2025 3,920,000 3,085,363 10,380,000 1,038,975 $ 8,245,000 2,530,813 3,720,000 4,015,000

2026 4,115,000 2,889,363 10,900,000 519,975 8,510,000 2,262,850 3,905,000 3,829,000

2027 4,325,000 2,683,613 - - 12,470,000 1,965,000 4,100,000 3,633,750

2028 4,540,000 2,467,363 - - 13,090,000 1,341,500 4,310,000 3,428,750

2029 4,765,000 2,240,363 - - 13,740,000 687,000 4,525,000 3,213,250

2030 5,005,000 2,002,113 - - - - 4,750,000 2,987,000

2031 5,255,000 1,751,863 - - - - 4,985,000 2,749,500

2032 5,490,000 1,516,750 - - - - 5,235,000 2,500,250

2033 5,765,000 1,242,250 - - - - 5,500,000 2,238,500

2034 6,050,000 954,000 - - - - 5,775,000 1,963,500

2035 6,355,000 651,500 - - - - 6,060,000 1,674,750

2036 6,675,000 333,750 - - - - 6,365,000 1,371,750

2037 - - - - - - 6,685,000 1,053,500

2038 - - - - - - 7,015,000 719,250

2039 - - - - - - 7,370,000 368,500

TOTAL 88,215,000 51,917,220 122,120,000 34,492,350 56,055,000 29,033,667 104,450,000 73,484,200

ACCRETION - - - - - - - -

DISC/ PREM 6,773,422 (6,773,422) 10,889,015 (10,889,015) 4,729,741 (4,729,741) 13,911,306 (13,911,306)

GROSS $ 94,988,422 $ 45,143,798 $ 133,009,015 $ 23,603,335 $ 60,784,741 $ 24,303,926 $ 118,361,306 $ 59,572,894


81

SCHEDULE OF LONG-TERM DEBT, PRINCIPAL AND INTEREST SINKING FUND REQUIREMENTS BY FISCAL YEAR (continued) JUNE 30, 2016 (UNAUDITED)

YEAR 2015 SERIES A TOTAL DEBT SERVICE

ENDING 5/15/xx PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL

2017 - 5,644,750 25,356,609 31,906,492 57,263,101

2018 - 5,644,750 24,592,927 31,208,236 55,801,163

2019 3,220,000 5,644,750 24,850,844 30,489,419 55,340,263

2020 13,205,000 5,483,750 33,550,000 21,528,063 55,078,063

2021 13,870,000 4,823,500 35,105,000 19,976,514 55,081,514

2022 14,560,000 4,130,000 36,840,000 18,236,139 55,076,139

2023 15,290,000 3,402,000 38,585,000 16,487,964 55,072,964

2024 4,190,000 2,637,500 29,515,000 14,573,901 44,088,901

2025 4,405,000 2,428,000 30,670,000 13,098,151 43,768,151

2026 4,625,000 2,207,750 32,055,000 11,708,938 43,763,938

2027 4,855,000 1,976,500 25,750,000 10,258,863 36,008,863

2028 5,095,000 1,733,750 27,035,000 8,971,363 36,006,363

2029 5,355,000 1,479,000 28,385,000 7,619,613 36,004,613

2030 5,620,000 1,211,250 15,375,000 6,200,363 21,575,363

2031 5,900,000 930,250 16,140,000 5,431,613 21,571,613

2032 6,200,000 635,250 16,925,000 4,652,250 21,577,250

2033 6,505,000 325,250 17,770,000 3,806,000 21,576,000

2034 - - 11,825,000 2,917,500 14,742,500

2035 - - 12,415,000 2,326,250 14,741,250

2036 - - 13,040,000 1,705,500 14,745,500

2037 - - 6,685,000 1,053,500 7,738,500

2038 - - 7,015,000 719,250 7,734,250

2039 - - 7,370,000 368,500 7,738,500

TOTAL 112,895,000 50,338,000 516,850,380 265,244,382 782,094,762

ACCRETION - - 19,886,394 (19,886,394) - DISC/ PREM 20,505,281 (20,505,281) 57,003,903 (57,003,903) -

GROSS

$ 133,400,281

$ 29,832,719 $ 593,740,677 $ 188,354,085 $ 782,094,762


82

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

JUNE 30, 2016 (UNAUDITED)

Accrued Accrued Federal Grantor / Pass-Through CFDA Contract Balance Cash Balance

Grantor / Cluster Title Number Number June 30, 2015 Receipts Expenditures Adjustments June 30, 2016

U.S Department of Homeland Security/

TN Emergency Management Agency/

Disaster Grants- Public Assistance

Total U.S. Department of

Homeland Security – Storm Damage 97.036 N/A $ -

($823,519) $1,098,025 ($274,506) $ -


83

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016

1. The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Board”) and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

2. The grant revenue amounts received are subject to audit and adjustment. If any expenditures are disallowed by the grantor agency as a result of such an audit, any claim for reimbursement to the grantor agency would become a liability of the Board. In the opinion of management, all grant expenditures are in compliance with the terms of the grant agreements and applicable federal laws and regulations.

PricewaterhouseCoopers LLP, 150 3rd Avenue South, Suite 1400, Nashville, TN 37201 T: (615) 503 2860, F: (615) 503 2870, www.pwc.com/us

Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in

Accordance with Government Auditing Standards

To the Electric Power Board of the Metropolitan Government of Nashville and Davidson County Nashville, Tennessee We have audited, 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, the financial statements of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Electric Power Board”), a component unit of the Metropolitan Government of Nashville and Davidson County, Tennessee, which comprise the statement of net position as of June 30, 2016, and the related statements of revenues, expenses, and changes in net position and of cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated October 20, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Electric Power Board’s internal control over financial reporting (“internal control”) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Electric Power Board’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Electric Power Board’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Electric Power Board’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express

2

such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Nashville, Tennessee October 20, 2016


86

Schedule of Findings and Responses None

APPENDIX B

Unaudited Financial Information for the Six-Month Periods

Ended December 31, 2016 and December 31, 2015

(See Notes to Unaudited Financial Information included herein.)

B-1

STATEMENTS OF NET POSITION ($000 OMITTED)

(Unaudited)

December 31, (Unaudited)

December 31, 2016 2015 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS: Cash and cash equivalents $ 327,555 $ 307,470 Customer and other accounts receivable, less allowance for doubtful accounts of $401 and $614 respectively 132,547 118,831 Materials and supplies 21,090 19,637 Other current assets 8,812 8,724 TOTAL CURRENT ASSETS 490,004 454,662 INVESTMENT OF RESTRICTED FUNDS: Cash and cash equivalents 52,290 30,750 Other investments 61,034 110,982 TOTAL INVESTMENT OF RESTRICTED FUNDS 113,324 141,732 UTILITY PLANT: Electric plant, at cost 1,601,057 1,542,721 Less: Accumulated depreciation (651,841) (615,027) TOTAL UTILITY PLANT, NET 949,216 927,694 OTHER NON-CURRENT ASSETS 5,932 5,256TOTAL ASSETS 1,558,476 1,529,344 DEFERRED OUTFLOWS OF RESOURCES: Deferred amount on refunding of debt 16,489 18,413 Difference between projected and actual pension earnings 16,220 22,255 Difference between projected and actual pension experience 26,737 5,474 TOTAL DEFERRED OUTFLOWS OF RESOURCES 59,446 46,142 TOTAL ASSETS AND DEFERRED OUTLFOWS OF RESOURCES 1,617,922 1,575,486

See Notes to Unaudited Financial Information

B-2

STATEMENTS OF NET POSITION ($000 OMITTED) (continued)

(Unaudited)

December 31, 2016

(Unaudited) December 31,

2015 LIABILITIES AND DEFERRED INFLOWS OF RESOURCES

CURRENT LIABILITIES: Accounts payable for purchased power 147,552 128,602 Trade accounts payable 8,851 11,635 Accrued expenses 15,980 12,826 Customer deposits 16,364 14,675

TOTAL CURRENT LIABILITIES 188,747 167,738

CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS: Construction contracts payable 572 22 Accrued interest payable 3,048 3,222 Current portion of long-term debt 25,357 31,230

TOTAL CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS 28,977 34,474

LONG-TERM DEBT, LESS CURRENT PORTION 565,752 596,530

NET PENSION LIABILITY 227,637 200,932

OTHER NON-CURRENT LIABILITIES 9,195 9,982

TOTAL LIABILITIES 1,020,308 1,009,656

TOTAL DEFERRED INFLOWS OF RESOURCES - -

NET POSITION 597,614 565,830 TOTAL LIABILITIES, DEFERRED INFLOWS, AND NET POSITION $ 1,617,922 $ 1,575,486


B-3


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ($000 OMITTED)


2016


2015 OPERATING REVENUES: Residential $ 282,822 $ 251,067 Commercial and industrial 366,953 351,172 Street and highway lighting 9,931 9,642 Other 11,452 10,168

Total operating revenues, net 671,158 622,049

PURCHASED POWER 497,523 459,740

Operating revenues, net, less purchased power 173,635 162,309

OPERATING EXPENSES 93,742 85,763 TAX EQUIVALENTS 16,759 16,233 DEPRECIATION 27,476 26,916

Operating income 35,658 33,397 NON-OPERATING REVENUE (EXPENSE): Interest income 673 287 Interest expense, net (10,153) (10,719) Total non-operating expense (9,480) (10,432)

NET INCREASE IN NET POSITION 26,178 22,965

NET POSITION, beginning of year 571,436 542,865

NET POSITION, end of year $ 597,614 $ 565,830

B-4

ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY NOTES TO UNAUDITED FINANCIAL INFORMATION BASIS OF PRESENTATION The accompanying unaudited financial information includes the accounts of the Electric Power Board of the Metropolitan Government of Nashville and Davidson County (the “Board”). This financial information does not include certain information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended December 31, 2016 and 2015 are not necessarily indicative of the results that may be expected for the fiscal years ending June 30, 2017 and 2016. PricewaterhouseCoopers LLP, the Board’s auditor, has not been engaged to perform and has not performed any procedures on the financial information included in this Appendix B. The Board will adopt GASB 75 for fiscal 2018 through retroactive application in the first month of fiscal 2017. The purpose of this standard is to improve the transparency of other post-employment benefit obligations (OPEB) and related funding status by presenting the net OPEB liability on the statement of net assets of the plan sponsor. This standard also changes how funding is recognized, and changed the elements of OPEB expense. However, the funding requirements were not impacted by this standard; only the manner in which the funding is recognized in the financial statements. At the date of adoption (July 1, 2016) the Net Position will be reduced by approximately $207 million, and a net OPEB liability will be recognized for the same amount. Administrative and General Expense (before allocations of overhead for capital projects) is expected to increase by a non cash adjustment of approximately $3.7 million. The actual adjustment will differ subject to the difference between actual investment results and actuarial investment results as of June 30, 2017. Funding for fiscal 2017 will remain unchanged at $19.5 million. See also more detailed discussion of the OPEB plan in Note 8 of the Financial Statements in Appendix A.

APPENDIX C

The Metropolitan Government of Nashville and Davidson County Area – Economic and Demographic Information

C-1

THE METROPOLITAN NASHVILLE AND DAVIDSON COUNTY AREA

Economic and Demographic Information

The Metropolitan Government of Nashville and Davidson County (the "Metropolitan Government") is issuing its Electric System Revenue Bonds, 2017 Series A (the “2017 Series A Bonds”), and its Electric System Revenue Refunding Bonds, 2017 Series B (the "2017 Series B Bonds" and collectively with the 2017 Series A Bonds, the “2017 Series A and B Bonds”) for the use and benefit of the Electric Power Board of The Metropolitan Government of Nashville and Davidson County, which does business as Nashville Electric Service. The 2017 Series A and B Bonds are not general obligations of the Metropolitan Government, and no holder of the 2017 Series A and B Bonds shall ever have the right to compel the Metropolitan Government to exercise its taxing power to pay principal, redemption price of or interest on the 2017 Series A and B Bonds. The Metropolitan Government Organization On June 28, 1962, the voters of Nashville and Davidson County approved the Charter of the Metropolitan Government (the "Charter"). The Tennessee Supreme Court upheld the validity of the Charter in October 1962. On April 1, 1963 the governments of the City of Nashville and of Davidson County were consolidated to form "The Metropolitan Government of Nashville and Davidson County", under which the boundaries of Nashville and Davidson County are co-extensive.

The executive and administrative powers are vested in the Metropolitan Mayor (the "Mayor"), who is elected at large for a four-year term. The Mayor is authorized to administer, supervise and control all departments and to appoint all members of boards and commissions created by the Charter or by ordinance enacted pursuant to the Charter unless otherwise excepted. A two-thirds vote of the Metropolitan County Council is required to override the Mayor's veto. The Charter also provides for a Vice Mayor, who is elected at large for a four-year term and is the presiding officer of the Metropolitan County Council. The Metropolitan County Council is the legislative body of the Metropolitan Government and is composed of 40 members who are elected for four-year terms: 35 are elected from council districts and five are elected at large.

Economic and Demographic Profile of the Metropolitan Government Introduction

The Metropolitan Government as created in 1963, is in the north central part of Tennessee and covers 533 square miles. Nashville is the capital of the State of Tennessee and is situated in the Nashville Basin, between the Tennessee River on the west and the Eastern Highland Rim on the east.


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Population Growth

The following table sets forth information concerning population growth in the Metropolitan Government. A comparison with the Nashville Metropolitan Statistical Area ("MSA"), the State and the United States serves to illustrate relative growth.


DEMOGRAPHIC STATISTICS - POPULATION GROWTH

Change Area 2000 2010 2000 – 2010 2016 Estimates

Nashville/Davidson 569,891 626,681 10.0% 684,410 MSA 1,311,789 1,670,900 27.4% 1,865,298 State 5,689,283 6,346,105 11.5% 6,651,194 United States 281,421,906 308,745,538 9.7% 323,127,513 Source: Census Bureau (census.gov)

Growth within the MSA has occurred to the greatest extent in surrounding communities, which, although suburbs of Nashville, are in themselves residential, manufacturing and agricultural communities.

Per Capita Personal Income

Area 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Davidson Co. 44,031 44,372 46,108 45,928 46,826 48,504 50,440 51,245 54,307 55,411 MSA 38,271 39,017 40,238 39,369 40,571 42,494 45,207 45,759 47,392 50,635 Tennessee 33,125 34,181 35,080 34,439 35,426 37,151 39,002 39,558 40,233 42,094 United States 38,127 39,804 40,873 39,379 40,144 42,332 44,200 44,765 46,414 48,112 Source: Bureau of Economic Analysis (bea.gov)

Economy of the Metropolitan Area

Nashville has a diverse economy, having considerable involvement in commerce and industry, education and government. Agriculture is also a major factor in the economy of the surrounding counties. Insurance, finance, publishing, banking, health care, music, tourism, manufacturing and distribution are all mainstays of the economy. Lack of dependency on one industry has helped to insulate Nashville from the impact of product business cycles. Businesses have been attracted to Nashville because of its location, work force, services and taxes. The central location of Nashville, approximately halfway between Houston and New York, has contributed to its emergence as an important wholesale and retail center.

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Employment

The following table shows the labor force segments of the eight-county Nashville Metropolitan Statistical Area for calendar years 2007 through 2016.

NASHVILLE MSA

EMPLOYMENT BY INDUSTRY(1)

Industry 2007 2008 2009

2010

2011

2012

2013

2014

2015

2016

Education & Health Services 112.1 116.1 118.9 122.7 126 129.5 132.6 135.9 140.8 145.7

Financial Activities 48.6 48.4 47.3 48.4 49.6 51 53.7 56.6 59.6 62.7

Government 105.8 109 110.5 111.9 111 109.8 110.7 112 113.4 115.2

Information 20.4 21.7 20.6 19.8 19.8 20.7 20.9 20.6 21.6 23.1

Leisure & Hospitality 83.5 82.4 79.4 79.7 81.6 86.4 90.5 95.7 100.4 105.6

Manufacturing 85.2 79.6 67.3 63.1 65.4 70.3 74.8 77.7 79 81.8

Professional & Business Services 104.1 102.9 95.1 100.4 108.5 117.7 125.7 136.5 146.7 155.9

Trade, Transportation, Utilities 160 160.4 153.1 153.1 157.7 163 167.6 172.9 176.4 180.6

Total Non-Agriculture Employment 794.7 793.5 756.3 762.5 786.1 816.4 846.1 880.2 914.6 949.6

Other 75 73 64.1 63.4 66.5 68 69.6 72.3 76.7 79.0

(1)Employment numbers in thousands. Source – Bureau of Labor Statics (bls.gov)


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PERCENTAGE OF PERSONS EMPLOYED BY INDUSTRY: MSA, STATE, AND NATION

Nashville MSA Tennessee United States 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 Total Employed All Industries1

950

915

880

846

816

2,966

2,894

2,822

2,760

2,715

144,306

141,843

138,958

136,381

134,175 In Percentages: Education & Health Services 15.34% 15.39% 15.44% 15.67% 15.86% 14.31% 14.34% 14.40% 14.55% 14.59% 15.67% 15.53% 15.43% 15.46% 15.48% Financial Activities 6.60% 6.52% 6.43% 6.35% 6.25% 5.52% 5.11% 5.11% 5.03% 5.05% 5.74% 5.73% 5.74% 5.78% 5.80% Government 12.13% 12.40% 12.58% 13.08% 13.45% 14.41% 14.69% 15.03% 15.31% 15.53% 15.40% 15.53% 15.75% 16.02% 16.34% Information 2.43% 2.36% 2.34% 2.47% 2.54% 1.53% 1.53% 1.55% 1.60% 1.59% 1.92% 1.94% 1.96% 1.98% 1.99% Leisure & Hospitality 11.12% 10.98% 10.87% 10.70% 10.58% 10.80% 10.64% 10.51% 10.36% 10.20% 10.82% 10.69% 10.58% 10.45% 10.26% Manufacturing 8.61% 8.64% 8.83% 8.84% 8.61% 11.58% 11.51% 11.51% 11.54% 11.54% 8.56% 8.70% 8.77% 8.81% 8.89% Professional & Business Services 16.42% 16.04% 15.51% 14.86% 14.42% 13.68% 13.58% 13.31% 12.83% 12.47% 13.95% 13.84% 13.72% 13.58% 13.36% Trade, Transportation, Utilities 19.02% 19.29% 19.64% 19.81% 19.97% 20.80% 20.81% 20.90% 21.057% 21.18% 18.87% 18.60% 18.99% 18.96% 18.99% Other 8.32% 8.39% 8.36% 8.23% 8.33% 7.74% 7.78% 7.69% 7.74% 7.85% 9.06% 9.45% 9.07% 8.94% 8.89% (1)Total Nonfarm Employment in thousands

Source: Bureau of Labor Statistics (bls.gov)


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THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY PRINCIPAL EMPLOYERS

CURRENT YEAR AND NINE YEARS AGO

June 30, 2016 June 30, 2007

Employer Employees Rank % of Total

Employment Employees Rank % of Total

Employment

Vanderbilt University 24,719 1 2.75% 18,252 3 2.29%

Metro Nashville-Davidson Co. Governments and Public Schools

18,820 2 2.09 19,188 2 2.40

State of Tennessee 17,219 3 1.91 20,029 1 2.51

U.S. Government 12,225 4 1.36 11,216 4 1.40

Nissan North America Inc. 10,900 5 1.21 8,100 7 1.01

Saint Thomas Health 7,100 6 0.79 8,200 6 1.03

HCA Holdings Inc. 7,000 7 0.78 9,649 5 1.21

Community Health Systems Inc. 4.300 8 0.48 - - (1)

Asurion 4,175 9 0.46 - - (1)

Randstad 4,100 10 0.46 - - (1)

Wal-Mart Stores Inc. - - (1) 4,500 10 0.56

Bridgestone America Holdings Inc. - - (1) 4,900 8 0.61

Gaylord Entertainment Company - - (1) 4,519 9 0.57

110,558 12.29% 108,553 13.59%

Sources: Principal Employers and Number of Employees – Nashville Area Chamber of Commerce, Nashville Business Journal Total Employment – TN Department of Labor & Workforce Development Note: The schedule reflects employers and number of employees within the Metropolitan Statistical Area.

(1) National, State or Corporate Headquarters.


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Investment and Job Creation

FY2015-2016, the Nashville Area Chamber of Commerce announced 138 business relocations or expansions into the Nashville MSA, bringing 12,137 jobs. In FY 2016, the Nashville Area Chamber of Commerce announced 67 business relocations or expansions into Davidson County, collectively bringing 5,164 new jobs into Metro Davidson County. Continued expansion has occurred in recent years in corporate and regional headquarters, information processing operations, the automotive industry, health care management and many areas where the local economy has established strength and growth potential. Over the past several years, many sizable headquarters, shared service operations, and manufacturing operations have relocated and/ or expanded in Nashville. In the 2015-2016 Fiscal Year, Lyft announced it was locating its Regional Headquarter and bringing 400 new jobs to downtown Nashville. Aegis Science announced an expansion adding 740 new jobs to their Headquarters. Sinomax Group announced the relocation of a manufacturing plant adding 350 new jobs making them the largest Chinese employer in the state. Another advanced manufacture that located to Nashville was Harry’s Fresh Foods announcing 300 new jobs. The General Insurance is planning an expansion creating 276 jobs in Nashville. Hankook Tire announced the location of its North American Headquarters to Nashville and will be adding another 200 jobs in Nashville Region. Healthcare leader, HCA, announced the addition of 200 new jobs. Another Healthcare company, Triwest Healthcare, announced the addition of 303 new jobs with their relocation to Nashville. In November 2016, Warner Music Group announced that it will move some of its U.S. departments, including U.S. Accounting Operations, Cash Management and Recorded Music Rights Administration to a new center in Nashville, Tennessee; and global shipping firm UPS announced that it will double the size of its ground-package hub in Nashville. Other successes in Davidson County include DayNine Consulting establishing corporate operations in Nashville adding 260 new jobs, and Accenture established a new corporate operations office adding 250 new jobs in Nashville. Postmates announced new corporate operations in Nashville bringing 200 new jobs. A Healthcare company, Intermedix, announced 116 new jobs with its new corporate operations in Nashville. Two leading tech companies announced expansions in Nashville: Eventbrite bringing 100 new jobs and LeanKit bringing 70 new jobs. Unemployment Rates The following table sets forth the unemployment percentage rates in Davidson County, the MSA, the State and the United States for the calendar years 2007-2016.


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Unemployment Percentage Rates for Calendar Years 2006-2015 (Average Annual Rate)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Davidson County 3.8 5.4 8.9 8.2 7.5 6.2 5.9 5.0 4.4 3.6

Nashville MSA 4.1 5.8 9.5 8.6 7.8 6.4 6.2 5.2 4.5 3.8

Tennessee 4.7 6.6 10.5 9.7 9 7.8 7.8 6.5 5.6 4.8

United States 4.6 5.8 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.9

Source - Bureau of Labor Statistics (bls.gov)

Education

The school system had its beginning in 1963 with the merger of Nashville and Davidson County. The Nashville public schools make up the second largest school system in Tennessee. In the 2016-2017 school year, Nashville had 171 public schools, with more than 87,000 students and approximately 5,500 teachers. In addition, there are approximately 70 independent schools, which are attended by over 2,600 students from pre-kindergarten through 12th grade.

The following table summarizes enrollment and attendance trends.


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SCHOOL SYSTEM

Public Schools Enrollment and Attendance

School Year Enrollment Average

Attendance

2007-2008 74,733 70,231

2008-2009 75,043 69,686

2009-2010 76,329 70,979

2010-2011 78,096 73,808

2011-2012 79,117 75,072

2012-2013 81,077 76,946

2013-2014 82,863 78,471

2014-2015 84,500 76,252

2015-2016 89,753 77,059

2016-2017 87,572 76,951

The Nashville Metropolitan Statistical Area has 15 colleges and universities, including Vanderbilt University, Belmont University, Tennessee State University, David Lipscomb University, Meharry Medical College, Nashville State Technical Institute and Fisk University. Total higher education enrollment exceeds 65,000 students annually. Seven of Nashville’s institutions of higher education offer graduate programs. Nashville is also a leading center for medical research and education with Vanderbilt University emphasizing medical research in addition to its programs in other disciplines and with Meharry Medical College specializing in health care delivery.

Manufacturing

As of December 2016, an average of 81,800 persons were employed in the manufacturing industries in the MSA, engaging in a wide range of activities and producing a variety of products, including food, tobacco, textiles and furnishings, lumber and paper, printing and publishing, chemical and plastics, leather, concrete, glass, stone, primary metals, machinery and electronics, motor vehicle equipment, measuring and controlling devices, and consumer products. Nashville MSA's largest manufacturing employers include Nissan North America, Bridgestone Americas, Electrolux Home Products, A.O. Smith Water Products and Vought Aircraft Industries. Trade Nashville is the major wholesale and retail trade center for the MSA and some 50 counties in the central region of the State, southern Kentucky and northern Alabama, a retail trade area of more than 2.3 million people with consumer spending by Nashville MSA residents exceeding $32.0 billion. Nashville is one of the top 50 retail markets in the country. In the Nashville region, there are 245 shopping centers with 37.3 million square feet of gross leasable area. Nine of these centers are super-regional and 15 are regional.

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Agriculture

Nashville is surrounded by agricultural-based economies. The area encompassing middle Tennessee produces livestock, dairy products, soybeans, small grain, feed lot cattle, strawberries, hay and tobacco. Additionally, the area surrounding Nashville is the home of the Tennessee Walking Horse.

Transportation

Nashville serves as a conduit or trans-shipment point for much of the traffic between the northeast and southeast United States. Three interstate highways extending in six directions intersect in Nashville in addition to nine Federal highways and four State highways. Barge service on the Cumberland River, together with good rail and air services, give Nashville an excellent four-way transportation network.

The Cumberland River, connecting Nashville and the surrounding area to the Gulf of Mexico and intermediate points on the Ohio and Mississippi Rivers, is used by 51 commercial operators, 18 of which serve Nashville. With the completion of the Tennessee-Tombigbee Waterway in 1985, Cumberland River freight is able to reach the Port of Mobile, thereby eliminating approximately 600 miles of the distance from Nashville to the open sea and contributing to the development of foreign trade in Nashville. In addition, the Federal Government in 1982 approved Nashville as a Foreign Trade Zone, a secured area supervised by the United States Customs Service, which provides for the storing of foreign merchandise without duty payments.

The CSX System, a major national railroad, serves Nashville. In addition, five major rail lines link Nashville to all major markets in the nation. Rail carriers interchange freight and cooperate in providing and extending transit privileges covering both dry and cold storage and the processing or conversion of materials.

A commuter rail service from Lebanon, Tennessee to Nashville, approximately 32 miles, known as the Music City Star commenced transportation services in the September of 2006. It is operated under the direction of the Regional Transportation Authority, a multi-county agency. The ticket price includes Metropolitan Transportation Authority (“MTA”) bus service on circulator routes in the downtown area.

In 1973, the Metropolitan Government acquired the net assets of the Nashville Transit Company and the Metropolitan Transit Authority was established. MTA provides a comprehensive public transportation system covering the entire metropolitan area. In addition to regularly scheduled bus routes, MTA provides special transportation services for the handicapped and operates bus service in the downtown area for shoppers, tourists and downtown workers. The revenues derived from the transit system are not sufficient to pay the expenses incurred in the operation of the system. The Metropolitan Government and the State of Tennessee contributed in the fiscal year ending June 30, 2016, approximately $40.014 million and $4.585 million respectively, to pay approximately 60.70% of the Authority’s operating expenses. The State directs revenues from a two cent per gallon gasoline tax, which it imposes on local governments that may be applied to mass transit. The contribution of the Metropolitan Government was paid from its general revenues.

The Metropolitan Nashville Airport Authority (the "Airport Authority") owns Nashville International and John C. Tune airports. Nashville International Airport (the "Airport") is situated approximately eight miles from downtown Nashville.

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Airport Facts:

• 1 million+-square-foot terminal

• 44 gates and 15 commuter aircraft parking positions

• Up to 78 commuter aircraft parking positions on 4,500 acres

• Four runways

• Ranked ninth in the nation for Best Domestic Airport by Travel and Leisure in 2016

• Served more than 12.2 million passengers in Fiscal Year 2015-2016

• 33rd busiest airport in the United States

• $1.18 billion in wages and more than 39,700 jobs annually

• Serving 70 markets; 50 nonstop

• 440 daily flights

The Airport Authority also operates the John C. Tune Airport in the Cockrill Bend Industrial area west of Nashville. It serves the needs of regional corporate and private aircraft and allows Nashville International's air carrier traffic to flow with fewer constraints. Tune Airport also provides a pilot training environment and modern facilities for the transient and corporate operator.

Construction

Construction in Nashville is illustrated by the table on the following page describing the number and value of building permits issued by the Department of Codes Administration of the Metropolitan Government. Of the major areas of office development in Nashville, Downtown is by far the largest, with approximately 8.1 million square feet of leasable space. The Downtown area achieved positive absorption of 230,123 square feet in the fourth quarter of 2016. Office vacancy in Downtown at the end of 2016 was 9.1% with another 1.27 million square feet under construction. There continues to be strong interest throughout Downtown and around the new Music City Center, which has sparked continued strong interest in office space and hotel development Downtown. Four other important office submarkets – Green Hills, West End, Airport North and MetroCenter – in Davidson County, meanwhile have vacancy rates at 10% or lower, reflecting the overall vitality of the city and improvement over 2015. Leasing activity remains steady and growing in many Nashville office submarkets, which is a positive sign of very dynamic economic patterns in Nashville. There is continued national interest in Nashville, and Tennessee’s attractiveness has been evident with new relocations, renewals and expansions.


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NUMBER AND VALUE OF BUILDING PERMITS IN


(1) Includes moved residential buildings, house trailers, and the demolition of residential and non-residential buildings and signs and billboard permits. Metropolitan Government Department of Code Administration

Repairs,

Residential Non-Residential Alterations and

Construction Construction Installations Other (1) Total

Calendar Number

of Number

of Number of Number

of

Number of

Permit

Year Permits Value Permits Value Permits Value Permits Value Permits Value

2001 2,975 521,311,880 896 354,527,042 4,146 336,595,779 1,179 14,962,413

9,196

1,227,397,114

2002 2,846 476,572,494 851 173,707,294 4,302 405,697,860 1,433 20,029,867

9,432

1,076,007,515

2003 3,207 536,278,115 693 279,867,295 4,531 356,979,647 1,222 20,013,372

9,653

1,193,138,429

2004 3,708 655,382,120 849 398,788,311 4,023 351,762,279 1,291 23,195,687

9,871

1,429,128,397

2005 3,794 747,525,151 865 428,627,829 4,431 462,950,966 1,434 24,073,860

10,524

1,663,177,806

2006 3,801 758,964,847 620 503,077,069 5,094 553,177,902 1,422 15,722,367

10,937

1,830,942,185

2007 5,965 851,544,710 1,453 619,951,806 2,754 267,721,486 1,469 17,293,882

11,641

1,756,511,884

2008 4,361 412,842,242 489 408,945,106 3,597 460,743,268 858 21,723,839

9,305

1,304,254,455

2009 3,149 318,357,857 495 375,074,904 1,913 205,828,855 1,730 14,464,364

7,287

913,725,980

2010 2,067 294,470,986 528 647,479,914 6,722 424,461,986 1,663 15,189,625

10,980

1,381,602,481

2011 2,166 372,440,931 444 382,483,854 3,163 377,053,306 1,840 18,738,180

7,613

1,150,716,271

2012 2,656 526,206,509 735 621,590,087 4,850 431,579,639 2,047 34,340,897

10,288

1,613,717,132

2013 3,406 737,396,336 762 493,330,146 3,405 455,745,450 2,135 23,344,644

9,708

1,709,816,576

2014 4,579 1,163,334,572 696 692,801,880 3,244 397,757,642 2,522 23,934,719

11,041

2,277,828,813

2015 5,774 1,428,091,853 762 937,747,113 2,988 441,598,956 2,862 38,771,613

12,386

2,846,209,535

2016 5,858 1,751,681,098 1,136 1,607,184,808 2,737 562,151,606 2,694 21,911,674

12,425

3,942,929,186

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Tourism

Tourism is a major industry in Nashville consistently ranking in the top 2 producers. The Convention and Visitors Corporation (CVC) and U. S. Travel Data Center estimate more than 13.9 million tourists came to Nashville in 2016 and spent an estimated $5.9 billion. Music, history, art and generous hospitality attract convention delegates and leisure visitors. Recently the city has become known as a destination for great food and culinary creativity. Excellent air service combined with geographic location and a superior highway system contribute to the city’s success. A world-wide reputation as The Music City is a major factor. Nashville’s Music City Center (MCC) opened in May 2013 and features a 350,000 square foot exhibit hall, 75,000 square feet of ballroom space (consisting of a 57,000 square foot grand ballroom and an 18,000 square foot junior ballroom), 90,000 square feet of meeting rooms, 31 loading docks and a parking garage with 1,800 spaces. MCC management and the CVC exceeded their goal of over 1 million room nights booked prior to opening of the center. The Center has generated $ 1 billion in direct economic impact since it opened. In fall of 2016, a 454 room full-service Westin Hotel opened adjacent to the Music City Center. It features 20,000 square feet of meeting space, spa and three restaurants. A $275 million full-service OMNI headquarters hotel opened in September 2013 next to the Music City Center. The 800-room OMNI Hotel features 4 restaurants, 2 ballrooms, 64,000 square feet of meeting space, pool and Spa fitness center. A feature unique to Nashville is the hotel’s physical connection to the adjacent Country Music Hall of Fame and Museum. OMNI, through an agreement with the Museum and the City, built an addition to the attraction almost doubling exhibit space and adding an 800 seat performance theater. The shared space provides access to the museum directly from the hotel and a 765 underground parking garage provides onsite parking. The Convention Center, OMNI and Westin hotels are located downtown in the Metropolitan Government's Central Business District, and are within walking distance of many notable attractions, including, the Bridgestone Arena, the Ryman Auditorium, Frist Center for the Visual Arts, Schermerhorn Symphony Center, Musicians Hall of Fame and Museum and the Johnny Cash Museum. Each year for 46 years the Country Music Association has coordinated a music festival known as CMA Music Festival. The event includes performances by more than 100 entertainers and groups, autograph sessions and activities directed at the attendees. In 2001, the music festival moved to downtown Nashville and attendance has steadily increased, with 88,500 attendees in 2016. The last four years ABC has broadcast a 2 hour show of highlights with Nashville featured as much as the music. In 2013, ABC TV network began broadcasting a weekly music/drama “Nashville.” The hour-long show is shot entirely in Nashville and features well known locales. Songs from top Nashville songwriters drive the storyline, enticing millions of viewers to watch an extended commercial for the city and then visit. The show is currently broadcast in 85 countries worldwide. The 5th season began broadcasting January 2017 on the CMT Network and CMT has announced that it has been renewed for a sixth season. The downtown entertainment district features the Hard Rock Café, Jimmy Buffett’s Margaretville and the Wild Horse Saloon; a newly renovated ($8 million) concert hall, restaurant, dance hall and TV production facility. The Ryman Auditorium (2,362 seats), a former home of the Grand Ole Opry, is known for outstanding acoustics. The 124 year old Ryman has become a venue of choice by entertainers visiting Nashville and seven times has been named Pollstar Magazines venue of the year for the United States. A

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four block section of the downtown area, called lower Broadway, features bars and clubs known as Honky Tonks. These venues are housed in historic brick buildings and highlight live bands performing 15 hours a day, 7 days a week and are in close proximity of the Bridgestone Arena (20,000 seats) and Nissan Stadium. The Bridgestone Arena is now in its 22nd year of operation as a premier entertainment facility and in 2011, 2012, 2013 and 2014 ranked 6th in the United States in concert attendance. In 2015, it became the 2nd ranked arena in the U.S. and 6th in the world. The Arena is home of the Nashville Predators, a National Hockey League team that in 2017 has played and won the first two rounds of the Stanley Cup playoffs, in its twentieth season in Nashville. The Musicians Hall of Fame and Museum is a premier attraction located in the historic 1962 Municipal Auditorium. The Museum honors the musicians behind the music. In 2016, a $1 million Grammy Gallery opened inside the attraction that features recording studios, instruments and memorabilia from throughout the U.S. Nashville is the headquarters of CMT (formerly Country Music Television). Their Nashville friendly programming is transmitted daily to 87 million households. Sirius XM Radio has their southern broadcast facilities inside the Bridgestone Arena where they program multiple channels in 8 studios with a potential daily audience of 27 million. RFD TV moved their production facilities to Nashville and is billed as Rural America’s most important network. The Tennessee NFL Stadium, opened in 1999, named Nissan Stadium, is the home of the 1999 American Football Conference Champion and 2002 AFC South Division Champion Tennessee Titans and the 1999 Ohio Valley Conference Champion Tennessee State University Tigers. Now in its seventeenth year of operation, the stadium also hosts the Music City Bowl each December. The Tennessee State Museum, the Cheekwood Botanical Gardens and Fine Arts Center, President Andrew Jackson’s Home: The Hermitage, Belmont Mansion, The Tennessee Performing Arts Center, the Adventure Science Center, and the Parthenon supplement educational and cultural opportunities in the City. The Grand Ole Opry is America’s longest running live radio show. The Opry first broadcast in 1925 and the country music variety show now plays in a 4,372 seat theater in the Opryland complex near Opry Mills Mall and a few miles from downtown. Each show features 10 to 20 acts or performers and is broadcast on WSM terrestrial and internet radio drawing fans from around the world. Opry Mills is a 1.1 million square foot megamall, which opened in May 2000. The mall contains 200 stores, theme restaurants, a 20 screen multi-theater complex and an IMAX theater. It is visited by more than 12 million customers annually. The Adventure Science Center and the Nashville Zoo provide opportunities for adults and children to learn how science and wildlife affect their lives. The Center features a state-of-the-art Planetarium as well as exhibits and programs which focus on geology, zoology, ecology, physics and other sciences. The Nashville Zoo is continuing a multi-year, multi-million dollar expansion program which will make it one of the largest zoos in the country. The Zoo property is built around the historic 1810 Croft Home and features an ever-expanding display of animals from throughout the world. The Nashville MSA has more than 340 hotels and motels offering more than 39,858 rooms. In addition to the above-described hotels, a 255-room Hyatt Place opened in fall of 2013 near the Music City Center

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and a 194-room Hilton Garden Inn opened in the Vanderbilt area. Developers are in the construction or due diligence stage for approximately 16 additional hotel properties with 4,700 rooms in the Downtown and Midtown area. The Gaylord Opryland Resort and Convention Center is the third largest hotel/convention center under one roof in the United States. The complex features 2,881 hotel rooms, 263,000 square feet of exhibit space and 300,000 square feet of meeting space.

MSA HOTEL AND MOTEL ROOMS / OCCUPANCY RATE

Calendar Rooms Occupancy Year Available Rate 2001 33,316 56.50% 2002 33,474 56.90% 2003 32,661 58.50% 2004 32,727 60.70% 2005 32,983 62.30% 2006 33,052 66.20% 2007 33,056 66.90% 2008 34,921 62.50% 2009 35,662 57.00% 2010 35,639 59.50% 2011 35,727 63.50% 2012 36,263 66.80% 2013 37,124 69.80% 2014 37,824 72.50% 2015 38,721 73.70% 2016 39,858 74.80%

Source: Nashville Conventions and Visitors Corporation


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Medical and Cultural Facilities Nashville is one of the nation’s leaders in the healthcare field. HCA Healthcare has its headquarters and operates several hospitals in the surrounding area. Vanderbilt University Medical Center and St. Thomas Hospital are the city’s other primary hospitals.

The Metropolitan Government relocated the city-owned hospital, the Metropolitan Nashville General Hospital, to Hubbard Hospital of Meharry Medical College in 1998. In addition, Meharry provides medical staff to the Metropolitan Nashville General Hospital. The arrangement provides the city with a renovated facility staffed with residents from Meharry Medical College.

The Nashville Public Library system includes a 300,000 square feet downtown main library and 20 community branches located across the county. In addition, an extensive online offering of books and resources has extended its reach beyond the traditional branch system. The library facilities host numerous in-house programs and community events throughout the year.

The Tennessee Performing Arts Center is the first state-funded facility of its kind in the nation and is home to the Nashville Ballet, the Nashville Opera Association, and the Tennessee Repertory Theatre. The arts center occupies an entire city block, and its venues include Andrew Jackson Hall (2,472 seats), the James Polk Theater (1,075 seats), the Andrew Jackson Theater (256 seats), and the War Memorial Auditorium (1,661 seats). The center plays host to numerous events each year, including an annual series of Broadway plays.

The Frist Center for the Visual Arts occupies the former Nashville’s historic downtown former post office building. A public-private partnership between the Metropolitan Government, the Frist Foundation and the Dr. Thomas F. Frist, Jr. family, the Frist Center contains more than 24,000 square feet of gallery space capable of showcasing major national and international visual arts exhibitions. The Frist Center does not house a permanent art collection but instead places special emphasis on education, arts-related programs for the school children of Nashville, and community outreach. The Center has given Nashville the ability to host significant art shows.

The Parthenon, located in Nashville’s Centennial Park, is a full-scale replica of the original building in Athens, Greece. The reproduction was built to honor Nashville’s reputation for education and has attracted visitors since 1897. The recently restored building features a 41’ tall gilded statue of Athena. Close ties have been established between Nashville and Athens, Greece to market and promote the two complimentary buildings.

The Nashville Children’s Theater is home to the oldest professional theater for children in the county. Thousands of school age children and adults are treated to a variety of productions each year. The 2016-2017 season will be the 85th year for the theater.

Cheekwood Botanical Garden and Art Museum is a fifty-five acre site that includes the original Cheek gardens, with pools, fountains, statuary, extensive boxwood plantings and breathtaking views of the rolling Tennessee hills. The Museum of Art is housed in a 30,000-square foot Georgian-style mansion, and contains world-class collections of American and contemporary painting and sculpture, English and American decorative arts and traveling exhibitions. Collections also include silver, and the most comprehensive collection of Worcester porcelain in America.

Vanderbilt University’s Fine Arts Gallery showcases six exhibitions each year that represent Eastern and Western art and an international collection of works. The Van Vechten Gallery at Fisk University houses more than 100 pieces from artists like Picasso, Renoir, and O'Keeffe. For religious art, there’s a wooden

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8-foot-by-17-foot carving of “The Last Supper” based on Leonardo da Vinci’s masterpiece at The Upper Room Chapel along with a striking 9,000-mosaic stained glass World Christian Fellowship Window. The museum at the Upper Room also has outstanding religious works, besides two annual displays of nearly 70 Ukrainian Easter eggs in April and more than 100 Nativity scenes in December.

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APPENDIX D

Summary of Certain Provisions of the Bond Resolution

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SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION

The following is a summary of certain provisions of the Bond Resolution. This summary does not purport to be a full statement of the terms of the Bond Resolution and, accordingly, is qualified by reference thereto and is subject to the full text thereof. Capitalized terms not defined in this summary or in the Official Statement shall have the respective meanings set forth in the Bond Resolution. Definitions

The following are summaries of certain definitions in the Bond Resolution:

Accreted Value shall mean with respect to any Capital Appreciation Bonds (i) as of any Valuation Date, the amount set forth for such date in the Bond Resolution or the Supplemental Resolution authorizing such Capital Appreciation Bonds and (ii) as of any date other than a Valuation Date, the sum of (a) the Accreted Value on the preceding Valuation Date and (b) the product of (1) a fraction, the numerator of which is the number of days having elapsed from the preceding Valuation Date and the denominator of which is the number of days from such preceding Valuation Date to the next succeeding Valuation Date, calculated based on the assumption that Accreted Value accrues during any semiannual period in equal daily amounts on the basis of a year of twelve thirty-day months, and (2) the difference between the Accreted Values for such Valuation Dates.

Accrued Aggregate Debt Service shall mean, as of any date of calculation, an amount equal to the sum of the amounts of accrued Debt Service with respect to all Series of Bonds, calculating the accrued Debt Service (notwithstanding the assumption concerning Variable Interest Rate Bonds set forth in the definition of "Debt Service" contained below) with respect to each Series at an amount equal to the sum of (i) interest on the Bonds of such Series accrued and unpaid and to accrue to the end of the then current Month, and (ii) Principal Installments due and unpaid and that portion of the Principal Installment for such Series next due which would have accrued (if deemed to accrue in the manner set forth in the definition of Debt Service) to the end of such Month. For purposes of this definition, the principal and interest portions of the Accreted Value of Capital Appreciation Bonds and the Appreciated Value of Deferred Income Bonds becoming due at maturity or by virtue of a Sinking Fund Installment shall be included in the calculations of accrued and unpaid and accruing interest or Principal Installments in such manner and during such period of time as is specified in the Bond Resolution or the Supplemental Resolution authorizing such Capital Appreciation Bonds or Deferred Income Bonds.

Adjusted Aggregate Debt Service for any period shall mean, as of any date of calculation, the Aggregate Debt Service for such period except that, if any Refundable Principal Installment for any Series of Bonds is included in Aggregate Debt Service for such period, Adjusted Aggregate Debt Service shall mean Aggregate Debt Service determined as if each such Refundable Principal Installment had been payable over a period extending from the due date of such Principal Installment through the later of the 25th anniversary of the issuance of such Series of Bonds or the 10th anniversary of the due date of such Principal Installment, in installments which would have required equal annual payments of principal and interest over such period. Interest deemed payable in any fiscal year after the actual due date of any Refundable Principal Installment of any Series of Bonds shall be calculated at the average rate of interest actually payable on the Bonds of such Series at the time the calculation is made (using the true, actuarial method of calculation). For purposes of this definition, the principal and interest portions of the Accreted Value of Capital Appreciation Bonds and the Appreciated Value of any Deferred Income Bonds becoming due at maturity or by virtue of a Sinking Fund Installment shall be included in the calculations of accrued and unpaid and accruing interest or Principal Installments in such manner and during such

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period of time as is specified in the Bond Resolution or the Supplemental Resolution authorizing such Capital Appreciation Bonds or Deferred Income Bonds.

Aggregate Debt Service for any period shall mean, as of any date of calculation, the sum of the amounts of Debt Service for such period with respect to all Series; provided, however, that for the purpose of estimating Aggregate Debt Service for any future period, any Option Bonds Outstanding during such period shall be assumed to mature on the stated maturity date or mandatory redemption date thereof.

Appreciated Value shall mean with respect to any Deferred Income Bonds, (A) (i) as of any Valuation Date, the amount set forth for such date in the Bond Resolution or the Supplemental Resolution authorizing such Deferred Income Bonds and (ii) as of any date other than a Valuation Date, the sum of (a) the Appreciated Value on the preceding Valuation Date and (b) the product of (1) a fraction, the numerator of which is the number of days having elapsed from the preceding Valuation Date and the denominator of which is the number of days from such preceding Valuation Date to the next succeeding Valuation Date calculated based on the assumption that Appreciated Value accrues during any semiannual period in equal daily amounts on the basis of a year of twelve thirty-day months, and (2) the difference between the Appreciated Values for such Valuation Dates, and (B) as of any date of computation on and after the Interest Commencement Date, the Appreciated Value of the Interest Commencement Date.

Bank Notes shall mean the note or notes issued by the Metropolitan Government to The Industrial Bank of Japan, Limited, New York Branch or any Substitute Bank (as defined in the Subordinated Resolution) under and pursuant to (i) the Letter of Credit and Reimbursement Agreement, dated as of June 1, 1985, by and among the Metropolitan Government, the Board and The Industrial Bank of Japan, Limited, New York Branch, as amended and as the same may be amended, (ii) the Loan Agreement, dated as of June 25, 1985, by and among the Metropolitan Government, the Board and The Industrial Bank of Japan, Limited, New York Branch, as amended and as the same may be amended or (iii) any letter of credit agreement, reimbursement agreement or other similar agreement by and among the Metropolitan Government, the Board and any Substitute Bank. The aforesaid agreements with The Industrial Bank of Japan are Credit Facilities for 1985 Series B Bonds.

Capital Appreciation Bonds shall mean any Bonds as to which interest is payable only at the maturity or prior redemption of such Bonds. For the purposes of (i) receiving payment of the Redemption Price, if any, of a Capital Appreciation Bond that is redeemed prior to maturity, or (ii) receiving payment of a Capital Appreciation Bond if the principal of all Bonds is declared immediately due and payable following an Event of Default as provided in the Bond Resolution or (iii) computing the principal amount of Bonds held by the holder of a Capital Appreciation Bond in giving to the Metropolitan Government, the Board or the Fiscal Agent any notice, consent, request, or demand pursuant to the Bond Resolution for any purpose whatsoever, the principal amount of a Capital Appreciation Bond shall be deemed to be its Accreted Value.

Cost of Acquisition and Construction shall mean, with respect to the Electric System or any part thereof, the Metropolitan Government's or the Board's costs, expenses and liabilities paid or incurred or to be paid or incurred by the Metropolitan Government or the Board in connection with the planning, engineering, designing, acquiring, constructing, installing, financing, operating, maintaining, retiring and disposing of the Electric System or any part thereof and the obtaining of all governmental approvals, certificates, permits and licenses with respect thereto.

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Credit Facility shall mean a letter of credit, surety bond, loan agreement, or other credit agreement, facility or insurance or guaranty arrangement pursuant to which the Metropolitan Government is entitled to obtain funds to pay Bonds and interest thereon tendered for payment or redemption in accordance with the Bond Resolution.

Debt Service for any period shall mean, as of any date of calculation and with respect to any Series, an amount equal to the sum of (i) the interest accruing during such period on such Series of Bonds except to the extent such interest is to be paid from deposits made from Bond proceeds into the Debt Service Account in the Debt Service Fund, and (ii) that portion of each Principal Installment for such Series which would accrue during such period if such Principal Installment were deemed to accrue daily in equal amounts from the next preceding Principal Installment due date for such Series or, if there should be no preceding Principal Installment due date, from a date one year (or such lesser period as shall be appropriate if Principal Installments shall become due more frequently than annually) preceding the due date of such Principal Installment or from the date of issuance of the bonds of such Series, whichever is later. Except as set forth in the definition of "Accrued Aggregate Debt Service" contained in this section, in the case of Variable Interest Rate Bonds, with respect to a particular period and date of calculation, the interest rate therein shall be calculated on the assumption that such Bonds will bear interest during such period at the higher of (i) a fixed rate of interest equal to that rate, as estimated by an Authorized Board Representative, after consultation with the remarketing agent, if any, for such Series of Variable Interest Rate Bonds, on a day not more than 20 days prior to the date of initial issuance of such Series of Variable Interest Rate Bonds, which such Series of Variable Interest Rate Bonds would have had to bear to be marketed at par on such date as fixed rate obligations with the same maturity schedule as such Series of Variable Interest Rate Bonds or (ii) a rate, not less than the initial rate of interest on such Series of Variable Interest Rate Bonds, set forth in or determined pursuant to a formula set forth in the Supplemental Resolution authorizing such Series of Variable Interest Rate Bonds; provided that, if on such date of calculation the interest rate on such Variable Interest Rate Bonds shall then be fixed for a specified period, the interest rate used for such specified period for the purposes of the foregoing calculation shall be such actual interest rate. For purposes of this definition, the principal and interest portions of the Accreted Value of Capital Appreciation Bonds and the Appreciated Value of Deferred Income Bonds becoming due at maturity or by virtue of a Sinking Fund Installment shall be included in the calculations of accrued and unpaid and accruing interest or Principal Installments in such manner and during such period of time as is specified in the Bond Resolution or the Supplemental Resolution authorizing such Capital Appreciation Bonds or Deferred Income Bonds.

Debt Service Reserve Account Deficiency shall mean an amount equal to the sum of (i) any amount withdrawn from the Debt Service Reserve Account pursuant to the Bond Resolution, including, without limitation, any disbursement pursuant to a surety bond, insurance policy or letter of credit provided pursuant to the Bond Resolution unless the maximum limits of such bond, policy or letter of credit shall be reinstated or the amount of such disbursement shall be deposited in the Debt Service Reserve Account or a combination of such alternatives shall otherwise make up for such disbursements; (ii) any amounts necessary to make up for deficiencies in payments to the Debt Service Reserve Account pursuant to the Bond Resolution; (iii) the amount of any reduction in value of securities in the Debt Service Reserve Account below the amount required to be on deposit therein as a result of a valuation thereof pursuant to the Bond Resolution; and (iv) any other unauthorized depletion of the Debt Service Reserve Account below the amount required to be on deposit therein pursuant to the Bond Resolution.

Debt Service Reserve Requirement shall mean, as of any date of calculation and subject to adjustment as hereinafter provided, an amount equal to the greatest amount of Adjusted Aggregate Debt Service for any fiscal year. The amount of the Debt Service Reserve Requirement shall be adjusted as follows: (A) it shall be assumed that Variable Interest Rate Bonds of any Series will bear interest during

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any future period at the higher of (i) a fixed rate of interest equal to that rate, as estimated by an Authorized Board Representative, after consultation with the remarketing agent, if any, for such Series of Variable Interest Rate Bonds, on a day not more than 20 days prior to the date of initial issuance of such Series of Variable Interest Rate Bonds, which such Series of Variable Interest Rate Bonds would have had to bear to be marketed at par on such date as fixed rate obligations with the same maturity schedule as such Series of Variable Interest Rate Bonds or (ii) a rate, not less than the initial rate of interest on such Series of Variable Interest Rate Bonds, set forth in or determined pursuant to a formula set forth in the Supplemental Bond Resolution authorizing such Series of Variable Interest Rate Bonds, and (B) if any Variable Interest Rate Bond or Bonds shall be converted to a fixed rate Bond or Bonds for the remainder of the term thereof and as a result of such conversion a deficiency shall be created in the Debt Service Reserve Account, the Debt Service Reserve Requirement shall be calculated so as to exclude the amount of such deficiency and the Debt Service Reserve Requirement shall be increased in each of the fiscal years after the date of such conversion by an amount which shall be equal to 10% of the aforesaid deficiency.

Deferred Income Bonds shall mean any bonds issued under the Bond Resolution as to which accruing interest is not paid prior to the Interest Commencement Date specified in the Bond Resolution or the Supplemental Resolution authorizing such Bonds and the Appreciated Value for such Bonds is compounded on the Valuation Date for such Series of Deferred Income Bonds.

Electric Fund shall mean the fund of that name established in the Bond Ordinance.

Electric System shall mean the electric system of the Metropolitan Government, now existing and hereafter acquired as part of such electric system by lease, contract, purchase or otherwise or constructed by the Metropolitan Government, including any interest or participation of the Metropolitan Government in any facilities in connection with said electric system, together with all additions, betterments, extensions and improvements to said electric system or any part thereof, hereafter constructed or acquired and together with all lands, easements, licenses and rights of way of the Metropolitan Government and all other works, property or structure of the Metropolitan Government and contract rights and other tangible and intangible assets of the Metropolitan Government now or hereafter owned or used in connection with or related to said electric system.

Interest Commencement Date shall mean with respect to any particular Deferred Income Bonds, the date specified in the Bond Resolution or the Supplemental Resolution authorizing such Bonds (which date must be prior to the maturity date for such Bonds), after which interest accruing on such bonds shall be payable with the first such payment date being the applicable interest payment date immediately succeeding such Interest Commencement Date.

Investment Securities, when used with respect to the Bonds and the Bond Resolution, shall mean and include any of the following securities, if and to the extent the same are at the time legal for investment of the Metropolitan Government's funds:

(i) any bonds or other obligations which as to principal and interest constitute direct obligations of, or are unconditionally guaranteed by, the United States of America, including obligations of any of the Federal agencies set forth in clause (iii) below to the extent unconditionally guaranteed by the United States of America;

(ii) any bonds or other obligations of any state of the United States of America or of

any agency, instrumentality or local government unit of any such state (a) which are not callable prior to maturity or as to which irrevocable instructions have been given to the trustee of such

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bonds or other obligations by the obligor to give due notice of redemption and to call such bonds for redemption on the date or dates specified in such instructions, (b) which are secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or bonds or other obligations of the character described in clause (i) hereof which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the redemption date or dates specified in the irrevocable instructions referred to in subclause (a) of this clause (ii), as appropriate, and (c) as to which the principal of and interest on the bonds and obligations of the character described in clause (i) hereof which have been deposited in such fund along with any cash on deposit in such fund are sufficient to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this clause (ii) on the maturity date or dates thereof or on the redemption date or dates specified in this clause (ii) on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to in subclause (a) of this clause (ii), as appropriate;

(iii) bonds, debentures, or other evidences of indebtedness issued or guaranteed by

any agency or corporation which has been or may hereafter be created pursuant to an Act of Congress as an agency or instrumentality of the United States of America;

(iv) New Housing Authority Bonds issued by public agencies of municipalities and

fully secured as to the payment of both principal and interest by a pledge of annual contributions under an Annual Contributions Contract or Contracts with the United States of America; or Project Notes issued by public agencies or municipalities and fully secured as to the payment of both principal and interest by a requisition or payment agreement with the United States of America;

(v) direct and general obligations of any state of the United States of America, to the

payment of the principal of and interest on which the full faith and credit of such state is pledged, provided that at the time of their purchase hereunder such obligations are rated in the two highest rating categories by Moody's and S&P's;

(vi) obligations of any state of the United States of America or any political

subdivision of any state of the United States of America or any agency or instrumentality of any such state or political subdivision which shall be rated in the highest rating category by Moody's and by S&P's;

(vii) direct and general obligations of the State to the payment of the principal of and

interest on which the full faith and credit of the State are pledged or any bonds or other obligations which as to principal and interest are unconditionally guaranteed by the State, provided that at the time of their purchase hereunder such obligations are rated in the two highest rating categories by Moody's and S&P's;

(viii) certificates or other instruments that evidence ownership of the right to payments

of principal of or interest on obligations of any state of the United States of America or any political subdivision thereof or any agency or instrumentality of any state or political subdivision, provided that such obligations shall be held in trust by a bank or trust company or a national banking association meeting the requirements for a successor Fiscal Agent under the Bond Resolution, and provided further that the payments of all principal of and interest on such certificates or such obligations shall be fully insured or unconditionally guaranteed by, or otherwise unconditionally payable pursuant to a credit support arrangement provided by, one or

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more financial institutions or insurance companies or associations which shall be rated in the highest rating category by Moody's and S&P's, or, in the case of an insurer providing municipal bond insurance policies insuring the payment, when due, of the principal of and interest on municipal bonds, such insurance policy shall result in such municipal bonds being rated in the highest rating category by Moody's and S&P's;

(ix) certificates that evidence ownership of the right to payments of principal or

interest on obligations described in clause (i), provided that such obligations shall be held in trust by a bank or trust company or a national banking association meeting the requirements for a successor Fiscal Agent under the Bond Resolution;

(x) certificates of deposit, whether negotiable or non-negotiable, and banker's

acceptances of any of the 50 largest banks in the United States which are rated not lower than the second highest rating category by Moody's and S&P's;

(xi) commercial paper, other than that issued by bank holding companies, rated at the

date of investment in the highest short term rating category by Moody's and by S&P's;

(xii) any repurchase agreement which by its terms matures not later than 30 days from its date of execution with any bank or trust company organized under the laws of any state of the United States of America or any national banking association or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York, which agreement is secured by any one or more of the securities described in clauses (i) and (iii) above which securities shall at all times have a market value (exclusive of accrued interest) not less than one hundred two percent (102%) of the full amount of the repurchase agreement, and provides that deficiencies therein shall be made up within five days, dates of maturity not in excess of seven years and be delivered to another bank or trust company organized under the laws of any state of the United States of America or any national banking association, as custodian; and

(xiii) shares of an Investment Company, organized under the Investment Company Act

of 1940, as amended, which invests its assets exclusively in obligations of the type described in clause (i), (iii), (vi), (x), (xi) or (xii) above.

Liquidity Facility shall mean an irrevocable letter of credit or other irrevocable Credit Facility

issued by, or a revocable line of credit extended by, a financial institution or insurance company or association which has been rated not lower than the second highest rating category by Moody's and S&P's, respectively, which letter of credit or Credit Facility is payable on demand in the event the terms under which such letter of credit or Credit Facility require payment thereunder.

Moody's shall mean Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, if any.

Net Revenues for any period shall mean the Revenues during such period minus the Operating Expenses during such period.

Operating Expenses shall mean all expenses incurred in connection with the operation and maintenance of the Electric System, including, without limiting the generality of the foregoing, all operating and maintenance expenses included in the Uniform System of Accounts exclusive of interest, depreciation and amortization charges and payments-in-lieu-of-taxes.

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Option Bonds shall mean Bonds which by their terms may be tendered by and at the option of

the holder thereof for payment by the Metropolitan Government prior to the stated maturity thereof, or the maturities of which may be extended by and at the option of the holder thereof.

Outstanding, when used with reference to Bonds, shall mean, as of any date, Bonds theretofore or thereupon being authenticated and delivered under the Bond Resolution except:

(i) Bonds canceled by the Fiscal Agent at or prior to such date;

(ii) Bonds (or portions of Bonds) for the payment or redemption of which moneys, equal to the principal amount or Redemption Price thereof, as the case may be, with interest to the date of maturity or redemption date, shall be held in trust under the Bond Resolution and set aside for such payment or redemption (whether at or prior to the maturity or redemption date), provided that if such Bonds (or portions of Bonds) are to be redeemed, notice of such redemption shall have been given or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice as provided in Article IV of the Bond Resolution;

(iii) Bonds in lieu of or in substitution for which other Bonds shall have been

authenticated and delivered pursuant to the Bond Resolution;

(iv) Bonds deemed to have been paid as provided in the Bond Resolution; and

(v) Option Bonds deemed tendered in accordance with the provisions of the Supplemental Resolution authorizing such Bonds on the applicable adjustment or conversion date, if interest thereon shall have been paid through such applicable date and the purchase price thereof shall have been paid or amounts are available for such payment as provided in the Bond Resolution.

Pledged Funds shall mean the right, title and interest of the Metropolitan Government and the

Board to the Net Revenues and all Funds and Accounts established under the Bond Resolution (other than the Rate Stabilization Account), including Investment Securities held in any such Funds and Accounts under the Bond Resolution permitting the application thereof for the purposes and on the terms and conditions set forth in the Bond Resolution, together with all proceeds and revenues of the foregoing and all other moneys, securities or funds pledged for the payment of the principal or Redemption Price of and interest on the Bonds and the Metropolitan Government's other obligations under the Bond Resolution in accordance with the terms and provisions of the Bond Resolution.

Principal Installment shall mean, as of any date of calculation and with respect to any Series of Bonds, so long as any Bonds thereof are Outstanding, (i) the principal amount of Bonds of such Series due on a certain future date for which no Sinking Fund Installments have been established (including the principal amount of Option Bonds tendered for payment and not purchased), or (ii) the unsatisfied balance of any Sinking Fund Installments due on a certain future date for Bonds of such Series, plus the amount of the sinking fund redemption premiums, if any, which would be applicable upon redemption of such Bonds on such future date in a principal amount equal to said unsatisfied balance of such Sinking Fund Installments, or (iii) if such future dates coincide as to different Bonds of such Series, the sum of such principal amount of Bonds and of such unsatisfied balance of Sinking Fund Installments due on such future date plus such applicable redemption premiums, if any.

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Refundable Principal Installment shall mean any Principal Installment for any Series of Bonds which the Metropolitan Government intends to pay with moneys which are not Net Revenues.

Revenues shall mean (i) all fees, rents and charges and other income derived or to be derived by the Metropolitan Government or the Board from or for the operation, use or services of the Electric System, (ii) any other amounts received from any other source by the Metropolitan Government or the Board and pledged by the Metropolitan Government as security for the payment of Bonds, and (iii) interest received or to be received on any moneys or securities held pursuant to the Bond Resolution and paid or required to be paid into the revenue fund established under the Bond Resolution.

S&P's shall mean Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, and its successors and assigns, if any.

Subordinated Debt shall mean indebtedness issued pursuant to and complying with the provisions for the issuance of subordinated debt contained in the Bond Resolution.

Supplemental Bond Resolution shall mean resolution supplemental to or amendatory of the Bond Resolution, adopted by the Metropolitan Government in accordance with the Bond Resolution.

Variable Interest Rate Bonds for any period of time, shall mean Bonds which during such period bear a variable interest rate, provided that Bonds the interest rate on which shall have been fixed for the remainder of the term thereof shall no longer be Variable Interest Rate Bonds. Pledge Effected by the Bond Resolution The Bonds are special obligations of the Metropolitan Government payable solely from and secured solely by the Pledged Funds. Such Pledged Funds are pledged and assigned as security for the payment of the principal and Redemption Price of, and interest on, the Bonds, subject and subordinate with respect to the revenues and funds pledged under the Bond Ordinance to the lien and pledge created in favor of the Senior Bonds in the Bond Ordinance and the rights of the holders of the Senior Bonds thereunder. The pledge of and lien on the Net Revenues created by the Bond Resolution ranks on a parity with the pledge of and lien on Net Revenues created by the Metropolitan Government in favor of the Bank Notes. Notwithstanding anything to the contrary contained in the Bond Resolution, the Metropolitan Government may incur Credit/Liquidity Facility Obligations which are payable on a parity with the Bonds from the Net Revenues and which are secured by a parity lien and pledge of the Net Revenues, without preference, priority or distinction over the rights of the Bondholders. Establishment of Funds and Accounts

The following funds and accounts are hereby established by the Bond Resolution:

(1) Construction Fund, to be held by the Fiscal Agent,

(2) Revenue Fund, to be held by the Board,

(3) Operating Fund, to be held by the Board,

(4) Debt Service Fund, to be held by the Fiscal Agent, which shall consist of a Debt Service Account and a Debt Service Reserve Account,

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(5) Subordinated Debt Fund, to be held by the Fiscal Agent,

(6) Reserve and Contingency Fund, to be held by the Board, and

(7) General Reserve Fund, to be held by the Board, which shall consist of a Rate Stabilization Account and a General Account.

Construction Fund

The Bond Resolution establishes a Construction Fund into which are paid amounts required by the provisions of the Bond Resolution, and at the option of the Board, any moneys received by the Board from any source, unless required to be otherwise applied as provided by the Bond Resolution. Amounts in the Construction Fund shall be applied to pay the Cost of Acquisition and Construction in the manner provided in the Bond Resolution.

To the extent that other moneys are not available therefor, amounts in the Construction Fund shall be applied to the payment of Principal Installments of and interest on Bonds when due.

Amounts credited to the Construction Fund which an Authorized Board Representative determines to be in excess of the amounts required for the purposes thereof, shall be transferred to the Debt Service Reserve Account in the Debt Service Fund, to the extent necessary to make up any Debt Service Reserve Account Deficiency and any balance shall be paid over or transferred to the Board for deposit in the General Account in the General Reserve Fund.

The Metropolitan Government or the Board may discontinue the acquisition or construction of any portion of the Electric System the cost of which is at the time being paid out of the Construction Fund, if the Metropolitan Government or the Board determines by resolution that such discontinuance is necessary or desirable in the conduct of the business of the Metropolitan Government or the Board and not disadvantageous to the holders of the Bonds. Application of Revenues

All Revenues shall be promptly deposited by the Board upon the receipt thereof in the Revenue Fund. In each month after the deposit of Revenues into the Revenue Fund (but in any case no later than the last Business Day of such month), the Board shall, to the extent of moneys available therefor, credit to, or shall transfer to the Fiscal Agent for deposit in, the following funds and accounts in the following order the amounts set forth below (such application to be made in such a manner so as to assure good funds in such Funds on the last Business Day of such month):

(1) To the Operating Fund, such amount as an Authorized Board Representative shall estimate is required, together with amounts then on deposit therein, to provide for the payment of Operating Expenses estimated to be paid through the next month;

(2) To the Debt Service Fund, (i) credit to the Debt Service Account, the amount, if

any, required so that the balance in said Account shall equal the Accrued Aggregate Debt Service as of the last day of the then current month or, if interest and/or principal are required to be paid to holders of Bonds during the next succeeding month on a day other than the first day of such month, Accrued Aggregate Debt Service as of the day through and including which such interest and/or principal is required to be paid; provided that, for the purposes of computing the amount to be deposited in said Account, there shall be excluded from the balance of said Account the

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amount, if any, set aside in said Account from the proceeds of Bonds (including amounts, if any, transferred thereto from the Construction Fund) for the payment of interest on Bonds less that amount of such proceeds to be applied in accordance with the Bond Resolution to the payment of interest accrue and unpaid and to accrue on Bonds to the last day of the then current month or, if interest is required to be paid to holders of Bonds during the next succeeding month on the day other than the first day of such month less that amount of such proceeds to be applied in accordance with the Bond Resolution to the payment of interest accrued and unpaid and to accrue on Bonds to the day through and including which such interest is required to be paid, and (ii) for credit to the Debt Service Reserve Account, an amount equal to one thirty-sixth (1/36th) of the Debt Service Reserve Requirement as of the last day of the then current month; provided, however that no such credit shall be required to be made to the Debt Service Reserve Account whenever and so long as the amount on deposit therein after giving effect to any surety bond, insurance policy, letter of credit or other similar obligation deposited in such Account pursuant to the Bond Resolution, shall equal the Debt Service Reserve Requirement as of the last day of the then current month;

(3) To the Subordinated Debt Fund, the amount, if any, required to pay principal or

sinking fund installments of and interest on each issue of Subordinated Debt and reserves therefor and the amounts, if any, to pay tendered Subordinated Debt, in accordance with the resolution or other debt instrument authorizing such issue of Subordinated Debt;

(4) To the Reserve and Contingency Fund the amount, if any, provided for deposit

therein in the then current month as set forth in a certificate of an Authorized Board Representative theretofore delivered to the Fiscal Agent, which certificate is based on the current annual budget of the Board; and

(5) To the General Reserve Fund, (i) for credit to the Rate Stabilization Account, the

amount, if any, provided for deposit therein in the then current month as set forth in a certificate of an Authorized Board Representative theretofore delivered to the Fiscal Agent, which certificate is based on the current annual budget for the Board; and (ii) for credit to the General Account the remaining balance of moneys in the Revenue Fund after making the above credits and deposits;

provided, however, that so long as there shall be held in the Debt Service Account and the Debt Service Reserve Account an amount sufficient to pay in full all Outstanding Bonds in accordance with their terms (including principal or applicable sinking fund Redemption Price and interest thereon), no transfers shall be required to be made to the Debt Service Fund; and provided further, that if and to the extent that there shall be any Debt Service Reserve Account Deficiency attributable to a reduction in value of Securities as a result of valuation thereof pursuant to the Bond Resolution, after giving effect to any surety bond, insurance policy or letter of credit deposited in such Account pursuant to the Bond Resolution, there shall be deposited into the Debt Service Reserve Account each month during the period commencing with the month following the month in which the determination of such Debt Service Reserve Account Deficiency was made an amount equal to one thirty-sixth (1/36th) of such Debt Service Reserve Account Deficiency in addition to any amounts required to be deposited in said Account as provided in the Bond Resolution, except that, if a new valuation of Investment Securities held in the Debt Service Reserve Account is made pursuant to the Bond Resolution during the period that such deposits are required, then the obligation of the Metropolitan Government to make deposits during the balance of such period on the basis of the preceding valuation shall be discharged and the deposits, if any, required to be made for the balance of such period shall be determined under this proviso on the basis of the new valuation; provided further that if and to the extent there shall be any Debt Service Reserve Account Deficiency attributable to any other

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cause, after giving effect to any surety bond, insurance policy or letter of credit deposited in such Account pursuant to the Bond Resolution, there shall be deposited into the Debt Service Reserve Account by the last Business Day of the month following the month in which the determination of such Debt Service Reserve Account Deficiency was made an amount equal to such Debt Service Reserve Account Deficiency in addition to any amounts required to be deposited in said Account as provided in the Bond Resolution. Operating Fund

Amounts credited to the Operating Fund shall be applied from time to time by the Board to the payment of Operating Expenses.

Amounts on deposit in the Operating Fund which the Board determines to be in excess of the requirements thereof shall be credited to the General Account in the General Reserve Fund. Debt Service Account

The Fiscal Agent shall pay out of the Debt Service Account to the respective Paying Agents (i) on or before each interest payment date for any of the Bonds, the amount required for the interest payable on such date; (ii) on or before each Principal Installment due date, the amount required for the Principal Installment payable on such due date; and (iii) on or before any redemption date for the Bonds, the amount required for the payment of interest on the Bonds then to be redeemed. Such amounts shall be applied by the Paying Agents on and after the due dates thereof. The Fiscal Agent shall also pay out of the Debt Service Account the accrued interest included in the purchase price of Bonds purchased for retirement.

Amounts accumulated in the Debt Service Account with respect to any Sinking Fund Installment may and, if so directed by the Board, shall be applied by the Fiscal Agent to (i) the purchase of Bonds of the Series and maturity for which such Sinking Fund Installment was established, or (ii) the redemption at the applicable sinking fund Redemption Price of such Bonds, if then redeemable by their terms.

The amount, if any, deposited in the Debt Service Account from the proceeds of each Series of Bonds shall be set aside in such Account and applied to the payment of interest on Bonds as provided in the Bond Resolution or in accordance with certificates of an Authorized Board Representative delivered to the Fiscal Agent pursuant to the Bond Resolution. Debt Service Reserve Account

If on any interest or Principal Installment due date with respect to any Series of Bonds payment for such interest or Principal Installment in full has not been made or provided for, the Fiscal Agent shall forthwith withdraw from the Debt Service Reserve Account an amount not exceeding the amount required to provide for such payment in full and deposit such amount in the Debt Service Account for application to such payment.

Whenever the amount in the Debt Service Reserve Account shall exceed the Debt Service Reserve Requirement, after giving effect to any surety bond, insurance policy or letter of credit deposited in such Account pursuant to the Bond Resolution, such excess shall be deposited in the Revenue Fund.

In lieu of the required transfers or deposits to the Debt Service Reserve Account, the Metropolitan Government may cause to be deposited into the Debt Service Reserve Account a surety bond or an

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insurance policy for the benefit of the holders of the Bonds or a letter of credit in an amount equal to the difference between the Debt Service Reserve Requirement and the sums then on deposit in the Debt Service Reserve Account, if any. The surety bond, insurance policy or letter of credit shall be payable (upon the giving of notice as required thereunder) on any due date on which moneys will be required to be withdrawn from the Debt Service Reserve Account and applied to the payment of a Principal Installment of or interest on any Bonds and such withdrawal cannot be met by amounts on deposit in the Debt Service Reserve Account. The insurer providing such surety bond or insurance policy shall be an insurer whose municipal bond insurance policies insuring the payment, when due, of the principal of and interest on municipal bond issues results in such issues being rated in the highest rating category by Moody's and S&P's or who holds the highest policy holder rating accorded insurers by a nationally recognized insurance rating agency. The letter of credit issuer shall be a bank or trust company which is rated not lower than the second highest rating category by Moody's and S&P's, and the letter of credit itself shall be rated in the highest rating category of either such rating agency. If a disbursement is made pursuant to a surety bond, an insurance policy or a letter of credit provided pursuant to this subsection, the Metropolitan Government shall be obligated either (i) to reinstate the maximum limits of such surety bond, insurance policy or letter of credit or (ii) to deposit into the Debt Service Reserve Account, funds in the amount of the disbursement made under such surety bond, insurance policy or letter of credit, or a combination of such alternatives, as shall otherwise make up for such disbursement. In the event that the rating attributable to any insurer providing any surety bond or insurance policy or any bank or trust company providing any letter of credit held as above provided in the Debt Service Reserve Account shall fall below that required by the Bond Resolution, the Metropolitan Government shall use its best efforts to replace, as soon as possible, such surety bond, insurance policy or letter of credit with a surety bond, insurance policy or letter of credit which shall meet the above described requirements. Subordinated Debt Fund

The Fiscal Agent as directed by the Board shall apply amounts in the Subordinated Debt Fund to the payment of the principal or sinking fund installment of and interest on each issue of Subordinated Debt and reserves therefor in accordance with the provisions of, and subject to the priorities and limitations and restrictions provided in, the resolution or other debt instrument authorizing each issue of such Subordinated Debt. However, if at any time there shall be a Debt Service Reserve Account Deficiency and there shall not be any moneys available in the General Account in the General Reserve Fund and the Reserve and Contingency Fund to make up such deficiency, the Fiscal Agent shall forthwith transfer from the Subordinated Debt Fund for deposit in the Debt Service Reserve Account the amount necessary (or all moneys in the Subordinated Debt Fund, if necessary), to make up such Deficiency. Reserve and Contingency Fund

Amounts in the Reserve and Contingency Fund shall be applied to the costs of major renewals, replacements, repairs, additions, betterments, enlargements and improvements to the System and the payment of extraordinary operation and maintenance costs and contingencies, including the costs of scheduled, emergency or other interchange service, payments with respect to the prevention or correction of any unusual loss or damages in connection with the Electric System or to prevent a loss of revenue therefrom, all to the extent not provided for by reserves in the Operating Fund or from the proceeds of Bonds or from amounts on deposit in the General Reserve Fund.

If at any time the amounts in the Debt Service Account in the Debt Service Fund shall be less than the amount required by the Bond Resolution or there shall be a Debt Service Reserve Account Deficiency, and there shall not be on deposit in the General Account in the General Reserve Fund

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available moneys sufficient to cure such deficiency, then the Board, upon requisition by the Fiscal Agent, shall transfer from the Reserve and Contingency Fund to the Fiscal Agent for deposit in the Debt Service Account or Debt Service Reserve Account (in that priority) the amount necessary (or all the moneys in said Fund if less than the amount necessary) to make up such Deficiency. General Reserve Fund

The Board shall apply moneys credited to the General Account in the General Reserve Fund in the following amounts and in the following order of priority: (i) to the Fiscal Agent for deposit in the Debt Service Account in the Debt Service Fund, the amount necessary (or all moneys in the General Account, if necessary) to make up any deficiency in payments to said Account, (ii) to the Fiscal Agent for deposit in the Debt Service Reserve Account in the Debt Service Fund the amount necessary (or all moneys in the General Account, if necessary) to make up any Debt Service Reserve Account Deficiency, after giving effect to any surety bond, insurance policy or letter of credit deposited in such Account pursuant to the Bond Resolution, (iii) to the Fiscal Agent for deposit in the Subordinated Debt Fund the amount necessary (or all moneys in the General Account, if necessary) to make up any deficiency in such Fund, and (iv) to payments in lieu of such taxes as may legally be levied against the Electric System or any part thereof.

Amounts in the General Account not required to meet a deficiency or provide for payments as required by the Bond Resolution shall upon determination of the Board be applied to or set aside for any one or more of the following:

(a) The purchase or redemption of any Bonds, including without limitation Option Bonds tendered for payment and not remarketed, or purchase or redemption of Subordinated Debt, and to provide for expenses in connection with the purchase or redemption of any Bonds or Subordinated Debt or any reserves which the Board determines shall be required for such purposes;

(b) payments into the Subordinated Debt Fund for application to the purposes of

such Fund;

(c) transfer to the Operating Fund payment of Operating Expenses;

(d) payment of any extraordinary operation and maintenance costs, including the prevention or correction of any unusual loss or damage, in connection with the Electric System;

(e) payments into the Construction Fund for application to the purposes of such

Fund;

(f) any other lawful purpose of the Metropolitan Government related to the Electric System;

provided, however, that (i) amounts deposited in the General Account and required by the Bond Resolution to be applied to the purchase or redemption of Bonds shall be applied to such purpose and (ii) no payments shall be made from the General Account to pay any costs if and to the extent that the proceeds of insurance or other moneys recoverable as a result of damage, if any, are available to pay such costs.

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Subordinated Debt

The Metropolitan Government may, at any time, or from time to time, issue Subordinated Debt for any of its corporate purposes payable out of, and which may be secured by a pledge of, such amounts in the Subordinated Debt Fund as may from time to time be available for the purpose of payment thereof; provided, however, that such pledge shall be, and shall be expressed to be, subordinate and junior in all respects to (i) the lien and pledge created by the Bond Resolution as security for the Bonds, and (ii) the lien and pledge created by the Bond Ordinance as security for the Senior Bonds. Investment of Certain Funds

Moneys held in the Debt Service Fund shall be invested and reinvested by the Fiscal Agent to the fullest extent practicable in Investment Securities, (a) in the case of moneys held in the Debt Service Reserve Account within ten years and (b) in the case of moneys held in the Debt Service Account not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Account. Moneys held in the Revenue Fund and the Construction Fund may be invested and reinvested in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Fund. Moneys held in the Operating Fund shall be invested in Investment Securities which mature within twelve months and moneys held in the General Reserve Fund and Reserve and Contingency Fund shall be invested in Investment Securities which mature no later than the latest maturity date of any Bonds outstanding, and in any case the Investment Securities in such Funds shall mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Funds. Subject to the terms of any resolution, indenture or other instrument securing any issue of Subordinated Debt, moneys held in the Subordinated Debt Fund shall be invested and reinvested to the fullest extent practicable in Investment Securities which shall mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Fund. The Fiscal Agent shall make all such investments of moneys held by it in accordance with written instructions from time to time received from any Authorized Board Representative. In making any investment in any Investment Securities with moneys in any Fund or Account established under the Bond Resolution, an Authorized Board Representative may instruct the Fiscal Agent to combine such moneys with moneys in any other fund or account, but solely for purposes of making such investment in such Investment Securities.

Unless otherwise provided in a Supplemental Bond Resolution, interest (net of that which represents a return of accrued interest paid in connection with the purchase of any investment) earned or any gain realized on any moneys or investments in any funds and accounts, other than the Construction Fund, shall be paid into the Revenue Fund on a periodic basis at least quarterly as shall be directed by the Board; provided, however, that at the direction of the Metropolitan Government, such income earned on moneys or investments in any fund or account or any portion thereof shall be paid into the Construction Fund. Interest earned or gain realized on any moneys or investments in the Construction Fund shall be held in such fund for the purposes thereof or, if so directed by the Board, paid into the Revenue Fund.

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Valuation and Sale of Investments

In computing the amount in any fund or account created under the provisions of the Bond Resolution for any purpose provided in the Bond Resolution, obligations purchased as an investment of moneys therein shall be valued at the amortized cost of such obligations or at the market price thereof, whichever is lower. The accrued interest paid in connection with the purchase of any obligation shall be included in the value thereof until interest on such obligation is paid. Such computation shall be determined as of July 1 in each year and at such other times as the Board shall determine. Creation of Liens

The Metropolitan Government shall not issue any bonds, notes, debentures, or other evidences of indebtedness of similar nature, other than the Bonds, payable out of or secured by a pledge or assignment of the Pledged Funds or other moneys, securities or funds held or set aside by the Metropolitan Government, the Board or by the fiduciaries under the Bond Resolution and shall not create or cause to be created any lien or charge on the Pledged Funds, or such moneys, securities or funds; provided, however, that nothing contained in the Bond Resolution shall prevent the Metropolitan Government from issuing, if and to the extent permitted by law (i) evidences of indebtedness (a) payable out of moneys in the Construction Fund as part of the Cost of Acquisition and Construction of the Electric System, or (b) payable out of, or secured by a pledge or assignment of, Revenues to be received on and after such date as the pledge of the Net Revenues provided in the Bond Resolution shall be discharged and satisfied, (ii) Subordinated Debt, (iii) the Bank Notes, (iv) Credit/Liquidity Facility Obligations, or (v) bonds, notes, debentures or other evidences of indebtedness payable out of the General Account in the General Reserve Fund. Disposition of Electric System or the Board

No part of, or interest of the Metropolitan Government or the Board in, the Electric System shall be sold, leased, mortgaged or otherwise disposed of, except as follows:

(a) The Metropolitan Government or the Board may sell or exchange at any time and from time to time any property or facilities constituting part of the Electric System, only if it shall determine that such property or facilities are not necessary for the purposes of the Metropolitan Government or the Board in the operation of the Electric System. The proceeds of any such sale or exchange not used to acquire other property necessary or desirable for the purposes of the Metropolitan Government or the Board in the operation of the Electric System shall forthwith be deposited in the General Account in the General Reserve Fund for the purpose or redemption of the Bonds, and

(b) The Metropolitan Government or the Board may lease or make contracts or grant

licenses for the operation of, or make arrangements for the use of, or grant easements or other rights with respect to, any part of the Electric System, provided that any such lease, contract, license, arrangement, easement or right (i) does not impede the operation by the Metropolitan Government or the Board or its agents of the Electric System and (ii) does not in any manner impair or adversely affect the rights or security of the Bondholders under the Bond Resolution; and provided, further, that if the book value of the property to be covered by any such lease, contract, license, arrangement, easement or other right is in excess of 1% of the book value of the assets of the Board at such time, the Board shall first file with the Fiscal Agent a certificate of the Authorized Board Representative that the action of the Metropolitan Government or the Board with respect thereto does not result in a breach of the conditions under the Bond Resolution. Any

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payments received by the Metropolitan Government or the Board under or in connection with any such lease, contract, license, arrangement, easement or right in respect of the Electric System or any part thereof shall be deposited in the Revenue Fund.

Operation and Maintenance of Electric System

The Metropolitan Government and the Board shall at all times use their best efforts to operate or cause to be operated the Electric System properly and in an efficient and economical manner, and shall use their best efforts to maintain, preserve and keep the same or cause the same to be so maintained, preserved and kept, with the appurtenances and every part and parcel thereof, in good repair, working order and condition, and shall from time to time make or cause to be made, all necessary and proper repairs, replacements and renewals so that at all times the operation of the Electric System may be properly and advantageously conducted. Certain Covenants with Respect to the Bond Ordinance and the Subordinated Resolution

The Metropolitan Government shall not amend or modify either the Bond Ordinance or the Subordinated Resolution in any manner which adversely affects or diminishes the rights of the Bondholders under the Bond Resolution. A copy, certified by an Authorized Metropolitan Government Representative, of any amendment to either the Bond Ordinance or the Subordinated Resolution shall be promptly filed with the Fiscal Agent.

The Metropolitan Government shall not (i) issue any additional bonds under the Bond Ordinance, or (ii) extend the maturity of the Senior Bonds.

Immediately following the date on which the Senior Bonds are paid, the Metropolitan Government shall transfer all of the revenues, moneys, securities and funds then remaining in all funds established under the Bond Ordinance to the Revenue Fund. Rates, Fees and Charges

The Board shall at all times establish and collect rates, fees and charges for the use or the sale of the output, capacity or service of the Electric System as shall be required in order that in each fiscal year the Net Revenues, together with other available Revenues, plus the amount of any transfers from the Rate Stabilization Account to the Operating Fund during such fiscal year minus the amounts, if any, required by the Bond Resolution to be deposited from Net Revenues into the Debt Service Reserve Account, the Subordinated Debt Fund, the Reserve and Contingency Fund and the General Account during such fiscal year shall equal at least (i) the Aggregate Debt Service for such fiscal year and, (ii) the debt service, if any, on the Bank Notes and any Credit/Liquidity Facility Obligations for such fiscal year and (iii) the deposits required to be made into the Rate Stabilization Account during such fiscal year, and, in any event, as shall be required, together with other available funds, to pay or discharge all other indebtedness, charges and liens whatsoever payable out of Revenues under the Bond Resolution. Promptly upon any material change in the circumstances which were contemplated at the time such rates, fees and charges were most recently reviewed, but not less frequently than once in each fiscal year, the Board shall review the rates, fees and charges so established and shall promptly revise such rates, fees and charges as necessary to comply with the foregoing requirements, provided that such rates, fees and charges shall in any event produce moneys sufficient to enable the Metropolitan Government and the Board to comply with all its covenants under the Bond Resolution.

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The Metropolitan Government or the Board will not furnish or supply or cause to be furnished or supplied any use, output or service of the Electric System, free of charge to any person, firm or corporation, public or private, and the Metropolitan Government and the Board will enforce the payment of any and all accounts owing to the Metropolitan Government by reason of the ownership and operation of the Electric System by discontinuing such use, output or service, or by filing suit therefor within 120 days after any such accounts are due, or by both such discontinuance and by filing suit; provided, however, that no such action need be taken with respect to disputed accounts which are being negotiated for settlement.

In estimating Adjusted Aggregate Debt Service on any Variable Interest Rate Bonds, the Board shall be entitled to assume that such Variable Interest Rate Bonds will bear such interest rate or rates as the Board shall determine; provided, however, that the interest rate or rates assumed shall not be less than the interest rate borne by such Variable Interest Rate Bonds at the time such estimate is made. Enforcement of Charges

The Metropolitan Government and the Board shall compel the prompt payment of rates, fees, rentals and charges imposed for service rendered by the Electric System, and to that end will vigorously enforce all of the provisions of any ordinance or resolutions of the Metropolitan Government or the Board having to do with electric charges and any other Electric System charges, and all of the rights and remedies permitted the Metropolitan Government or the Board under law. The Metropolitan Government and the Board expressly covenant and agree to exercise and enforce every right and remedy legally available to it to the end that such rates, fees, rentals and charges will be enforced and promptly collected to the full extent permitted by law. Maintenance of Insurance

The Board shall at all times use its best efforts to keep or cause to be kept the properties of the Electric System which are of an insurable nature and of the character usually insured by those operating properties similar to the Electric System insured against loss or damage by fire and from other causes customarily insured against and in such relative amounts as are usually obtained. The Board shall at all times use its best efforts to maintain or cause to be maintained insurance or reserves against loss or damage from such hazards and risks to the person and property of others as are usually insured or reserved against by those operating properties similar to the properties of the Electric System. The Board shall only be required to obtain such insurance if the same is available at reasonable rates and upon reasonable terms and conditions.

The Board shall also use its best efforts to maintain or cause to be maintained any additional or other insurance which it shall deem necessary or advisable to protect its interests and those of the Bondholders. Reconstruction; Application of Insurance Proceeds

If any useful portion of the Electric System shall be damaged or destroyed, the Board shall prosecute or cause to be prosecuted the reconstruction or replacement thereof, unless a certificate of an Authorized Board Representative filed with the Fiscal Agent shall state, in the opinion of the signer, that such reconstruction or replacement is not in the interest of the Metropolitan Government and the Bondholders. The proceeds of any insurance paid on account of such damage or destruction (other than any business interruption loss insurance) shall be held by the Board in the Construction Fund and made available for, and to the extent necessary be applied to, the cost of such reconstruction or replacement.

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Pending such application, such proceeds may be invested by the Board in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed to pay such costs of reconstruction or replacement. Interest earned on such investments shall be deposited in the Revenue Fund.

The proceeds of business interruption loss insurance, if any, shall be paid into the Revenue Fund. Events of Default

The following events shall constitute an Event of Default under the Bond Resolution:

(i) if default shall be made by the Metropolitan Government in the due and punctual payment of the principal or Redemption Price of any Bond when and as the same shall become due and payable, whether at maturity or by call for redemption, or otherwise;

(ii) if default shall be made by the Metropolitan Government in the due and punctual

payment of any installment of interest on any Bond or the unsatisfied balance of any Sinking Fund Installment therefor (except when such Installment is due on the maturity date of such Bond), when and as such interest installment or Sinking Fund Installment shall become due and payable;

(iii) if default shall be made in the due and punctual payment of the purchase price of

any Option Bond duly tendered for purchase in accordance with the terms thereof and the Bond Resolution;

(iv) if the default shall be made by the Metropolitan Government in the performance

or observance of any other of the covenants, agreements or conditions on its part in the Bond Resolution or in the Bonds contained, and such default shall continue for a period of 60 days after written notice thereof to the Metropolitan Government by the Fiscal Agent or to the Metropolitan Government and to the Fiscal Agent by the holders of not less than 10% in principal amount of the Bonds outstanding;

(v) if the Metropolitan Government shall commence a voluntary case or similar

proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or shall authorize, apply for or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for the Metropolitan Government and/or its rents, fees, charges or other revenues therefrom, or shall make any general assignment for the benefit of creditors, or shall make a written declaration or admission to the effect that it is unable to meet its debts as such debts mature, or shall authorize or take any action in furtherance of any of the foregoing; or

(vi) if a court having jurisdiction in the premises shall enter a decree or order for

relief in respect of the Metropolitan Government in an involuntary case or similar proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or a decree or order appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Metropolitan Government, and/or the rents, fees, charges or other revenues therefrom, or a decree or order for the dissolution, liquidation or winding up of the Metropolitan Government and its affairs or a decree or order finding or determining that the Metropolitan Government is unable to meet its debts as such debts mature, and any such decree or order shall remain unstayed and in effect for a period of 60 consecutive days;

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then, and in each and every such case, so long as such Event of Default shall not have been remedied, unless the principal of all the Bonds shall have already become due and payable, either the Fiscal Agent (by notice in writing to the Metropolitan Government), or the holders of not less than 25% in principal amount of the Bonds Outstanding (by notice in writing to the Metropolitan Government and the Fiscal Agent), may declare the principal of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and be immediately due and payable. The right of the Fiscal Agent or of the holders of not less than 25% in principal amount of the Bonds to make any such declaration as aforesaid, however, is subject to the condition that if, at any time after such declaration, but before the Bonds shall have matured by their terms, all overdue installments of interest upon the Bonds, together with interest on such overdue installments of interest to the extent permitted by law and the reasonable and proper fees, charges, expenses and liabilities of the Fiscal Agent, and all other sums then payable by the Metropolitan Government under the Bond Resolution (except the principal of, and interest accrued since the next preceding interest date on, the Bonds due and payable solely by virtue of such declaration) shall either be paid by or for the account of the Metropolitan Government or provision satisfactory to the Fiscal Agent shall be made for such payment, and all defaults under the Bonds or under the Bond Resolution (other than the payment of principal and interest due and payable solely by reason of such declaration) shall be made good or be secured to the satisfaction of the Fiscal Agent or provision deemed by the Fiscal Agent to be adequate shall be made therefor, then and in every such case the holders of 25% in principal amount of the Bonds Outstanding, by written notice to the Metropolitan Government and the Fiscal Agent, may rescind such declaration and annul such default in its entirety, or, if the Fiscal Agent shall have acted itself, and if there shall not have been theretofore delivered to the Fiscal Agent written direction to the contrary by the holders of 25% in principal amount of the Bonds Outstanding, then any such declaration shall be deemed to be rescinded and any such default shall be deemed to be annulled, but no such rescission or annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. Application of Pledged Funds After Default

During the continuance of an Event of Default, the Fiscal Agent shall apply the Pledged Funds, including all moneys, securities, funds and Net Revenues received by the Fiscal Agent as follows in the following order:

(i) Expenses of Fiduciaries - to the payment of the reasonable and proper fees (including reasonable attorney's fees), charges, expenses and liabilities of the fiduciaries;

(ii) Operating Expenses - to the payment of the amounts required for reasonable and

necessary Operating Expenses and for the reasonable renewals, repairs and replacements of the Electric System necessary in the judgment of the Fiscal Agent to prevent a loss of Revenues;

(iii) Principal or Redemption Price and Interest - to the payment of the interest and

principal or Redemption Price then due on the Bonds.

Nothing in the Bond Resolution or in the Bonds contained shall affect or impair the obligation of the Metropolitan Government, which is absolute and unconditional, to pay at the respective dates of maturity and places therein expressed the principal of (and premium, if any) and interest on the Bonds to the respective holders thereof, or affect or impair the right of action, which is also absolute and unconditional, of any holder to enforce such payment of its Bond.

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Concerning the Fiduciaries

The Bond Resolution requires the appointment by the Metropolitan Government of a Fiscal Agent and one or more Paying Agents for the Bonds of each Series. The Fiscal Agent may resign on 90 days' notice and may at any time be removed with cause by the holders of a majority in principal amount of the Bonds then outstanding. A successor Fiscal Agent may be appointed by the Metropolitan Government, but if the Metropolitan Government does not appoint a successor Fiscal Agent within 60 days, then by the holders of a majority in principal amount of the Bonds then outstanding. Failing such an appointment, the holder of any Bond may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent. Any successor Fiscal Agent shall be a bank or trust company organized under the laws of the state or a national banking association and shall have capital stock, surplus and undivided earnings aggregating at least $50,000,000 if there be such a bank or trust company or national banking association willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by the Bond Resolution. Supplemental Bond Resolutions Effective Upon Filing With the Fiscal Agent

For any one or more of the following purposes and at any time or from time to time, a Supplemental Bond Resolution of the Metropolitan Government may be adopted, which, upon the filing with the Fiscal Agent of a copy thereof certified by an Authorized Metropolitan Government Representative, shall be fully effective in accordance with its terms:

(1) To close the Bond Resolution against, or provide limitations and restrictions in addition to the limitations and restrictions contained in the Bond Resolution on, the authentication and delivery of Bonds or the issuance of other evidences of indebtedness;

(2) To add to the covenants and agreements of the Metropolitan Government in the

Bond Resolution, other covenants and agreements to be observed by the Metropolitan Government which are not contrary to or inconsistent with the Bond Resolution as theretofore in effect;

(3) To add to the limitations and restrictions in the Bond Resolution, other

limitations and restrictions to be observed by the Metropolitan Government which are not contrary to or inconsistent with the Bond Resolution as theretofore in effect;

(4) To authorize Bonds of an additional Series;

(5) To authorize, in compliance with all applicable law, Bonds of each Series to be

issued in the form of coupon Bonds and, in connection therewith, specify and determine the matters and things relative to the issuance of such coupon Bonds, including provisions relating to the timing and manner of provision of any notice required to be given hereunder to the holders of such coupon Bonds, which are not contrary to or inconsistent with the Bond Resolution as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time prior to the first authentication and delivery of such coupon Bonds;

(6) To authorize, in compliance with all applicable law, Bonds of each Series to be

issued in the form of Bonds issued and held in book-entry form on the books of the Metropolitan Government or any fiduciary appointed for that purpose by the Metropolitan Government and, in connection therewith, make such additional changes herein, not adverse to the rights of the

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holders of the Bonds, as are necessary or appropriate to accomplish or recognize such book-entry form Bonds and specify and determine the matters and things relative to the issuance of such book-entry form Bonds as are appropriate or necessary;

(7) Notwithstanding any other provisions of the Bond Resolution, to authorize

Bonds of a Series having terms and provisions different than the terms and provisions theretofore provided in the Bond Resolution, including but not limited to provisions relating to the timing of the payment of interest, and authorizing the form of bond for such Series of Bonds and otherwise to provide amendments or modifications of provisions of the Bond Resolution relative to such Bonds; provided that neither the authorization and issuance of such Series of Bonds nor any such amendment or modification shall in any manner impair or adversely affect the rights or security of the holders of Bonds then Outstanding under the Bond Resolution;

(8) To confirm, as further assurance, any pledge or assignment under, and the

subjection to any security interest, pledge or assignment created or to be created by, the Bond Resolution of the Pledged Funds and to pledge as Pledged Funds any additional revenues, moneys, securities, Credit Facilities or other agreements; and

(9) To modify any of the provisions of the Bond Resolution in any other respect

whatever, provided that (i) such modification shall be, and be expressed to be, effective only after all Bonds of each Series Outstanding at the date of the adoption of such Supplemental Bond Resolution shall cease to be Outstanding, and (ii) such Supplemental Bond Resolution shall be specifically referred to in the text of all Bonds of any Series authenticated and delivered after the date of the adoption of such Supplemental Bond Resolution and of Bonds issued in exchange therefor or in place thereof.

Supplemental Bond Resolutions Effective With Consent of Bondholders

At any time or from time to time, a Supplemental Bond Resolution may be adopted subject to consent by Bondholders and, if applicable, an Insurer, in accordance with and subject to the provisions of the Bond Resolution, which Supplemental Bond Resolution, upon the filing with the Fiscal Agent of a copy thereof certified by an Authorized Metropolitan Government Representative and upon compliance with the provisions of the Bond Resolution shall become fully effective in accordance with its terms. Powers of Amendment

Any modification or amendment of the Bond Resolution and of the rights and obligations of the Metropolitan Government and of the holders of the Bonds thereunder, in any particular, may be made by a Supplemental Bond Resolution, with the written consent given (i) of the holders of at least a majority in principal amount of the Bonds Outstanding at the time such consent is given and (ii) in case less than all of the several Series of Bonds then Outstanding are affected by the modification or amendment, of the holders of at least a majority in principal amount of the Bonds of each Series so affected and Outstanding at the time such consent is given. No such modification or amendment shall permit a change in the terms of redemption (including Sinking Fund Installments) or maturity of the principal of any Outstanding Bond or of any installment of interest thereon or a reduction in the principal amount or the Redemption Price thereof or in the rate of interest thereon without the consent of the holder of such Bond, or shall reduce the percentages or otherwise affect the classes of Bonds the consent of the holders of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of any Fiduciary without its written assent thereto.

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Defeasance

The lien of the Bond Resolution and all covenants, agreements and other obligations of the Metropolitan Government under the Bond Resolution will cease, terminate and be discharged and satisfied wherever all Bonds are paid in full. Bonds are deemed to have been paid and are not entitled to the lien, benefit and security of the Bond Resolution wherever the following conditions are met: (i) in case any Bonds are to be redeemed prior to their maturity, the Metropolitan Government has given to the Fiscal Agent irrevocable instructions to publish notice of redemption therefor, (ii) there has been deposited with the Fiscal Agent either moneys or Investment Securities which, together with other moneys, if any, also deposited, will be sufficient to pay when due the principal or redemption price, if applicable, and interest due and to become due on the Bonds, and (iii) in the event such Bonds are not subject to redemption within the next succeeding 60 days, the Metropolitan Government has given the Fiscal Agent irrevocable instructions to publish a notice to the holders of such Bonds that the above deposit has been made and that such Bonds are deemed to have been paid and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal or redemption price, if applicable, on said Bonds. Amendment

Resolution No. RS2014-42 adopted on October 18, 2011 ("Resolution RS2011-42") provided for certain amendments of the Bond Resolution which become effective only after all Bonds Outstanding on the date of the adoption of the Resolution No. RS2011-42 are paid or defeased, which amendments permit the issuance of taxable Bonds under the Bond Resolution, modify the ratio of historical Net Revenues to Debt Service necessary for the issuance of Additional Bonds from 125% to 110%, modify the ratio of projected Net Revenues to Debt Service necessary for the issuance of Additional Bonds from 140% to 110%, permit the financing of any project authorized by law, other than the generation, transmission, distribution and sale of electric energy, separate and not pursuant to the Bond Resolution, permit the Debt Service Reserve Requirement, if any, to be established separately for each Series of Bonds, permit the investment of amounts in all Funds and Accounts, other than a defeasance escrow, in any obligations in which municipal funds or the funds of municipally owned electric systems may be lawfully invested and provide that failure to comply with the rate covenant set forth in Section 710 of the Bond Resolution shall not constitute an Event of Default so long as the Board (i) shall, no later than sixty (60) days after discovering such non-compliance and in all events no later than sixty (60) days after receipt by the Board of audited financial statements for a particular fiscal year which show such non-compliance, retain the Consulting Engineer or another independent consultant or firm of consultants having a favorable reputation for skill and experience in the field of reviewing and recommending rates, fees and charges for electric systems (such Consulting Engineer or other consultant or firm of consultants being referred to herein as the "Qualified Independent Consultant"), for the purpose of reviewing the Electric System fees, rates, rents, charges and surcharges, (ii) shall either (A) implement the recommendations of such Qualified Independent Consultant with respect to fees, rates, rents, charges and surcharges for the Electric System necessary to comply with the rate covenant, or, (B) if the Qualified Independent Consultant shall be of the opinion, that it would be impracticable at the time to charge such fees, rates, rents, charges and surcharges as would provide funds sufficient to comply with the rate covenant, impose such schedule of fees, rates, rents, charges and surcharges as in the opinion of such Qualified Independent Consultant will allow the Board to, as nearly as then practicable, comply with such rate covenant, and (iii) in any event shall be in compliance with such rate covenant no later than the end of the second fiscal year following the fiscal year in which such noncompliance requiring the engagement of the Qualified Independent Consultant occurred. For a more complete description of the amendments hereinabove described and the effective dates thereof, reference is hereby made to Resolution No. RS2011-42.

APPENDIX E

Form of Opinion of Bond Counsel

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PROPOSED FORM OF OPINION OF BOND COUNSEL

Upon delivery of the 2017 Series A and B Bonds, Bradley Arant Boult Cummings LLP, Nashville, Tennessee, Bond Counsel, proposes to render its opinion with respect to the 2017 Series A and B Bonds in substantially the following form:

[Date] Metropolitan County Council The Metropolitan Government of Nashville and Davidson County 205 Metropolitan Courthouse Nashville, TN 37201 Ladies and Gentlemen:

We have examined the record of proceedings relating to the issuance of $109,015,0001 aggregate principal amount of Electric System Revenue Bonds, 2017 Series A (the "2017 Series A Bonds") and $65,490,0001 aggregate principal amount of Electric System Revenue Refunding Bonds, 2017 Series B (the "2017 Series B Bonds") (the "2017 Series A Bonds and the 2017 Series B Bonds are referred to hereinafter collectively as the "2017 Series A and B Bonds") by The Metropolitan Government of Nashville and Davidson County (the "Metropolitan Government").

The 2017 Series A and B Bonds are issued under and pursuant to the Charter of the Metropolitan Government, as amended and supplemented (the "Charter"), the Constitution and applicable statutes of the State of Tennessee, including, without limitation, Tennessee Code Annotated, Sections 7-34-101 through 7-34-118, as amended (the "Act"), and a resolution of the Metropolitan Government adopted on November 5, 1985, entitled "Electric System Revenue Bond Resolution", as amended and supplemented (the "Resolution").

The 2017 Series A Bonds will mature on the dates and in the principal amounts, and bear interest at the respective rates per annum, shown below:

May 15 Principal Amount Interest Rate

The 2017 Series B Bonds will mature on the dates and in the principal amounts, and bear interest at the respective rates per annum, shown below:

May 15 Principal Amount Interest Rate

The 2017 Series A and B Bonds are dated, and shall bear interest from, the date of delivery thereof, except as otherwise provided in the Resolution. Interest on the 2017 Series A and B Bonds is payable on May 15 and November 15 in each year, commencing on November 15, 2017. The 2017 Series A and B Bonds are subject to redemption prior to maturity in the manner and upon the respective terms set forth in the Resolution. 1 Preliminary, subject to change.

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The 2017 Series A and B Bonds are issued in fully registered form in the denominations of $5,000 or any integral multiple of $5,000. The 2017 Series A and B Bonds are each numbered, prefixed by the letter R, from one upward.

The 2017 Series A Bonds are being issued for the principal purposes of providing sufficient funds for the following: (i) to finance a portion of the Cost of Acquisition and Construction (as defined in the Resolution) of the 2017 System Improvements (as defined in the Resolution) for the Electric System (as defined in the Resolution), which is owned by the Metropolitan Government and operated by the Electric Power Board of the Metropolitan Government (the "Board"), (ii) to fund the Debt Service Reserve Account (as defined in the Resolution), and (iii) to pay the administrative, legal, financing and other expenses incurred in connection with the issuance of the 2017 Series A Bonds. The 2017 Series B Bonds are being issued for the principal purposes of providing sufficient funds for the following: (i) to pay, when due, or upon redemption as provided in the Resolution, the principal or the Redemption Price (as defined in the Resolution) of and the interest on the Metropolitan Government’s outstanding [insert description of bonds to be refunded] (collectively, the "Refunded Bonds"), and (ii) to pay the administrative, legal, financing and other expenses incurred in connection with the issuance of the 2017 Series B Bonds.

The Metropolitan Government has also issued and has outstanding under the Resolution the Electric System Revenue Bonds, 1998 Series A, the Electric System Revenue Bonds, 2008 Series A, the Electric System Revenue Refunding Bonds, 2008 Series B, the Electric System Revenue Bonds 2011 Series A, the Electric System Revenue Refunding Bonds, 2011 Series B, the Electric System Revenue Refunding Bonds, 2013 Series A, the Electric System Revenue Bonds, 2014 Series A and the Electric System Revenue Refunding Bonds, 2015 Series A [delete any of the foregoing which are no longer outstanding after the refunding contemplated by the 2017 Series B Bonds] (together with the 2017 Series A and B Bonds, collectively, the "Outstanding Bonds").

The Metropolitan Government has reserved the right to issue additional bonds and other evidences of indebtedness on the terms and conditions and for the purposes stated in the Resolution. Under the provisions of the Resolution, all such additional bonds and other evidences of indebtedness may rank equally as to security and payment with the 2017 Series A and B Bonds and the other Outstanding Bonds.

As to questions of fact material to our opinions, we have, with your consent, relied upon the

representations of officials of the Metropolitan Government contained in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation.

Based upon such documents, showings and related matters of law as we deem necessary to render

these opinions, and in reliance, to the extent set forth in the third from the last paragraph of this letter, upon the opinion described in said paragraph, we are of the opinion that:

1. The Board has good right and lawful authority to operate, maintain and improve the Electric System and to fix rates and collect charges for electric energy and the services, facilities and commodities furnished by the Electric System and to perform all its obligations under the Resolution in those respects.

2. The Resolution has been duly and lawfully adopted by the Metropolitan Government, is in full force and effect, is valid and binding upon the Metropolitan Government and is enforceable in accordance with its terms. No other or further authorization or approval for the Resolution is required.

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The Resolution creates the valid pledge of the Pledged Funds (as defined in the Resolution) that the Resolution purports to create. We express no opinion as to the perfection or priority of the pledge of the Pledged Funds so created.

3. The Metropolitan Government is duly authorized and entitled to issue the 2017 Series A and B Bonds, and the 2017 Series A and B Bonds have been duly and validly authorized and issued by the Metropolitan Government in accordance with the Charter, with the Constitution and statutes of the State of Tennessee, including the Act, and with the Resolution, and constitute valid and binding limited obligations of the Metropolitan Government as provided in the Resolution, enforceable in accordance with their terms and the terms of the Resolution and are entitled to the benefits of the Act and the Resolution.

4. The Internal Revenue Code of 1986, as amended (the "Code") imposes certain requirements which must be met subsequent to the issuance and delivery of the 2017 Series A and B Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause the interest on the 2017 Series A and B Bonds to be included in gross income retroactive to the date of issue of the 2017 Series A and B Bonds. The Metropolitan Government has covenanted in the Resolution to maintain the exclusion of the interest on the 2017 Series A and B Bonds from gross income for federal income tax purposes pursuant to Section 103(a) of the Code.

Under existing law, and assuming compliance with the aforementioned covenant, interest on the 2017 Series A and B Bonds is excluded from gross income for federal income tax purposes. The 2017 Series A and B Bonds are not "specified private activity bonds" within the meaning of Section 57(a)(5) of the Code and, therefore, the interest on the 2017 Series A and B Bonds will not be treated as a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. However, we note that a portion of the interest on the 2017 Series A and B Bonds owned by corporations may be subject to the federal alternative minimum tax, which is based, in part, on adjusted current earnings.

With respect to the 2017 Series A and B Bonds initially offered to the public at prices less than the amounts payable thereon at maturity, the difference between the principal amount of such 2017 Series A and B Bonds and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such 2017 Series A and B Bonds of the same maturity was sold constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on such 2017 Series A and B Bonds. Such original issue discount accrues actuarially on a constant interest rate basis over the term of each such 2017 Series A and B Bond, and the basis of each such 2017 Series A and B Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount.

With respect to the 2017 Series A and B Bonds initially offered to the public at prices greater than the amounts payable thereon at maturity, the difference between the principal amount of such 2017 Series A and B Bonds and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such 2017 Series A and B Bonds of the same maturity was sold constitutes original issue premium. As a result of the tax cost reduction requirements of the Code relating to amortization of original issue premium, under certain circumstances an initial owner of such 2017 Series A and B Bonds may realize a taxable gain upon the disposition of such 2017 Series A and B Bonds even though such

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2017 Series A and B Bonds are sold or redeemed for an amount equal to such owner's original cost of acquiring such 2017 Series A and B Bonds.

5. Under existing law, interest on the 2017 Series A and B Bonds is exempt from all state, county and municipal taxation in the State of Tennessee, except (a) Tennessee excise taxes on all or a portion of the interest on the 2017 Series A and B Bonds during the period such 2017 Series A and B Bonds are held or beneficially owned by any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee, and (b) Tennessee franchise taxes by reason of the inclusion of the book value of the 2017 Series A and B Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee.

The opinions set forth in paragraphs 2 and 3 above are qualified to the extent that the enforcement of the Resolution and the 2017 Series A and B Bonds may be limited by applicable bankruptcy, moratorium or similar laws affecting creditors' rights generally and as to the availability of any particular remedy. Except as stated in paragraphs 4 and 5 above, we express no opinion as to any federal, state or local tax consequences of the ownership or disposition of the 2017 Series A and B Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the 2017 Series A and B Bonds, or the interest thereon, if any action is taken with respect to the 2017 Series A and B Bonds or the proceeds thereof upon the advice or approval of other bond counsel.

We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the Preliminary Official Statement dated _______________, 2017 or the Official Statement dated _______________, 2017 or any other offering material relating to the 2017 Series A and B Bonds, and we express no opinion herein relating thereto. Further, we express no opinion herein as to the compliance by the Metropolitan Government, the Board or the underwriters for the 2017 Series A and B Bonds with any federal or state statute, regulation or ruling that may relate to the sale, distribution or marketing of the 2017 Series A and B Bonds.

In rendering this opinion, we have, with your consent, relied upon the opinion of even date herewith of Jon Cooper, Director of Law of the Metropolitan Government, with respect to: (i) the due organization and existence of the Metropolitan Government as a valid political subdivision of the State of Tennessee; (ii) the right, title and interest of the present officials of the Metropolitan Government to their respective positions; (iii) the due and valid adoption of the Resolution by the Metropolitan Government and its continued validity and the creation of a valid pledge of the Pledged Funds purported to be created thereby; (iv) compliance by the Metropolitan Government with the provisions of Chapter 44, Title 8, Tennessee Code Annotated, in connection with the adoption of the Resolution; (v) matters which might be disclosed by an examination of agreements or instruments to which the Metropolitan Government is a party or by which it may be bound; and (vi) such other matters as are expressed in such opinion.

We have examined the first numbered 2017 Series A Bond for each maturity and the first numbered 2017 Series B Bond for each maturity, and, in our opinion, the form of such 2017 Series A and B Bonds and their execution are regular and proper. We have not, however, verified, and express no opinion as to the accuracy of, any "CUSIP" identification number or other identifying mark that may be imprinted on any of the 2017 Series A and B Bonds.

As indicated hereinbefore, this opinion is rendered based upon laws, regulations, rulings and judicial decisions existing as of the date hereof. We express no opinion as to what effect laws passed, regulations or rulings promulgated or judicial decisions published subsequent to the date hereof but with a

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retroactive effective date may have on the federal income taxation of the interest on the 2017 Series A and B Bonds.

Very truly yours,

APPENDIX F

Form of Continuing Disclosure Agreement

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CONTINUING DISCLOSURE AGREEMENT

THIS CONTINUING DISCLOSURE AGREEMENT (the "Agreement") is made and entered into as of the __ day of June 2017, among REGIONS BANK, as disclosure agent (the "Disclosure Agent"), and the ELECTRIC POWER BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY (the "Board").

RECITALS

WHEREAS, The Metropolitan Government of Nashville and Davidson County (the "Metropolitan Government") has issued or will issue its $109,015,000* Electric System Revenue Bonds, 2017 Series A and its $65,490,000* Electric System Revenue Refunding Bonds, 2017 Series B (collectively, the "Bonds") under the provisions of the Electric System Revenue Bond Resolution adopted by the Metropolitan Government on November 5, 1985, as amended and supplemented, including specifically as supplemented by the Twenty-Eighth Supplemental Electric System Revenue Bond Resolution adopted by the Metropolitan Government on May 16, 2017 (such Electric System Revenue Bond Resolution adopted on November 5, 1985 and all amendments and supplements thereto are hereinafter referred to collectively as the "Resolution"); and

WHEREAS, the Bonds have been offered and sold pursuant to a Preliminary Official Statement dated May __, 2017 and a final Official Statement dated May __, 2017 (collectively, the "Official Statement"), and the Metropolitan Government and the Board have entered into a Bond Purchase Agreement dated May __, 2017 (the "Bond Purchase Agreement") with Raymond James & Associates, Inc., on behalf of the Underwriters (as defined therein) as to the Bonds; and

WHEREAS, the Bonds are subject to the provisions of Rule 15c2-12 (the "Rule"), promulgated by the Securities and Exchange Commission of the United States of America (the "SEC") pursuant to the Securities Exchange Act of 1934, as amended; and

WHEREAS, the Board has entered into this Agreement with the Disclosure Agent in order to assist the Underwriters in complying with the Rule.

NOW, THEREFORE, in consideration of the mutual promises and agreements made herein and in the Resolution, the receipt and sufficiency of which consideration is hereby mutually acknowledged, the parties hereto agree as follows:

Section 1. Definitions; Scope of this Agreement.

(A) All terms capitalized but not otherwise defined herein shall have the meanings assigned to those terms in the Resolution. For this purpose, all amendments to, or supplements of, the Resolution shall be deemed automatically incorporated herein by reference, but only to the extent that such amendments or supplements relate to the Bonds.

(B) This Agreement applies to the Bonds. It does not apply to any other Bonds issued and Outstanding under the Resolution or to any Additional Bonds which may be issued under the Resolution or to any other securities issued by the Metropolitan Government.


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(C) The Disclosure Agent shall have no obligation to make any disclosure except as expressly provided herein; provided, however, that nothing herein shall limit the duties or obligations of the Disclosure Agent as Fiscal Agent under the Resolution or the duties or obligations of the Disclosure Agent in any other capacity pursuant to written agreement between the Disclosure Agent and the Metropolitan Government and/or the Board.

Section 2. Disclosure of Information

(A) General Provisions. This Agreement governs the direction of the Board to the Disclosure Agent with respect to information to be made public. In its actions under this Agreement, the Disclosure Agent is acting not as Fiscal Agent under the Resolution but as the agent of the Board; provided, however, that the Disclosure Agent shall be entitled to the same protection in so acting under this Agreement as it has in acting as Fiscal Agent under the Resolution. This Agreement is intended to benefit the holders of the Bonds, but only indirectly through the Disclosure Agent as agent of the Board as long as a Disclosure Agent is serving under this Agreement. This Agreement is not intended to create any rights exercisable by the holders of the Bonds except indirectly through the Disclosure Agent as set forth herein as long as a Disclosure Agent is serving under this Agreement. This Agreement is not intended to limit or affect rights of the holders of the Bonds as set forth in the Resolution.

(B) Information Provided to the Public. Except to the extent this Agreement is modified or otherwise altered in accordance with Section 4 hereof, the Board shall make or cause to be made public the information set forth in subsections (1) and (2) below:

(1) Periodic Reports.

(a) Copies of the annual financial statements of the Board, including, without limitation, balance sheets and related statements of revenues, expenses and changes in retained earnings and cash flows, prepared in accordance with generally accepted accounting principles and audited in accordance with generally accepted auditing standards and generally accepted government auditing standards.

(b) To the extent such items are not included in the annual financial statements

referred to in subsection (a) above, the financial and statistical data of the Board for the type of information included in the tables entitled "Summary of Changes in Net Position", "Debt Service Coverage", "Number of Customers", "Sales in KWh and Maximum System Demand in kW", and "Ten Largest Customers" contained in the Official Statement of the Metropolitan Government dated May __, 2017, prepared in connection with the Bonds.

(2) Occurrence Notices. Notices of the following events with respect to the Bonds:

a. Principal and interest payment delinquencies;

b. Non-payment related defaults, if material;

c. Unscheduled draws on debt service reserves reflecting financial difficulties;

d. Unscheduled draws on credit enhancements reflecting financial difficulties;

e. Substitution of credit or liquidity providers, or their failure to perform;

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f. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

g. Modifications to rights of Bondholders, if material;

h. Bond calls, if material, and tender offers;

i. Defeasances;

j. Release, substitution, or sale of property securing repayment of the securities, if material;

k. Rating changes;

l. Bankruptcy, insolvency, receivership or similar event of the obligated person;

m. The consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

n. Appointment of a successor or additional trustee or the change of name of a trustee, if material.

The Board shall provide the Disclosure Agent a copy of the audited annual financial statement of the Board described in subsection (B)(1)(a) above by not later than nine (9) months after the fiscal year ending June 30 of each year that the Bonds remain Outstanding, beginning at the end of the fiscal year ending June 30, 2017. While any of the Bonds remain Outstanding, the Board shall provide to the Disclosure Agent written notice of any event described in subsection (2) above as soon as possible upon the occurrence of any such event.

The Board may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed in subsection (2) above, if, in the judgment of the Board, such other event is material with respect to the Bonds, but the Board does not undertake to commit to provide any such notice of the occurrence of any event except those events listed in subsection (2) above.

(C) Information Provided by Disclosure Agent to Public.

(1) The Board hereby directs the Disclosure Agent on its behalf to make public in accordance with subsection (D) of this Section 2 and within the time frame set forth in subsection (C)(2) below, and the Disclosure Agent agrees to act as the agent of the Board in so making public:

(a) the periodic reports which the Board has agreed to make public under subsection

(B)(1) of this Section 2 (as it may be amended from time to time);

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(b) the occurrence notices which the Board has agreed to make public under subsection (B)(2) of this Section 2 (as it may be amended from time to time); and

(c) such other information as the Board shall determine to make public through the

Disclosure Agent as set forth in the last paragraph of Section 2(B) above.

(2) To the extent that the Board has provided the Disclosure Agent with the periodic reports required by Section 2(B)(1) above, the Disclosure Agent shall make such information public not later than one year after the fiscal year ending June 30 of each year that the Bonds remain Outstanding, beginning at the end of the fiscal year ending June 30, 2017. In the event of any failure to file the periodic reports specified in Section 2(B)(1) above, the Disclosure Agent shall make notice of such failure public within a timely manner. To the extent that the Board has informed the Disclosure Agent of the occurrence of certain events as required by Section 2(B)(2) above, the Disclosure Agent shall make such notice of such events public within ten (10) business days after the occurrence thereof.

(D) Means of Making Information Public.

(1) Information shall be transmitted to (i) the Municipal Securities Rulemaking Board

("MSRB") and (ii) any public or private depository to which continuing disclosure information shall be sent pursuant to Tennessee law (a "State Depository").

(2) Information shall be made public by the Disclosure Agent (as long as a Disclosure Agent

is serving under this Agreement and, if a Disclosure Agent is not serving under this Agreement, by the Board) (i) to the MSRB by filing such information electronically with the MSRB at emma.msrb.org, accompanied by identifying information as prescribed by the MSRB and submitted in any other manner pursuant to, and in accordance with, SEC Release No. 34-59062 and (ii) to the State Depository, if any, by whatever means are mutually acceptable to the Disclosure Agent (or the Board if a Disclosure Agent is not serving under this Agreement) and such State Depository.

Nothing in this subsection (D)(2) shall be construed to relieve the Fiscal Agent of its obligation to

provide notices to the holders of all Bonds if such notice is required by the Resolution.

Nothing in this Agreement shall be construed to require the Disclosure Agent to interpret or provide an opinion concerning the information made public. If the Disclosure Agent receives a request for an interpretation or opinion, the Disclosure Agent may refer such request to the Board for response.

Because of a difference between the filing deadline for the 1996 Series A Bonds and all other

Outstanding Bonds, the Board did not timely file its annual financial information for the 1996 Series A Bonds for fiscal years 2010 through 2012 (and instead filed the annual financial information for the 1996 Series A Bonds in accordance with the filing deadline for the other Outstanding Bonds). The 1996 Series A Bonds are no longer outstanding. The Board has timely filed its annual financial information for the 1998 Series A Bonds and 1998 Series B Bonds (collectively, the "1998 Series A and B Bonds") in accordance with the filing deadline provided in the Continuing Disclosure Agreement executed by the Board for the 1998 Series A and B Bonds. This filing deadline, however, is different than the deadline provided in the form of Continuing Disclosure Agreement attached to the Official Statement for the 1998 Series A and B Bonds. While annual financial information of the Board for fiscal years 2013 through 2015 was timely filed, such filings were not linked to CUSIPs for the 1998 Series A Bonds. There was no requirement, however, in the Continuing Disclosure Agreement for the 1998 Series A Bonds to submit

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identifying information with required filings, and annual financial information for said years was otherwise available from the MSRB. Annual financial information for fiscal year 2016 was linked to CUSIPs for the 1998 Series A Bonds, and the Board has since linked annual financial information for fiscal years 2013 through 2015 to CUSIPs for the 1998 Series A Bonds. Certain bonds issued for the benefit of the Board were or are insured by bond insurance companies that experienced rating changes within the previous five years. Notice of these insured rating changes was not filed by the Board; however, information on these insured rating changes was widely available and reported to the market. The Board has since filed notice of the current rating of the insurer for all insured Outstanding Bonds. The Board has implemented procedures within its finance and accounting staff to ensure that all CUSIPs for Outstanding Bonds are linked to annual financial information filed with the MSRB and that rating changes are timely filed with the MSRB. Otherwise, in the previous five years, the Board has not failed to comply in any material respect with any undertaking in a written contract or agreement specified in the Rule.

Section 3. Disclosure Agent Compensation.

The Disclosure Agent's acts hereunder shall constitute services for which the Board shall pay the

Disclosure Agent, and the Disclosure Agent is entitled to reasonable compensation in accordance with the fee schedule attached hereto as Schedule A. In addition, the Board shall pay or reimburse the Disclosure Agent for its expenses incurred in performing its services in accordance with this Agreement.

Section 4. Amendment or Modification.

(A) This Agreement shall not be amended or modified except by a writing executed by the

Disclosure Agent (but the signature of the Disclosure Agent shall only be required if a Disclosure Agent is then serving under this Agreement) and the Board.

(B) This Agreement may be amended by the Disclosure Agent (but the signature of the Disclosure Agent shall only be required if a Disclosure Agent is then serving under this Agreement) and the Board without consent of any holders of the Bonds if (i) the Agreement, as so amended, would have complied with the requirements of the Rule at the time of the execution hereof, after taking into account any amendments or interpretations of the Rule, or (ii) the amendment is necessary or desirable to conform the terms hereof to the Rule or any other rule or regulation of the SEC, the MSRB or any other federal or state regulatory body having jurisdiction over the Bonds.

Section 5. Miscellaneous.

(A) Representations. Each of the parties hereto represents and warrants to each other party that it has duly authorized the execution and delivery of this Agreement by the officer of such party whose signature appears on the execution pages hereto, that it has all requisite power and authority to execute and deliver, and perform, this Agreement under its organizational documents and any corporate resolutions now in effect, that the execution and delivery of this Agreement, and performance of the terms hereof, does not and will not violate any law, regulation, ruling, decision, order, indenture, decree, agreement or instrument by which such party is bound, and such party is not aware of any litigation or proceeding pending, or, to the best of such party's knowledge, threatened, contesting or questioning its existence, or its power and authority to enter into this Agreement, or its due authorization, execution and delivery of this Agreement, or otherwise contesting or questioning the issuance of the Bonds. The Disclosure Agent makes no representation that this Agreement complies with the Rule.

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(B) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Tennessee.

(C) Severabilitv. If any provision hereof shall be held invalid or unenforceable by a court of competent jurisdiction, the remaining provisions hereof shall survive and continue in full force and effect.

(D) Counterparts. This Agreement may be executed in one or more counterparts, each and all of which shall constitute one and the same instrument.

(E) Resignation or Removal of Disclosure Agent. The Disclosure Agent may resign by giving notice in writing to the Board. The Disclosure Agent may be removed by the delivery to the Disclosure Agent by the Board of notice in writing evidencing the desire of the Board to remove the Disclosure Agent. If the position of Disclosure Agent becomes vacant due to resignation or removal of the Disclosure Agent or any other reason, a successor Disclosure Agent may be appointed by the Board. If no successor Disclosure Agent is appointed by the Board, then the responsibilities of the Disclosure Agent under this Agreement shall be discharged by the Board.

(F) Defaults; Remedies. A party shall be in default of its obligations hereunder if it fails and refuses to carry out or perform its obligations hereunder for a period of thirty (30) days following notice of default given in writing to such party by any other party hereto, unless such default is cured within such thirty (30) days notice period.

If a default occurs and continues beyond the notice period specified above, the non-defaulting party (and, if the Board is the defaulting party and a Disclosure Agent is no longer serving hereunder, the holders of the Bonds or the Fiscal Agent on behalf of the holders of the Bonds) may take such action at law or in equity as may be necessary or desirable to enforce the provisions hereof, including, without limitation, an action for mandamus or for specific performance, but the defaulting party shall not in any event be liable for damages incurred as a consequence of such default.

(signature page follows)

F-7

IN WITNESS WHEREOF, the Disclosure Agent and the Board have each caused a duly authorized officer to execute this Agreement as of the day and year first above written.

REGIONS BANK, as Disclosure Agent

By: _______________________________ Name: _____________________________ Title: ______________________________


By: _______________________________ Name: _____________________________ Title: ______________________________

APPROVED AS TO FORM AND LEGALITY

By: _______________________________ Name: _____________________________ Title: ______________________________

ATTEST

___________________________________ Secretary

Date: _________________________ 22577619.6

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· preliminary official statement dated may 17, 2017 new issue - book-entry only ratings: standard...

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