- The Metropolitan Government of Nashville and Davidson County plans to issue $66.7 million in bonds to finance construction of a new steam and chilled water facility to replace its existing district energy system. - The existing system required increasing subsidies from the city, reaching $11.6 million in 2001. The new facility will be built and operated by Constellation Energy Systems under a fixed-cost contract, with construction guarantees from its parent company. - Bond proceeds will finance construction of the new facility and upgrades to the distribution system. The project aims to eliminate the need for city subsidies by providing heating and cooling services at lower costs through greater efficiency.

1. Public Finance
September 13, 2002
www.fitchratings.com
Revenue
New Issue
Metropolitan Government of
Nashville and Davidson County,
Tennessee
District Energy System
Ratings
New Issue
District Energy System Revenue Bonds,
Series 2002A (Non-Alternative
Minimum Tax).................................... AA
Outstanding Debt
General Obligation Bonds ...................... AA+
Analysts
James S. Gilliland
1 212 908-0575
james.gilliland@fitchratings.com
Richard Larkin
1 212 908-0875
richard.larkin@fitchratings.com
Issuer Contact
David L. Manning
Director of Finance
1 615 862-6000
New Issue Details
$66,700,000 District System Revenue Bonds,
Series 2002A (Non-Alternative Minimum Tax),
are expected to be priced the week of Sept. 16
via a syndicate led by Lehman Brothers, M.R.
Beal & Company, and Morgan Keegan.
Purpose: Bond proceeds will be used to
finance construction of a new chilled water and
steam generating facility, make improvements
and expand the current energy distribution
system, acquire land related to the project, pay
capitalized interest, fund the debt service
reserve fund, and pay costs of issuance.
Outlook
The long-term outlook for the Metropolitan Government of Nashville and
Davidson County’s (Metro) district energy system (DES) revenue bonds is
stable at the ‘AA’ rating level. The new facility, expected to open in 2004,
will replace an economically imbalanced prior facility that was damaged
by fire in May 2002. This project enjoys strong Metro support, has
significant contractor guarantees in addition to Metro’s make-up pledge,
passes energy costs to customers, has customer contracts coterminous with
the series 2002 bonds’ maturity, and is expected to provide lower heating
and cooling services to its customers. Net revenues of the monopoly
service of DES provide initial security and a deficiency make-up pledge,
subject to appropriation by Metro, and ultimate bondholder security for
these quasi-project revenue and tax-supported bonds. Metro has a strong
history of appropriated deficiency make-up support for the DES.
Rating Considerations
The system provides heating and cooling services to 38 office buildings
in downtown Nashville and has been operating since 1974 as a solid
waste to energy facility. With eight buildings, Metro is also a large
customer for this service; the State of Tennessee owns 14 buildings
served, and there are 16 private office buildings served. All but three
have signed new 30-year purchase contracts. Since 1975, Metro has
funded operating and debt service deficiencies, which have grown from
$75,000 to $11.6 million in 2001. These deficits have been caused
primarily by the trash burning component of the system. In 2001, Metro
decided it would keep the system operating but would replace trash
burning with more efficient natural gas generators. The system is
currently operating with temporary gas-fueled boilers.
Metro defeased prior system bonds but will extend its operating and debt
service deficiency make-up provision to these bonds for both the
construction period, as well as subsequent operations. It has contracted
with Constellation Energy Systems (CES) to build and operate the new
plant for a fixed-cost 15-year operating contract, and its parent,
Constellation Energy Group (CEG), will provide construction and
operating guarantees. Costs for utilities, fuel, and insurance are variable
costs that will be passed on to Metro and other customers. Projections
indicate that the system could reduce Metro’s deficiency funding
requirements to $1.6 million annually from fiscal 2001’s $11.6 million;
forecasts also indicate that total costs passed on to Metro and the other
users could be lower by about 10% after the conversion. Although there is
potential for volatility and substantial exposure to Metro for deficiencies,
they are very likely to be substantially less than those now being borne by

2. Public Finance
Metropolitan Government of Nashville and Davidson County, Tennessee
2
Metro under the old system. Metro will also be buffered
against large unexpected draws on its make-up
provision by the maintenance of the debt service
reserve fund (DSRF)/insurance substitute, as well as
by a required operating reserve of at least 25% of
budgeted system expenses.
The deficiency make-up provision is subject to
appropriation, but there are no effective limitations
on Metro’s power to tax to provide government
services. The essentiality of the system is also strong,
as there are no real substitutes or alternate providers
available for this service. In addition, the customer
contracts prohibit the customers from using
alternative services as long as Metro can meet the
service provisions of the contract. Metro estimates
that it would be more costly for the system’s users to
build their own heating/chilling systems.
Strengths
• Solid history of deficiency make-up pledge by
Metro.
• Essential nature of facilities.
• Customer contracts coterminous with term of
series 2002 bonds.
• Strong financial position and financial policies
by Metro.
Risks
• Slower than expected sales tax growth trends.
• Construction cost overrun risk.
Security
Pledged Revenues: Pledged revenues include net
revenue (including Metro funding requirements),
bond proceeds, and assignment of metro’s rights
under certain customer agreements and possible
construction/operating damages for failures of CES.
DSRF: The DSRF is the least of maximum annual
debt service (MADS), 125% of average annual debt
service, or 10% of series 2002A bond proceeds. A
surety bond, insurance policy, or letter of credit may
be provided.
Additional Bonds Test: An additional bonds test is
permitted as long as prior-year obligations are met
1.0 times (x) and current-year obligations are met
1.0x. All other covenants (including Metro’s make-
up) must still be in effect.
Flow of Funds: The funds will be paid in the
following order of priority:
• To the operating fund, retention of one month’s
operating costs.
• To the debt service fund, monthly debt service
requirement (one-sixth interest and 1
/12 principal).
• DSRF, to maintain the least of 50% of MADS,
125% average annual debt service, or 10% of
bond issue proceeds. Balance to be provided by
insurance, a surety bond, or letter of credit.
• To the operating reserve fund, $3 million to
build up during construction period.
• To the renewal and replacement fund; no balance
under current management contract, as operator
pays maintenance costs. If a new operator is
chosen, then $250,000 balance required.
• To the system improvement fund; no balance
required under resolution, but Metro may
appropriate funds for this.
• To the surplus fund, which can be used by Metro
but only if operating fund has six months’
projected expenses in balance and all other funds
are satisfied.
Metro District Energy System
Metro’s DES is the successor to the Nashville
Thermal Transfer Corporation (NTTC) that was
chartered in 1970 and has provided heating and/or
cooling services to downtown Nashville building
owners since 1974 as a solid waste-based fired
system. Today NTTC provides these services to
38 buildings, including the facilities of Nashville’s
National Football League and National Hockey
League teams. Metro has always owned and operated
NTTC, and the decision in 2000 to modify the DES
from a solid waste system to a fossil fuel system was
made on merits of economic savings to Metro.
NTTC’s old system required escalating subsidization
since 1974, from $75,000 to $14 million or more in
2002 (see chart, page 3). In the spring of 2001, Metro
issued a request for a proposal seeking private
companies to take over the operation, maintenance,
and management of the DES, including construction
of the new steam and chilled water facility. After a
competitive evaluation, Metro selected CES. In
April 2002, Metro defeased the roughly $60 million
of outstanding Metro general obligation energy
production facility bonds to prepare for construction
of the new DES facility. The closing date of the
waste burning components of the facility was
scheduled for Sept. 30, 2002, and generation of steam
and chilled water was to be done with natural gas
fired boilers instead. However, a fire at the waste

3. Public Finance
Metropolitan Government of Nashville and Davidson County, Tennessee
3
facility occurred on May 23, 2002 and caused an
early closing of the waste burning facility. Currently,
the NTTC facility uses only natural gas to supply
four boilers (two original and two temporary) to
generate steam and will continue to do so until the
new facility opens in spring 2004.
Series 2002A DES Project
Metro’s 2002A DES bonds will finance the construction
of generating units for the production of steam and
chilled water to succeed NTTC’s role. The project is a
fixed-cost design, build, operate, and transfer contract,
with $47 million of bond proceeds going to construction
of the facilities — 69/13.8 kilovolt substation, four
natural gas number two fuel oil boilers, eight water
chillers, the distribution system, and meters — and to
$6.7 million of upgrades and improvements to other
existing DES facilities. The primary objective is to
modernize the system and eliminate the need for Metro
subsidy payments. Construction is expected to begin on
Oct. 30, 2002 and be completed no later than 610 days
after construction begins.
Management Contract
CES agreed to a 15-year fixed management fee for
operations, with an inflation escalator. Metro can
renew the contract after 15 years for three-year
renewals. Construction risk and cost overruns are
largely mitigated through a guaranty signed by CES’s
parent company, CEG. CEG’s senior bonds are rated
‘A–’ by Fitch Ratings.
The contract contains clauses for damages if
construction is not accepted or operating standards are
not met. Obligations of CES are guaranteed by its
parent, CEG. After the first five years of the contract,
CEG is permitted to substitute a letter of credit to meet
its operating guarantees. The terms of the liquidated
damages, during construction, are no more than
$12 million, and during operation, no more than
$12 million for the first five years, $8 million for the
second five years, and $4 million for the last five
years. There is no liquidated damage guaranty if the
contract is renewed after 15 years. The new service
contract commences 610 days after the start
of construction.
CES collects revenues as an agent of and on behalf of
Metro, and all checks from customers are written to
Metro rather than to CES, largely mitigating cash
flow interruption risk under a bankruptcy of the
operator, CES.
Metro’s Funding Requirement
Metro agrees to fund operating and debt service
deficiencies after operation and to also make up debt
service during and after the construction period. The
make-up pledge is subject to appropriation.
Metro can draw on the surplus fund, renewal and
replacement fund, system improvement fund, and
operating reserve fund before drawing on the DSRF.
Metro’s make-up appropriation, however, must
replenish all draws, and the operating reserve must be
maintained at one-quarter of a year of annual budgeted
expenses for the system, which can be met by
supplemental appropriations. Metro’s annual budget is
submitted annually by May 25 and is adopted by the
council by June 30, or the Mayor’s proposal becomes
approved automatically. Metro has had a long history of
subsidizing the thermal operation (see chart above left);
therefore, this covenant is consistent with past support
for the system.
MADS for the series 2002 bonds is level at $4.3 million,
which is significantly less than Metro’s previous five
years of funding for NTTC. Additionally, in fiscal 2002,
Metro expects to have an audited undesignated cash
balance of roughly $59 million.
DES Customer Base
DES provides steam for heating and chilled water
for cooling to 38 buildings in downtown
Nashville — 14 state office buildings, eight Metro
Buildings, and 16 are private sector buildings. All but
0
2
4
6
8
10
12
14
16
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Metropolitan Funding Paid to NTTC
(Fiscal Years Ended June 30)
NTTC – Nashville Thermal Transfer Corporation.
($ Mil.)

4. Public Finance
Metropolitan Government of Nashville and Davidson County, Tennessee
4
three have signed the new 30-year contracts. Other
than the state and Metro, no private user accounts for
more than 6.89% of steam capacity or 4.01% of
chilled water. Very few of the customer buildings
have backup facilities, essentially making DES a
monopoly service provider. All customers can
terminate after 15 years but only if they pay pro rata
capital costs and remainder-of-term contractual
obligations for operating costs.
All customers pay their pro rata share of the fixed fee
and their share of capital costs, including debt
service. Other costs are pass-throughs, on pro rata
shares, for fuel purchase, insurance, water and sewer,
chemicals and engineering, and miscellaneous costs.
Metro Credit
Fitch maintains an ‘AA+’ rating for Metro’s general
obligation bonds. The ‘AA+’ rating reflects Metro’s
broad and diverse economy, its role as an important
regional economic engine, and Nashville’s status as
the state capital. Metro’s credit profile is enhanced by
a substantial presence of government and education
sectors, providing stability to the employment base.
The Nashville economy benefits from a diversity of
finance, agricultural, medical, retail, manufacturing,
and service industries. Solid growth in Metro’s
metropolitan statistical area continues to generate
steady expansion, outpacing other major Tennessee
cities, the state, and the nation in the areas of
employment growth, low unemployment rates, and
wealth and income indicators. Nashville consistently
ranks as a favorable business environment and has
been able to attract new industries. Current debt
levels are considered moderate for this tax base, at
3.02% of market value, and the capital improvement
plan reflects the needs of a growing community.
Fitch expects debt levels to increase in the coming
years to accommodate Metro’s capital planning
priorities, approximately $2.7 billion of which has
been presented to the Metro council for future
bonding consideration. Full issuance of all this
planned debt would raise debt ratios to the higher end
of the moderate range, but Fitch expects the increase
to remain manageable in the context of the city’s
economic growth and financial management.
Metro’s financial operations are solid, benefiting from
sustained economic growth and moderated spending
increases. While the current administration submitted
balanced budgets for fiscal years 2000 and 2001 without
raising taxes and has increased general fund balances
District Energy System Customers
(As of June 30, 2002)
No. of
Buildings
Cooling
(Tons)
Heating
(PPH)
State of Tennessee 14 6,324 50,598
Metropolitan Government 8 7,344 99,883
Private Sector 13 8,600 72,715
Total 35 22,268 223,196
PPH – Pounds per hour.
0
10
20
30
40
50
60
70
80
90
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002*
0
10
20
30
40
50
60
Ending Balance Balance as % of Expenditures
Undesignated General Fund
(Audited Fiscal Years Ended June 30)
*Unaudited.
($ Mil.) (%)

5. Public Finance
Metropolitan Government of Nashville and Davidson County, Tennessee
5
from its low of 10.4% in fiscal 1998 to 17.8% in fiscal
2000, it raised property taxes in fiscal 2001. Metro has a
policy of maintaining a minimum unreserved,
undesignated fund balance of 5% of spending and
carries an additional 4% general revenue reserve for
equipment replacement in its special revenue funds.
Additionally, the city and county government
historically has maintained debt service funds in
amounts ranging from 82%–109% of annual debt
service costs. Metro’s $1.3 billion fiscal 2003 budget is
fully funded and has no property tax increase.
For more information, see Fitch Research on
“Metropolitan Government of Nashville and Davidson
County, Tennessee,” dated April 16, 2002, available on
Fitch’s web site at www.fitchratings.com.
Copyright © 2002 by Fitch, Inc. and Fitch Ratings, Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.
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Base Case Financial Forecast
($000, Fiscal Years Ending June 30)
2005 2006 2007 2008 2009
Operating Revenues
Initial System Customers Only:
Steam Service 4,608 4,880 5,009 5,174 5,320
Chilled Water Service 8,128 8,596 8,788 8,985 9,188
Additional Customers:
Steam Service 49 54 55 57 58
Chilled Water Service 93 101 103 105 108
Metro Funding Amount 1,019 1,614 1,639 1,664 1,690
Total Operating Revenues 13,897 15,245 15,594 15,984 16,364
Operating Expenses
Fixed O&M Expenses 4,206 4,333 4,463 4,597 4,735
Variable Pass-Through O&M Expenses 985 1,015 1,045 1,077 1,109
Energy Pass-Through O&M Expenses 5,310 5,483 5,670 5,894 6,103
Other O&M Expenses 64 66 68 70 72
Total O&M Expenses 10,565 10,898 11,247 11,638 12,019
Net Revenue 3,333 4,347 4,347 4,346 4,345
Total Debt Service 3,333 4,347 4,347 4,346 4,345
DSCR (x) 1.0 1.0 1.0 1.0 1.0
O&M – Operations and maintenance. DSCR – Debt service coverage ratio. Note: Numbers may not add due to rounding.