Annual Audited Financial Statements — CleanPowerSF Sfpuc Commission, March 8, 2022 (part 1 of 2)

Services of the San Francisco Public Utilities Commission C Water Power Sewer
i,
San Francisco
Financial Services Bureau
525 Golden Gate Avenue, 4th Floor
San Francisco, CA 94102
T 415.554.3155
F 415.554.3161
Try 415.554.3488
Anson Moran
President
Newsha AJaml
Vice President
Sophie Maxwell
Commissioner
Tim Paulson
Commissioner
Dennis J. Herrera
General Manager
Date:

To:

Through:

From:

RE:

March 8, 2022
Anson Moran, President
Newsha Ajami, Vice President
Sophie Maxwell, Commissioner
Tim Paulson, Commissioner
Ronald P. Flynn, Chief of Staff & Acting AGM Business Services

Nancy L. Horn, Deputy Chief Financial Officer
SFPUC Fiscal Year 2020-21 Annual Audited Financial Statements Financial Services is pleased to present the FY 2020-21 Audited Financial Statements for the Water Enterprise, Wastewater Enterprise, and Hetch Hetchy Water & Power & CleanPowerSF, issued by KPMG, LLP on January 27, 2022. The reports can be found on our public-facing website:

San Francisco Public Utilities Commission: Audits and Financial Reports nttpsiistpuc.orwatpout-usireportstauciitect-rinanciai-statements-reports The main objective of the financial audit was to obtain reasonable assurance on whether the financial statements were free of material misstatement. The review also included consideration of internal controls over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of those internal controls.

KPMG LLP issued an unqualified opinion for all three audited financial statements for each of Water, Wastewater and Hetch Hetchy Water & Power & CleanPowerSF. For all audited financial statements, no material misstatements were noted; nor were any internal control deficiencies observed.

London N. Breed
SFPUC continues to demonstrate strength in maintaining financial integrity and internal controls through effective fiscal oversight, 'clean' audits. If you have any questions, please contact me at (415) 487-5229.
cc: Dennis J. Herrera, General Manager
att: FY 2020-21 Annual Audited Financial Statements: Water, Wastewater, and Hetch Hetchy Water & Power & CleanPowerSF
OUR MISSION: To provide our customers with high-quality, efficient and reliable water, power and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care.

FY 2020-21
Audited Financial Statements
March 8, 2022
Nancy L. Hom, Deputy Chief Financial Officer
Financial Services
1 FY 2020-21
Audited Financial Statements
2 Issued: KPMG LLP, January 27, 2022
Audited Financial Statements & Annual
Comprehensive Financial Reports | SFPUC
(sfpuc.org)
Summary of Audit Results, (3) Reports
Water, Wastewater and Hetch Hetchy
Water & Power & CleanPowerSF
 Unqualified opinion
 No material misstatements in the
financial statements
 No internal control deficiencies observed

THANK YOU
Next Presenter:

Lisa Avis, Managing Director

KPMG, LLP
3 City and County
of San Francisco
Public Utilities
Commission
Discussion with the
Board of
Commissioners
Audit results for the year ended June 30, 2021
March 8, 2022
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We aim to deliver an exceptional client experience for the City and County of San Francisco Public Utilities
Commission by focusing on:

Our commitment to you
Executive summary Audit results Independence Inquiries
Required
Communications to
Those Charged with
Governance
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Summary: Audit results required
communications and other matters
Response
Significant unusual transactions No significant unusual transactions identified during the audit.

Uncorrected audit misstatements No uncorrected misstatements identified during the audit.

Corrected audit misstatements No corrected misstatements identified during the audit.

Financial presentation and disclosure
omissions No matters to communicate.

Non-GAAP policies and practices No matters to communicate. The impact of non-GAAP policies and practices is deemed as inconsequential in current and future periods.

Auditors’ report
On January 27, 2022, we issued an unmodified opinion on the financial statements of the Water Enterprise, Wastewater Enterprise, and Hetch Hetchy Water and Power and CleanPowerSF. See slide

5. Changes to our risk assessment and
planned audit strategy No matters to report.

Significant accounting policies and
practices See slides 6 – 7.

Significant accounting estimates See slide 8.

Significant financial statement
disclosures See slide 9.

Related parties No significant findings or issues arose during the audit in connection with the SFPUC’s related parties.

Going concern No matters to report.

Other information See slide 10.

Audit results
Audit resultsExecutive summary Independence Inquiries
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Summary: Audit results required
communications and other matters
Response
Subsequent events No matters to report.

Illegal acts or fraud No actual or suspected fraud involving management, employees with significant roles in internal control, or where fraud results in a material misstatement in the financial statements were identified during the audit.

Noncompliance with laws and regulations No matters to report.

Significant difficulties encountered during
the audit No matters to report.

Significant findings or issues discussed, or
the subject of correspondence, with
management
No matters to report.

Management’s consultation with other
accountants No matters to report.

Difficult or contentious matters for which
the auditor consulted No matters to report.

Disagreements with management No matters to report.

Other significant matters No matters to report.

Written communications Engagement letter and management representation letters distributed under separate covers.

Inquiries See slide 12.

Audit results
Audit results Independence InquiriesExecutive summary
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Auditors’ reports
Modifications
— There were no modifications to the reports.

Audit resultsExecutive summary Independence Inquiries
Emphasis of matter or other matter paragraphs
Excerpt from the auditors’ report for each enterprise:
“As discussed in Note 1, the financial statements of the Enterprise are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only that portion of the City that is attributable to the transactions of the Enterprise. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2021 and 2020, the changes in its financial position, or, where applicable, its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter.” 10© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent membe r firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

Significant accounting policies and
practices
Description of significant accounting policies and
practices Audit findings
Cash and Investments Held by the City are reported as part of City and County of San Francisco’s (the City) internal pool of investments.
• No changes to management’s policy in the current year. • Management follows GASB 72 Fair Value Measurement and Application.
• Concluded the valuation and presentation of investments are reasonable.
• KPMG performed various analytics on an account basis, noting no issues.

Each department’s proportionate share of the Pension and Postemployment Benefits Other than Pensions (OPEB) elements is based on employer contributions.
• No changes to management’s policy in the current year.

Reviewed the department’s proportionate share of the
pension and OPEB %.
• Vouched to underlying records that support the pension and OPEB liability.
• Engaged KPMG actuary to assess the methodology,
assumptions, and inputs for reasonableness.
• Engaged KPMG reviewer to review the footnote disclosure for appropriate disclosure.
• No issues noted.

Audit resultsExecutive summary Independence Inquiries
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Significant accounting policies and
practices
Description of significant accounting policies and
practices Audit findings
Water, sewage, and power service revenue charges are based on consumption and usage by its customers.
• No changes to management’s policy in the current year. • KPMG performed various analytics on an account basis, noting no issues.

Capital Assets with initial individual cost greater than $5,000 and estimated useful life in excess of one year are capitalized. Each enterprise (except CleanPowerSF) has a significant amount of capital assets on the statement of net position, particular in construction in progress.
• No changes to management’s policy in the current year. • KPMG performed test of details over capital assets and related accounts, including depreciation, noting no issues noted.

Audit resultsExecutive summary Independence Inquiries
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Significant accounting estimates
Description of significant accounting estimates
— Management estimates fair value for its investments as described in the notes to the financial statements.

Audit findings
Management’s process used to develop the estimates
— Management invests in an internal pool in the City and County of San Francisco. The fair value is determined by the Controller’s office.

Significant assumptions used that have a high degree of subjectivity — None at the department level as the estimate is determined by the Controller’s office.

Indicators of possible management bias
— None noted
Qualitative aspects
— This significant accounting policy follows GASB 72 Fair Value Measurement and Application, which is an acceptable framework under U.S.

GAAP.

Conclusions
— We evaluated the key factors and assumptions used, including possible management bias in developing the fair value of investments, and determined it was reasonable in relation to the financial statements as a whole.

Audit resultsExecutive summary Independence Inquiries
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Significant financial statement disclosures
Description of significant financial statement
disclosures Audit findings
— Under GASB 68 and 75, there are certain required
disclosures reported for the enterprises.
— These disclosures include description of the plan, benefits, the liability, expense, deferred outflows/inflows,
contributions, actuarial assumptions, and discount rate.

Qualitative aspects
— Engaged KPMG reviewer to review the footnote disclosure for appropriate disclosure and agreed out the disclosures to audited workpapers, noting no issues.

Audit resultsExecutive summary Independence Inquiries
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Other information
Other information Procedures performed Results
Management’s
Discussion and Analysis

1. Verified the mathematical accuracy
of the amounts and calculations.

2. Obtained the underlying support and
verify consistency amongst the
financial statements.

We performed the procedures with no
exceptions noted. No material
inconsistencies were identified that
require revision of the other information
or whether we have identified any
material misstatements of fact.

Audit resultsExecutive summary Independence Inquiries
15© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent membe r firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. — Financial fraud can be complex and sophisticated and it is essential that businesses, those charged with governance, and their auditors assess the risk of financial fraud and respond accordingly.
— The auditors’ responsibility is to plan and perform an audit to provide reasonable assurance that material misstatements are detected, whether caused by error or fraud.
— At KPMG, we are focused on exercising professional skepticism, and executing fundamental audit procedures and collating evidence, aligned with the professional standards, to seek to detect material misstatement as a result of fraud.
– We share our planned audit approach and responses with those charged with governance every year.
– We perform risk assessments, including conducting interviews within the company, assessing management's fraud risk, and running analytical procedures, as appropriate under the standards. – And when fraud risk is identified, we perform incremental procedures at the highest level of risk.
— As part of our commitment to sustaining audit quality, we recognize nothing remains static. We are committed to continually improving the quality, consistency, and efficiency of our audits, enabled by our technology, including our approach to fraud risk.

Quality in all that we do
─ Audit quality remains
our highest priority and
is critical to fulfilling our
role in the capital
markets.
─ To deliver on our audit
quality commitment, we
are focused on
consistently planning
and executing our
audits, in line with the
requirements of
applicable professional
standards within a
strong system of quality
control.
─ Core to actions to drive
quality are a culture of
integrity, innovation, and
nurturing and
supporting our talented
professionals.

Our approach to fraud risk
Audit resultsExecutive summary Independence Inquiries
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Inquiries
The following inquiries are in accordance with AU-C 260 Are those charged with governance aware of:
— Matters relevant to the audit, including, but not limited to, violations or possible violations of laws or regulations? — Any significant communications with regulators?
— Any developments in financial reporting, laws, accounting standards, corporate governance, and other related matters, and the effect of such developments on, for example, the overall presentation, structure, and content of the financial statements, including the following:
— The relevance, reliability, comparability, and understandability of the information presented in the financial statements — Whether all required information has been included in the financial statements, and whether such information has been appropriately classified, aggregated or disaggregated, and presented? Do those charged with governance have knowledge of:
— Fraud, alleged fraud, or suspected fraud affecting the Public Utilities Commission? — If so, have the instances been appropriately addressed and how have they been addressed? Additional inquiries:
— What are those charged with governance’s views about fraud risks in the Public Utilities Commission? — Who is the appropriate person in the governance structure for communication of audit matters during the audit? — How are responsibilities allocated between management and those charged with governance? — What are the Public Utilities Commission’s objectives and strategies and related business risks that may result in material misstatements? — Are there any areas that warrant particular attention during the audit and additional procedures to be undertaken? — What are those charged with governance’s attitudes, awareness, and actions concerning (a) the Public Utilities Commission’s internal controls and their importance in the entity, including oversight of effectiveness of internal controls, and (b) detection of or possibility of fraud? — Have there been any actions taken based on previous communications with the auditor? — Has the Public Utilities Commission entered into any significant unusual transactions? — Whether the entity is in compliance with other laws and regulations that have a material effect on the financial statements? — What are the other document(s) that comprise the annual report, and what is the planned manner and timing of issuance of such documents? — Have any subsequent events occurred that might affect the financial statements? InquiriesExecutive summary Audit results Independence
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Newly effective accounting standards
Audit resultsExecutive summary Independence Inquiries
Effective for fiscal year 2021
GASB 84: Fiduciary Activities
GASB 90: Accounting and Financial Reporting for Majority Equity Interests GASB 97: Certain Component Unit Criteria and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans
GASB 98, The Annual Comprehensive Financial Report
Effective for fiscal year 2022
GASB 87: Leases
GASB 89: Accounting for Interest Cost Incurred before the End of a Construction Period GASB 93: Replacement of Interbank Offered Rates
Effective for fiscal year 2023
GASB 91, Conduit Debt Obligations
GASB 94: Public-Private and Public-Public Partnerships and Availability Payment Arrangements GASB 96, Subscription-Based Information Technology Arrangements 18© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent membe r firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP155987- 1B Questions?
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www.kpmg.com/ACI
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Water Enterprise
Financial Statements June 30, 2021 and 2020 (With Independent Auditors’ Report Thereon) Delivering high-quality water every day.

SAN FRANCISCO WATER ENTERPRISE
Table of Contents

Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 3
Financial Statements:

Statements of Net Position 18
Statements of Revenues, Expenses, and Changes in Net Position 19 Statements of Cash Flows 20
Notes to Financial Statements 22
Independent Auditors’ Report 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 77

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55 Second Street
San Francisco, CA 94105
KPMG LLP , a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

Independent Auditors’ Report
The Honorable Mayor and Board of Supervisors
City and County of San Francisco, California:

Report on the Financial Statements
We have audited the accompanying financial statements of the San Francisco Water Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco, California (the City) , as of and for the years ended June 30, 2021 and 2020, and the related notes to the financial statements, which collectively comprise the Enterprise’s basic financial statements as listed in the tables of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; 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 these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 the auditors’ 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, the auditor considers internal control relevant to the entity’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 entity’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 re spects, the respective financial position of the Enterprise, as of June 30, 2021 and 2020, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with U.S. generally accepted accounting principles.
2 Emphasis of Matter
As discussed in Note 1, the financial statements of the Enterprise are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only that portion of the City that is attributable to the transactions of the Enterprise. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2021 and 2020, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter.

Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages 3 – 17 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedu res to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 27, 2022 on our consideration of the Enterprise’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Enterprise’s 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 Enterprise’s internal control over financial reporting and compliance.

San Francisco, California
January 27, 2022

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

3 (Continued)
This section presents management’s analysis of the San Francisco Water Enterprise’s (the Enterprise) financial condition and activities as of and for the fiscal years ended June 30, 2021 and 2020.

Management’s Discussion and Analysis (MDA) is intended to serve as an introduction to the Enterprise’s financial statements. This informatio n should be read in conjunction with the audited financial statements that follow this section. All dollar amounts, unless otherwise noted, are expressed in thousands of dollars.

The information in this MDA is presented under the following headings:
 Organization and Business
 Overview of the Financial Statements
 COVID-19
 Financial Analysis
 Capital Assets
 Debt Administration
 Rates and Charges
 Request for Information
Organization and Business
The San Francisco Public Utilities Commission (SFPUC or the Commission) is a department of the City and County of San Francisco (the City) that is responsible for the maintenance, operation, and development of three utility enterprises: Water (the Enterprise), Hetch Hetchy Water and Power and CleanPowerSF, and Wastewater. The Enterprise collects, transmits, treats, and distributes high-quality drinking water to a total population of approximately 2.7 million people, inc luding retail customers in the City and wholesale customers located in San Mateo, Santa Clara, and Al ameda Counties. The Enterprise sold approximately 189 million gallons of water per day in the year ended June 30, 2021. Approximately three-quarter of the water delivered by the Enterprise is to wholesale customers. Retail customers use the remaining one- quarter and are primarily San Francisco consumers, including residential, commercial, industrial, and governmental users. Wholesale customers include cities, water districts, one private utility, and one non- profit university. Service to these customers is provided pursuant to the 25-year Amended and Restated Water Supply Agreement (WSA), commenced on July 1, 2009, which established the basis for determining the costs of wholesale service.

Overview of the Financial Statements
The Enterprise’s financial statements include the following:

Statements of Net Position present information on the Enterprise’s assets, deferred outflows, liabilities, and deferred inflows as of year-end, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Enterprise is improving or worsening.

While the Statements of Net Position provide information about the natu re and amount of resources and obligations as of year-end, the Statements of Revenues, Expenses, and Changes in Net Position present the results of the Enterprise’s operations over the course of the fiscal year and information as to how the net position changed during the year. These statements can be used as an indicator of the extent to which the Enterprise has successfully recovered its costs throug h user fees and other charges. All changes in net position are reported during the period in which the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in these

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

4 (Continued)
statements from some items that will result in cash flow s in future fiscal periods, such as delayed collection of operating revenues and the expenses of employee earned but unused vacation leave.

The Statements of Cash Flows present changes in cash and cash eq uivalents resulting from operational, capital financing, non-capital financing, and investing activities. These statements summarize the annual flow of cash receipts and cash payments, without consid eration of the timing of the event giving rise to the obligation or receipt and exclude non-cash accounting measures of depreciation or amortization of assets.

The Notes to Financial Statements provide information that is essential to a full understanding of the financial statements that is not displayed on the face of the financial statements.

COVID-19
On February 25, 2020, the City’s Mayor issued a proclamation declaring a local emergency to exist in connection with the imminent spread within the City of the novel coronavirus (“COVID-19”). On March 16, 2020, the City’s Health Officer issued a stay safe at home order, Health Officer Order No. C19-07 (the “Stay Safe At Home Order”), requiring most people and City employees to remain in their homes subject to certain exceptions including obtaining essential goods such as “food and necessary supplies”, and requiring the closure of nonessential businesses. In addition, Se ction 2 of the second supplement to the emergency proclamation authorizes the SFPUC to suspend the (a) discontinuation or shut off of water service for residents and businesses in the City for non-payment of water and sewer bills and (b) the imposition of late payment penalties or fees for delinquent water and/or sewer bills through July 11, 2020. The proclamation was extended on December 8, 2020 through June 30, 2021 and then again on April 27, 2021, through March 31, 2022. This proclamation did not have a material effect on the operations of the Water enterprise.

Financial Analysis
Financial Highlights for Fiscal Year 2021
 Total assets exceeded total liabilities by $418,167.
 Net position increased by $8,502 or 1.3% during the fiscal year.  Capital assets, net of accumulated depreciation and amortization increased by $57,254 or 1.0% to $5,587,799.
 Current and other assets increased by $31,110 or 4.4% mainly due to bond proceeds from the issuance of 2020 Series ABCD bonds.
 Operating revenues decreased by $1,739 or 0.3% to $581,612.  Operating expenses increased by $50,726 or 12.7% to $448,843.

Financial Highlights for Fiscal Year 2020
 Total assets exceeded total liabilities by $448,825.
 Net position increased by $98,877 or 18.2% during the fiscal year.  Capital assets, net of accumulated depreciation and amortization increased by $141,887 or 2.6% to $5,530,545.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

5 (Continued)
 Current and other assets increased by $96,743 or 16.0% mainly due to increased receivables from other governments and cash from operating activities.
 Operating revenues increased by $40,960 or 7.6% to $583,351.  Operating expenses increased by $41,023 or 11.5% to $398,117.

Financial Position
The following table summarizes the Enterprise’s changes in net position.

Total assets:

Current and other assets $ 732,316 701,206 604,463 31,110 96,743 Capital assets, net of accumulated depreciation and amortization 5,587,799 5,530,545 5,388,658 57,254 141,887 Total assets 6,320,115 6, 231,751 5,993,121 88,364 238,630 Deferred outflows of resources:

Unamortized loss on refunding of debt 154,991 144,189 139,061 10,802 5,128 Pensions 64,797 67,084 55,465 (2,287) 11,619
Other post-employment benefits 37,762 27,583 13,142 10,179 14,441 Total deferred outflows of resources 257,550 238,856 207,668 18,694 31,188 Liabilities:

Current liabilities:

Revenue and capital appreciation bonds 108,500 94,080 100,899 14,420 (6,819) Certificates of participation 2,970 2,824 2,688 146 136 Commercial paper 105,862 362,354 161,336 (256,492) 201,018 State revolving fund loans 1,667 — — 1,667 —
Other liabilities 152,871 134,563 132,251 18,308 2,312 Subtotal current liabilities 371,870 593,821 397,174 (221,951) 196,647 Long-term liabilities:

Revenue and capital appreciation bonds 4,886,275 4,601,215 4, 709,678 285,060 (108,463) Certificates of participation 95,692 98,754 101,704 (3,062) (2,950) State revolving fund loans 105,740 73,271 — 32,469 73,271 Other liabilities 442,371 415,865 402,782 26,506 13,083 Subtotal long-term liabilities 5,530, 078 5,189,105 5,214,164 340,973 (25,059) Total liabilities:

Revenue and capital appreciation bonds 4,994,775 4,695,295 4, 810,577 299,480 (115,282) Certificates of participation 98,662 101,578 104,392 (2,916) (2,814) Commercial paper 105,862 362,354 161,336 (256,492) 201,018 State revolving fund loans 107,407 73,271 — 34,136 73,271 Other liabilities 595,242 550,428 535,033 44,814 15,395 Total liabilities 5,901,948 5,782,926 5,611,338 119,022 171,588

Deferred inflows of resources:

Related to pensions 4,885 34,894 33,330 (30,009) 1,564 Other post-employment benefits 21,315 11,772 13,983 9,543 (2,211) Total deferred inflows of resources 26,200 46,666 47,313 (20,466) (647) Net position:

Net investment in capital assets 517,302 527,856 563,457 (10,554) (35,601) Restricted for debt service 45,586 15,916 16,193 29,670 (277) Restricted for capital projects 22,319 43,122 — (20,803) 43,122 Unrestricted 64,310 54,121 (37,512) 10,189 91,633
Total net position $ 649,517 641,015 542,138 8,502 98,877 Table 1
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019
2021 2020 2019
2021-2020
Change
2020-2019
Change

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

6 (Continued)
Net Position, Fiscal Year 2021
For the period ended June 30, 2021, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $649,517. Total net position increased from prior year by $8,502 or 1.3% (see Table 1). The increase in net posi tion was the result of an increase of $107,058 in assets and deferred outflows, offset by a net increase of $98,556 in liabilities and deferred inflows of resources.

Current and other assets are primarily comprised of restricted and unrestricted balances of cash, receivables for water deliveries and services, interfund receivables due from other governmental agencies, and inventory. They also include receivables, which represent cumulative amounts due from the wholesale customers to match revenues with the Enterprise’s co sts of providing service (the Balancing Account), in accordance with the provisions set forth in the WSA effective July 1, 2009. Balances are applied to future year rates. As of June 30, 2021, the Enterprise owed the wholesale customers $60,864, which was mainly due to higher water demand by the wholesale customers. This amount was recorded as a liability in accordance with the 2009 agreement. See Note 9, Water Supply Agreement, for additional details.

During the fiscal year 2021, current and other assets increased by $31,110 or 4.4%. The increases included $57,567 in restricted and unrestricted cash and investments mainly due to the issuance of the 2020 Series ABCD bonds, $2,372 in prepaid charges advances and others mainly for prepaid expenses of multiple software licensing and membership fees, $209 in restricted interest and other receivables, and $160 in inventory due to more purchases than issuance s during the fiscal year. The increases were offset by decreases of $23,725 from the State Water Reso urces Control Board (SWRCB) State Revolving Funds Loan relating to the SF Recycled Water project mainly from reimbursements received for prior year receivable, $4,470 in charges for services due to more collections than billings and an increase in allowance for doubtful accounts (allowance for doubtful accounts increased by $2,934 primarily due to the Mayor’s COVID-19 proclamation suspending shutoff of water service and collection of past due accounts), $994 in interest receivable mainly due to lower interest rates and higher cash distributions than interest earnings, $7 due to cash received from other governments for grants relating to water efficiency, and $2 mainly due to collections from the Department of Public Works (DPW) for custom work projects.

Capital assets, net of accumulated depreciation and amortization, increased by $57,254 or 1.0% mainly due to San Andreas Pipeline No. 2 and San Francisco Groundwater Supply construction and capital improvement activities. The largest portion of the Enterprise’s net position of $517,302 or 79.6% represents net investment in capital assets (see Capital Assets section of the MDA for more information), which decreased by $10,554 or 2.0% from prior year’s $527,856. The change was explained by an increase of $67,808 in liabilities related to capital assets mainly from the issuance of 2020 Series ABCD and 2020 Series EFGH bonds, offset by an increase of $57,254 in capital assets in buildings, structures, and improvements and construction in progress from depreciation.

Deferred outflows of resources increased by $18,694 due to increases of $10,802 for unamortized loss on refunding (the result of a $27,010 increase from th e issuance of 2020 Series EFGH bonds, offset by a $15,156 decrease from amortization and $1,052 from refunding of the 2010 Series D, 2011 Series D and 2012 Series C bonds), and $10,179 from OPEB obligations based on actuarial reports. These increases were offset by a $2,287 decrease relating to pensions based on actuarial reports.

Total liabilities increased by $119,022 or 2.1% which is due to increases of $299,480 in outstanding revenue bonds mainly due to the issuance of 2020 Series ABCD and 2020 Series EFGH bonds, $38,284 in net pension liability based on actuarial report, $34,1 36 increase in State Revolving Funds Loan payable due to additional loans relating to the SF Westside Recycled Water project, $25,956 in general liability

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

7 (Continued)
based on actuarial report, $3,650 in accrued payroll, vacation and sick leave mainly due to actuarial e s t i m a t e s , 3 % i n c r e a s e o f c o s t o f l i v i n g a d j u s t m e n t ( C O L A ) , a n d m o r e d a y s i n c u r r e n t y e a r - e n d p a y r o l l accrual compared to prior year-end accrual, $2,921 in restricted and unrestricted payables due to higher accruals as compared to prior year mainly for the Information Technology project and 19 th Ave.

Infrastructure Improvement project, and $792 in unearned revenues mainly due to additional customer credit balances from overpayments. These increases were offset by decreases of $256,492 in commercial paper primarily due to refunding from the 2020 Seri es ABCD bonds, $14,913 in other post-employment benefits obligations from actuarial estimates, $6,557 in interest payable mainly due to refunding from the 2020 Series EFGH Bonds, $3,993 in the Wholesale Balancing Account due to higher demand from the wholesale customers (see Note 9 for details), $2,916 in certificates of participation from repayments and amortization of premium, $674 in due to other City departments from payments made for legal services provided by the City Attorney and projects performed by the Department of Public Works for Sidewalk Inspection and Repair projects, $346 in workers’ compensation based on actuarial estimates, and $306 in pollution remediation liability as a result of additional expenditures incurred for the Lake Merced Pacific Rod and Gun Club and 17
th and Folsom sites (see Note 13(d) for details).

Deferred inflows of resources decreased by $20,466 from a $30,009 decrease related to pensions based on actuarial reports, offset by a $9,543 increase from OPEB obligations based on actuarial reports.

Net Position, Fiscal Year 2020
For the period ended June 30, 2020, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $641,015. Total net position increased from prior year by $98,877 or 18.2% (see Table 1). The increase in net po sition was the result of an increase of $269,818 in assets and deferred outflows of resources offset by an increase of $170,941 in liabilities and deferred inflows of resources.

Current and other assets are primarily comprised of restricted and unrestricted balances of cash, receivables for water deliveries and services, interfund receivables due from other governmental agencies, and inventory. This also includes receivables, which represent cumulative amounts due from the wholesale customers to match revenues with the Enterprise’s co sts of providing service (the Balancing Account), in accordance with the provisions set forth in the WSA effective July 1, 2009. Balances are applied to future year rates. As of June 30, 2020, the Enterprise owed the wholesale customers $64,857, which was mainly due to lower water demand by the wholesale customers. This amount was recorded as a liability in accordance with the 2009 agreement. See Note 9, Water Supply Agreement, for additional details.

During the fiscal year 2020, current and other assets increased by $96,743 or 16.0%. The increases included $73,271 due from the State Water Resources Control Board (SWRCB) State Revolving Funds Loan relating to the SF Recycled Water project, $18,866 in restricted and unrestricted cash and investments mainly due to higher cash collections from customers, $4,810 in charges for services receivable mainly due to an 8% rate increase, $1,336 in prepaid charges, advances and other receivables mainly for prepaid expenses of software licensing and membership fees, and $351 in inventory as a result of more purchases than issuances during the fiscal year. These increases were offset by decreases of $1,393 in interest receivable for interest allocation due to lower rates, $390 mainly due from the Office of Economic and Workforce Development for custom work projects, $88 due from other governments for grants relating to water efficiency, and $20 in restricted interest and other receivables from lower federal interest subsidy receivables compared to prior year.

Capital assets, net of accumulated depreciation and amortization, increased by $141,887 or 2.6% mainly from the property transfer of 639 Bryant Street for 2000 Marin Street and from construction and capital improvement activities. The largest portion of the Enterprise’s net position of $527,856 or 82.3%

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

8 (Continued)
represents net investment in capital assets (see Capital Assets section of the MDA for more information), which decreased by $35,601 or 6.3% from prior year’s $563,457; as explained by a $177,488 increase in liabilities related to capital assets mainly from the issuance of commercial paper, offset by an increase of $141,887 in capital assets in buildings, structures, and improvements and construction in progress mainly from assets placed into service and pending year end fixed assets entries.

Deferred outflows of resources increased by $31,188 due to a $14,441 increase from OPEB obligations, and $11,619 increase relating to pensions based on actuarial reports. Unamortized loss on refunding increased by $5,128 from the issuance of the 2010 Series ABC revenue bonds.

Total liabilities increased by $171,588 or 3.1% which is explained by increases of $201,018 from additional commercial paper issuances, $73,271 in State Revolving Funds Loan payable relating to the SF Recycled Water project, $12,913 in other post-employment benefits obligations from actuarial assumptions, $4,464 in interest payable mainly from the issuance of 2019 Series ABC revenue bonds, $3,068 in accrued payroll, vacation and sick leave due to more days in current year end payroll accrual compared to prior year end accrual and 3% cost of li ving adjustment (COLA), $2,704 in net pension liability based on actuarial report, $674 due to other City depa rtments primarily for legal services provided by the City Attorney and projects performed by the Department of Public Works for Sidewalk Inspection and Repair projects, and $28 in the Wholesale Balancing Account (see Note 9 for details). These increases were offset by decreases of $113,253 in outstanding revenue bonds due to refunding of principal from the issuance of 2019 Series ABC revenue bonds, principal repayments and premium and discount amortization, $4,014 in restricted and unrestricted payables mainly due to lower retained contracts payable, $2,814 in outstanding certificates of participation due to repayment and amor tization of premium, $2,029 in principal of capital appreciation bonds from repayment offset by accretions, $1,921 in unearned revenues mainly due to reduced custom work deposits, $1,162 in workers’ compensation based on actuarial estimates, $742 in general liability based on actuarial report, and $617 in pollution remedi ation liability due to additional expenditures incurred in the current year for the Lake Merced and 17 th and Folsom sites (see Note 13(d) for
details).

Deferred inflows of resources decreased by $647 due to a $2,211 decrease in OPEB obligations, offset by a $1,564 increase relating to pensions based on actuarial report.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

9 (Continued)
Results of Operations
The following table summarizes the Enterprise’s revenues, expenses, and changes in net position.

Results of Operations, Fiscal Year 2021
The Enterprise’s total revenues of $627,826 for the year represented a decrease of $60,776 or 8.8% from prior year (see Table 2). Decreases included $48,860 from other non-operating revenues, $10,177 from interest and investment income, $2,079 from other operating revenues, and $447 from charges for service. These decreases were offset by an increase of $787 from rents and concessions.

Charges for services were $550,306, a decrease of $447 or 0.1% mainly due to an 8.8% decrease in consumption for retail customers, and the COVID-19 em ergency proclamation issued by the City’s Mayor suspending collection of past due accounts, mainly resulting in a $2,945 increase in the allowance for doubtful accounts which reduced charges for services. This was offset by an adopted rate increase of 7.0% for retail customers beginning July 1, 2020. Rents and concessions were $12,911, an increase of $787 or

6.5% mainly due to rent increases and increased royalty revenues. Other operating revenues were $18,395, a decrease of $2,079 or 10.2% due to reduced capacity fees and sale of water to other City departments as a result of the SF Health Order relating to COVID-19, offset by a 7.0% adopted rate increase. Interest and in vestment income was $340, a decrease of $10,177 or 96.8% mainly due to unrealized losses resulting from decrea ses in value of fixed income securities from the City Treasury pool and lower interest earned on cash balances. Other non-operating revenues were $45,874, a decrease of $48,860 or 51.6% mainly due to a prior year one-time gain of $63,600 from the property transfer of 2000 Marin Street and 639 Bryant Street offset by a $15,000 grant from the State of California for the SF Westside Recycle Water project in current year.

Revenues:

Charges for services $ 550,306 550,753 509,703 (447) 41,050 Rents and concessions 12,911 12,124 13,010 787 (886) Other operating revenues 18,395 20,474 19,678 (2,079) 796 Interest and investment income 340 10,517 15,650 (10,177) (5,133) Other non-operating revenues 45,874 94,734 32,399 (48,860) 62,335 Total revenues 627,826 688, 602 590,440 (60,776) 98,162 Expenses:

Operating expenses 448,843 398,117 357,094 50,726 41,023 Interest expenses 184,606 191,246 177,998 (6,640) 13,248 Amortization of premium, discount, refunding loss, and issuance costs (7,782) (13,752) (17,788) 5,970 4,036 Non-operating expenses 2,208 529 1,388 1,679 (859) Total expenses 627,875 576,140 518,692 51,735 57,448 Change in net position before capital contributions and transfers (49) 112,462 71,748 (112,511) 40,714 Capital contributions 4,180 — — 4,180 —
Transfers from the City and County of San Francisco 21,025 1,220 1,200 19,805 20 Transfers to the City and County of San Francisco (16,654) (14,805) (20,334) (1,849) 5,529 Capital contributions and net transfers 8,551 (13,585) (19,134) 22,136 5,549 Change in net position 8,502 98,877 52,614 (90,375) 46,263 Net position at beginning of year 641,015 542,138 489,524 98,877 52,614 Net position at end of year $ 649,517 641,015 542,138 8,502 98,877 Table 2
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2021, 2020, and 2019
2021 2020 2019
2021-2020
Change
2020-2019
Change

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

10 (Continued)
The Enterprise’s total expenses were $627,875, an increase of $51,735 or 9.0%. Operating expenses were $448,843, an increase of $50,726 or 12.7%, the result of increases of $27,126 in general administrative and other mainly from judgement and claims based on actuarial estimates, $12,585 in personnel services mainly due to pension obligations based on actuarial re port and a 3% cost of living adjustment, $9,107 in services provided by other departments mainly from higher water assessment fees paid to Hetch Hetchy Water, $1,805 in depreciation and amortization due to additional capital assets placed into service, and $978 in contractual services mainly from equipment maintenance. These increases were offset by a decrease of $875 in materials and supplies mainly for building and construction supplies. Interest expenses decreased by $6,640, as compared to prior year, mainly due to refunded bonds. Amortization of bond premium, discount, refunding loss and issuance costs decreased by $5,970 due to the issuance of the 2020 Series EFGH revenue bonds, which refunded 2010 Series D, 2011 Series D, 2012 Series ABC, and 2017 Series ABC revenue bonds. Non-operating expenses increased by $1,679 due to increased grants and rebates awarded for water conservation relating to the Onsite Water Reuse Grant Program and community-based services.

Transfers in of $21,025 from the City included $20,040 for the Emergency Firefighting Water System and $985 from the General Fund for Native Plant Garden project and low income assistance programs.

Transfers out of $16,654 included $16,000 to Hetc h Hetchy Water to fund various upcountry water projects, $622 to the Arts Commission for arts enrichment fund for the SF Recycled Water, Sunol Valley Water Improvement and Mountain Tunnel Improvement projects, and $32 to the Office of the City Administrator for the Enterprise’s contribution to the Surety Bond Program. Capital contribution of $4,180 was received for water pipeline assets from the Department of Public Works in the current year.

Results of Operations, Fiscal Year 2020
The Enterprise’s total revenues of $688,602 for the year represented an increase of $98,162 or 16.6% from prior year (see Table 2). Increases included $62,335 from other non-operating revenues, $41,050 from charges for services, and $796 from other operating revenues. These increases were offset by decreases of $5,133 in interest and investment income, and $886 from rents and concessions.

Charges for services were $550,753, an increase of $41,050 or 8.1% due to an adopted rate increase of

8.0% for retail customers beginning July 1, 2019 coupled with a 5.7% increase in consumption by wholesale customers. Rents and concessions were $12,124, a decrease of $886 or 6.8% mainly from termination of leases. Other operating revenues were $20,474, an increase of $796 or 4.0% due to an 8 . 0 % r a t e i n c r e a s e o f f s e t b y a d e c r e a s e i n c a p a c i t y f e e r e v e n u e s . I n t e r e s t a n d i n v e s t m e n t i n c o m e w e r e $10,517, a decrease of $5,133 or 32.8% due to lower annualized interest ra tes. Other non-operating revenues were $94,734, an increase of $62,335 or 192.4% mainly due to a one-time gain of $63,600 from the property transfer of 639 Bryant Street for 2000 Marin Street in San Francisco, CA.

The Enterprise’s total expenses were $576,140, an increase of $57,488 or 11.1%. Operating expenses were $398,117, an increase of $41,023 or 11.5% due to increases of $21,413 in depreciation and amortization due to additional capital assets placed into service in the prior year, $8,447 in general administrative and other mainly from reduced capitaliza tion of buildings, structures and improvements and equipment purchases and higher capital project expens es, $8,349 in personnel services primarily due to cost of living adjustments, pension and OPEB obliga tions based on actuarial reports, $1,377 in services provided by other departments mainly from higher water assessment fees paid to Hetch Hetchy Water, $808 in contractual services mainly from consulting and maintenance services, $629 in materials and supplies mainly for building and construction supplies. Interest expenses increased by $13,248 from reduced interest capitalization for capital projects. Amortization of bond premium, discount, refunding loss and issuance costs decreased by $4,036 due to issuance of 2019 Series ABC revenue bonds which

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

11 (Continued)
refunded 2010 Series F, 2011 Series A, 2011 Series B, 2011 Series C, and 2012 Series A bonds. Non- operating expenses decreased by $859 mainly from reduced rebates paid to customers.

Transfers in of $1,220 were from the General Fund for low income assistance programs and pathway improvements to Miraloma Park. Transfers out of $1 4,805 included $14,000 to Hetch Hetchy Water to fund various upcountry capital projects, $558 to the Arts Commission for arts enrichment, $215 to the San Francisco Municipal Transportation Agency for water conservation projects, and $32 to the Office of the City Administrator for the Surety Bond Program.

Capital Assets
The following table summarizes changes in the Enterprise’s capital assets.

Capital Assets, Fiscal Year 2021
The Enterprise has net capital assets of $5,587,799 invest ed in a broad range of utility capital assets as of June 30, 2021 (see Table 3). The investment in capital assets includes land, facilities, improvements, water treatment plants, aqueducts, water transmission, distribution mains, water storage facilities, pump stations, water reclamation facilities, machinery, and equipment. The Enterprise’s net revenue and long-term debt are used to finance capital investments. Capital assets, net of accumulated depreciation and amortization, increased by $57,524 from the prior year. Construction work in progress increased by $39,920 primarily due to additions from the SF Recycled Water project, Sunol Long Term Improvements and Regional Groundwater Storage and Recovery projects. Facilities, improvements, machinery, and equipment increased by $19,748 mainly attributable to the San Andreas Pipeline No. 2 and Water Main Replacement projects.

Intangible assets decreased by $1,326 due to $1,601 in amortization, offset by $143 addition for information technology and $132 addition for automated meter reading system. Land decreased by $1,088 as the result of sale of the Wool Ranch property in the Alameda Creek Watershed and reimbursement of land costs for 2000 Marin Street, San Francisco, CA.

2021 2020 2019
2021-2020
Change
2020-2019
Change
Facilities, improvements, machinery, and equipment $ 4,948,186 4,928,438 4,890,207 19,748 38,231 Intangible assets 2,763 4,089 5,816 (1,326) (1,727)
Land 104,248 105,336 30,029 (1,088) 75,307
Construction work in progress 532,602 492,682 462,606 39,920 30,076 Total $ 5,587,799 5,530,545 5,388,658 57,254 141,887 Table 3
Capital Assets, Net of Accumulated Depreciation and Amortization As of June 30, 2021, 2020, and 2019

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

12 (Continued)
Major additions to construction work in progress during the year ended June 30, 2021 include the following:

Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service, including transfers of completed projects from construc tion work in progress, during the year ended June 30, 2021 include the following:

Water System Improvement Program
The WSIP delivers capital improvements that enhance the Enterprise’s ability to provide reliable, affordable, high-quality drinking water to its 27 wholesale customers and regional retail customers in Alameda, Santa Clara, and San Mateo Counties, as well as approximat ely 800,000 residential customers in San Francisco, in an environmentally sustainable manner. The program is structured to cost-effectively meet water quality requirements and long-term water supply objectives, as well as improve seismic and delivery reliability.

Overall, the $4.8 billion WSIP to upgrade the City of San Francisco’s regional and local drinking water systems is 99% completed with $4.8 billion of project appropriations expended through fiscal year ended June 30, 2021. The program consists of 35 local proj ects located within San Francisco and 52 regional p r o j e c t s s p r e a d o v e r s e v e n d i f f e r e n t c o u n t i e s f r o m t h e S i e r r a F o o t h i l l s t o S a n F r a n c i s c o . A s o f J u n e 3 0 , 2021, 35 local projects were completed, and the completion date was June 3, 2020. For regional projects, 44 are completed and the expected completion date is May 2023. Additional details regarding the WSIP are available at https://sfpuc.org/construction-contracts/water-infrastructure-improvements.

SF Recycled Water Project $ 41,231
Sunol Long Term Improvements 15,516
Regional Groundwater Storage & Recovery 12,298
New Water Utility Services 7,992
San Andreas Pipeline No. 2 Replacement 7,961
Water Main Replacement - WD-2739 Castro/19th/26th Streets 7,953 Calaveras Dam Replacement 7,915
Water Main Replacement - WD-2766 Taraval Street 5,172 Auxiliary Water Supply System - Pump Station No. 2 5,135 Other project additions individually below $5,000 86,496 Total $ 197,669
San Andreas Pipeline No. 2 Replacement - 4 Segments in San Bruno $ 43,340 Water Main Replacement - WD-2692 Geary Blvd/36th/48th/Point Lobos Ave 9,329 Water Main Replacement - WD-2719 22nd/Valencia St/Potrero Ave 8,004 New Water Utility Services 7,992
Alameda Creek Watershed Fish Passage Facilities 7,465 Water Main Replacement - WD-2766 Taraval Street 7,328 Water Main Replacement - WD-2793 Geary Blvd/Cleary Ct/Market St 6,655 Other items individually below $5,000 72,342
Total $ 162,455
See Note 4 for additional information about Capital Assets.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

13 (Continued)
Capital Assets, Fiscal Year 2020
The Enterprise has net capital assets of $5,530,545 invest ed in a broad range of utility capital assets as of June 30, 2020 (see Table 3). The investment in capital assets includes land, facilities, improvements, water treatment plants, aqueducts, water transmission, distribution mains, water storage facilities, pump stations, water reclamation facilities, machinery, and equipment. The Enterprise’s net revenue and long-term debt are used to finance capital investments. Capital assets, net of accumulated depreciation and amortization, increased by $141,887 from the prior year. Land increased by $75,307 mainly as the result of a property transfer related to 639 Bryant Street for 2000 Marin Street completed in the fiscal year. Facilities, improvements, machinery, and equipment increased by $38,231 mainly attributable to Sunol Corp Yard, Water Main Replacement, and Alameda Creek Watershed projects. Construction work in progress increased by $30,076 primarily due to additions from Recycled Water project, San Andreas Pipeline replacement, and Watershed and Environmental Improvement program. Intangible assets decreased by $1,727 due to $2,101 amortization, offset by increases of $374 fr om Microsoft SharePoint software and IBM Maximo software improvements.

Major additions to construction work in progress during the year ended June 30, 2020 include the following:

Recycled Water Project $ 46,912
San Andreas Pipeline No. 2 Replacement 27,817
Watershed and Environmental Improvement Program 13,117 Regional Groundwater Storage & Recovery 11,864
Calaveras Dam Replacement 11,119
Water Main Replacement - Van Ness Avenue/Market/Lombard Streets 8,120 New Water Utility Services 7,908
Sunol Long Term Improvements 7,222
San Francisco Groundwater Supply 6,647
Renew Water Utility Services 6,276
Peninsula Water System Improvements 5,922
Water Main Replacement - 16th Street 5,769
Other project additions individually below $5,000 61,734 Total $ 220,427

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

14 (Continued)
Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service, including transfers of completed projects from construc tion work in progress, during the year ended June 30, 2020 include the following:

Overall, the $4.8 billion WSIP to upgrade the City of San Francisco’s regional and local drinking water systems is 99% completed with $4.8 billion of project appropriations expended through fiscal year ended June 30, 2020. The program consists of 35 local proj ects located within San Francisco and 52 regional p r o j e c t s s p r e a d o v e r s e v e n d i f f e r e n t c o u n t i e s f r o m t h e S i e r r a F o o t h i l l s t o S a n F r a n c i s c o . A s o f J u n e 3 0 , 2020, 35 local projects were completed, and the completion date was June 3, 2020. For regional projects, 42 are completed and the expected completion date is May 2023. Additional details regarding the WSIP are available at https://sfpuc.org/construction-contracts/water-infrastructure-improvements.

Sunol Corp Yard - Administration Building $ 32,965 Water Main Replacement - Van Ness Avenue/Market/Lombard Streets 20,692 Water Main Replacement - 16th Street 9,104
Alameda Creek Watershed Fish Passage Facilities 8,597 Sunol Corp Yard - Shop Building #1 8,543
Irving Street Pipeline 7,926
New Water Utility Services 7,908
Renew Water Utility Services 6,276
Sunol Corp Yard - Shop Building #4 5,847
Other items individually below $5,000 70,874
Total $ 178,732
See Note 4 for additional information about Capital Assets.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

15 (Continued)
Debt Administration
As of June 30, 2021, the Enterprise had $5,306,706 to tal debt outstanding, an increase of $74,208 over the prior year, as shown below in Table 4. More detailed information about the Enterprise’s debt activity is presented in Notes 6, 7, and 8 to the financial statements.

The increase of $299,480 in revenue bonds was due to increases of $1,011,155 from the issuance of 2020 Series ABCD revenue bonds and 2020 Series EF GH revenue refunding bonds, $73,542 in bond premium from the issuance of 2020 Series ABCD revenue bonds, and $10 from amortization of discount.

These increases were offset by decreases of $625,080 from the refunding of various revenue bonds by the 2020 Series EFGH refunding revenue bonds, $76,440 from principal repayment, $57,820 from refunding of premium, and $25,887 from amortization of premium. The increase of $34,136 in State revolving funds loans was from $49,546 additional loan proceeds and reimbursement request for the SF Westside Recycled Water project, offset by $15,410 due to $15,000 for the grant portion received and $410 of disallowed reimbursement request from the program. The decrease of $2,916 in certificates of participation was $2,824 from repayment and $92 from amortization of premium. The Enterprise had $79,251 in tax-exempt and $26,611 in taxable comme rcial paper as of June 30, 2021, and $335,793 in tax-exempt and $26,561 in taxable commercial paper as of June 30, 2020. The decrease of $256,492 was due to $272,820 from refunding of tax-exempt commer cial paper by the 2020 Series ABCD revenue bonds, offset by additional issuances of $16,278 in tax-exempt and $50 in taxable commercial paper.

Credit Ratings and Bond Insurance – The Enterprise carried underlying ratings of “Aa2” and “AA-” from Moody’s and Standard & Poor’s (S&P) at June 30, 2021, and “Aa2” and “AA-” from Moody’s and Standard & Poor’s (S&P) at June 30, 2020, respectively.

Debt Service Coverage – Pursuant to the Amended and Restated Indenture, the Enterprise is required to collect sufficient net revenues each fiscal year, together with any Enterprise funds (except Bond Reserve Funds), which are available for payment of debt servic e and are not budgeted to be expended, at least equal to 1.25 times annual debt service for said fiscal year. During fiscal years 2021 and 2020, the Enterprise’s net revenues, together with fund balances available to pay debt service and not budgeted to be expended, were sufficient to meet the rate covenant requirements under the Enterprise’s Amended and Restated Indenture (see Note 8).

Debt Authorization – Pursuant to the Charter Section 8B.124, the Enterprise can incur indebtedness upon two-thirds vote of the Board of Supervisors, as approved by voters in Proposition E in November 2002. As of June 30, 2021, the Board of Supervisors has authorized the issuance of $4,617,099 in revenue bonds under Proposition E, with $3,660,525 issued against this authorization. The Enterprise can also incur indebtedness of up to $1,628,000 for improvements to the water system pursuant to Proposition A that 2021 2020 2019
2021-2020
Change
2020-2019
Change
Revenue bonds $ 4,994,775 4,695,295 4,808,548 299,480 (113,253) Capital appreciation bonds — — 2,029 — (2,029)
Commercial paper 105,862 362,354 161,336 (256,492) 201,018 Certificates of participation 98,662 101,578 104,392 (2,916) (2,814) State revolving fund loans 107,407 73,271 — 34,136 73,271 Total $ 5,306,706 5,232,498 5,076,305 74,208 156,193 Table 4
Outstanding Debt, Net of Unamortized Costs
As of June 30, 2021, 2020, and 2019

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

16 (Continued)
was approved by the voters in November 2002. As of June 30, 2021, $1,499,230 of the $1,628,000 Proposition A authorized bonds were issued. The Enterprise is also authorized to issue up to $500,000 in commercial paper.

Cost of Debt Capital – The Enterprise’s outstanding long-term debt has coupon interest rates ranging from

0.3% to 7.0% as of June 30, 2021 and 2020. The Enterprise’s short-term debt has interest rates ranging from 0.1% to 0.3% during fiscal year 2021, and 0.2% to 2.2% during fiscal year 2020.

Rates and Charges
Rate Setting Process
Retail Customers
Proposition E, as approved by the voters in November 2002, amended the City Charter by adding the new Article VIIIB, entitled “Public Utilities,” which changed the Commission’s ability to issue new revenue bonds and set retail water rates. For the retail water rate setting, the Commission is required to:
 Establish rates, fees, and charges based on cost of service;  Retain an independent rate consultant to conduct cost of service studies at least every five years;  Consider establishing new connection fees;
 Consider conservation incentives and lifeline rates;
 Adopt a rolling five-year forecast annually; and
 Establish a Rate Fairness Board.

Pursuant to the City and County of San Francisco Charter Section 8B.125, an independent rate study is performed at least once ever y five years. In compliance with City Charter section 8B.125, a rate study was completed in April 2018 and resulted in an approved four-year retail rate increase. The Commission adopted retail rates effective for four fiscal years from July 1, 2018 through June 30, 2022. SFPUC Rates Schedules and Fees is available at https://sfpuc.org/accounts-services/water-power-and-sewer-rates.

Wholesale Customers
The WSA prescribes the rate setting process for the wholesale water rates. The WSA has a 25-year term, beginning on July 1, 2009, with two 5-year extens ion options. The WSA was amended and restated on December 11, 2018 by the SFPUC. The contract changed the rate basis by which the capital cost recovery is determined from a “utility basis” to a “cash basis,” resulting in the repayment of the cost of capital over the life of the debt funding of those assets rather than the life of the asset. The WSA requires the rate be calculated and set annually and include a reconciliati on between prior year revenues and expenses. Refer to Note 9 of the notes to financial statements for further discussion on the balancing account of the wholesale customers.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

17 The following table is the Enterprise’s ten-year average rate adjustments:

Request for Information
This report is designed to provide our citizens, custom ers, investors, and creditor s with an overview of the Enterprise’s finances and to demonstrate the Enterprise’s accountability for the money it receives.

Questions regarding any of the information provided in this report or requests for additional financial information should be addressed to San Francisco Public Utilities Commission, Chief Financial Officer, 525 Golden Gate Avenue, 13th Floor, San Francisco, CA 94102. This report is available at https://sfpuc.org/about-us/reports/audited-financial-statements-reports.

July 1, 2012 12.5 1     11.4
July 1, 2013 6.5 1     (16.4)
July 1, 2014 12.0 2     19.6
July 1, 2015 12.0 2     28.0
July 1, 2016 10.0 2     9.3
July 1, 2017 7.0 2     -
July 1, 2018 9.0 4     -
July 1, 2019 8.0 4     -
July 1, 2020 7.0 4     -
July 1, 2021 7.0 4     -
1      Five-year retail rate increases adopted and effective July 1, 2009. 2      Four-year retail rate increases adopted and effective July 1, 2014. 3 4      Four-year retail rate increases adopted and effective July 1, 2018.

Wholesale rates adopted annually; no increase for wholesale rates effective July 1, 2017; no increase projected to June 30, 2022 from 10 Year Financial Plan.

Retail Wholesale 3Effective Date:

Ten-year Average Rate Adjustments

SAN FRANCISCO WATER ENTERPRISE
Statements of Net Position
June 30, 2021 and 2020
(In thousands)
18 2021 2020
Current assets:

Cash and investments with City Treasury $ 483,827 451,499 Cash and investments outside City Treasury 301 353
Receivables:

Charges for services (net of allowance for doubtful accounts of $5,445 as of June 30, 2021 and $2,500 as of June 30, 2020) 55,473 59,946 Due from other City departments 248 250
Due from other governments 16 23
Interest 257 1,251
Restricted due from other governments 49,546 73,271
Restricted interest and other receivable (net of allowance for doubtful accounts of $24 as of June 30, 2021 and $13 as of June 30, 2020) 3,983 3,774 Total current receivables 109,523 138,515
Prepaid charges, advances, and other receivables, current portion 6,147 3,705 Inventory 5,937 5,777
Restricted cash and investments outside City Treasury, current portion 57,165 16,638 Total current assets 662,900 616,487
Non-current assets:

Restricted cash and investments outside City Treasury, less current portion 65,688 80,924 Restricted interest and other receivable (net of allowance for doubtful accounts of $8 as of June 30, 2021 and $8 as of June 30, 2020) 4 4 Charges for services, less current portion (net of allowance for doubtful accounts of $658 as of June 30, 2021 and $669 as of June 30, 2020) 207 204 Capital assets, not being depreciated and amortized 637,529 598,697 Capital assets, net of accumulated depreciation and amortization 4,950,270 4,931,848 Prepaid charges, advances, and other receivables, less current portion 3,517 3,587 Total non-current assets 5,657,215 5,615,264
Total assets 6,320,115 6,231,751
Deferred outflows of resources
Unamortized loss on refunding of debt 154,991 144,189
Pensions 64,797 67,084
Other post-employment benefits 37,762 27,583
Total deferred outflows of resources 257,550 238,856
Liabilities
Current liabilities:

Accounts payable 16,183 10,574
Accrued payroll 9,845 8,491
Accrued vacation and sick leave, current portion 6,787 6,169 Accrued workers’ compensation, current portion 1,694 1,781 Due to other City departments — 674
Damage claims liability, current portion 14,400 4,740
Unearned revenues, refunds, and other 18,966 18,174
Bond and loan interest payable 36,195 42,752
Revenue bonds, current portion 108,500 94,080
Certificates of participation, current portion 2,970 2,824 Commercial paper 105,862 362,354
State revolving fund loans, current portion 1,667 —
Wholesale balancing account, current portion 21,538 11,257 Current liabilities payable from restricted assets 27,263 29,951 Total current liabilities 371,870 593,821
Long-term liabilities:

Other post-employment benefits obligations 148,771 163,684 Net pension liability 216,417 178,133
Accrued vacation and sick leave, less current portion 7,129 5,451 Accrued workers’ compensation, less current portion 7,134 7,393 Damage claims liability, less current portion 22,323 6,027 Revenue bonds, less current portion 4,886,275 4,601,215 Certificates of participation, less current portion 95,692 98,754 State revolving fund loans, less current portion 105,740 73,271 Wholesale balancing account, less current portion 39,326 53,600 Pollution remediation obligation 1,271 1,577
Total long-term liabilities 5,530,078 5,189,105
Total liabilities 5,901,948 5,782,926
Deferred inflows of resources
Related to pensions 4,885 34,894
Other post-employment benefits 21,315 11,772
Total deferred inflows of resources 26,200 46,666
Net position
Net investment in capital assets 517,302 527,856
Restricted for debt service 45,586 15,916
Restricted for capital projects 22,319 43,122
Unrestricted 64,310 54,121
Total net position $ 649,517 641,015
See accompanying notes to financial statements.

Assets

SAN FRANCISCO WATER ENTERPRISE
Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2021 and 2020
(In thousands)
19 2021 2020
Charges for services $ 550,306 550,753
Rents and concessions 12,911 12,124
Capacity fees 1,326 2,169
Other revenues 17,069 18,305
Total operating revenues 581,612 583,351
Operating expenses:

Personnel services 132,528 119,943
Contractual services 15,501 14,523
Materials and supplies 13,175 14,050
Depreciation and amortization 144,033 142,228
Services provided by other departments 70,235 61,128
General and administrative and other 73,371 46,245
Total operating expenses 448,843 398,117
Operating income 132,769 185,234
Non-operating revenues (expenses):

Federal and state grants 14,829 209
Interest and investment income 340 10,517
Interest expenses (184,606) (191,246)
Amortization of premium, discount, refunding loss, and issuance costs 7,782 13,752 Net gain from sale of assets 2,556 63,963
Other non-operating revenues 28,489 30,562
Other non-operating expenses (2,208) (529)
Net non-operating expenses (132,818) (72,772)
Change in net position before capital contributions and transfers (49) 112,462 Capital contributions 4,180 —
Transfers from the City and County of San Francisco 21,025 1,220 Transfers to the City and County of San Francisco (16,654) (14,805) Capital contributions and net transfers 8,551 (13,585) Change in net position 8,502 98,877
Net position at beginning of year 641,015 542,138
Net position at end of year $ 649,517 641,015
See accompanying notes to financial statements.

Operating revenues:

SAN FRANCISCO WATER ENTERPRISE
Statements of Cash Flows
Years Ended June 30, 2021 and 2020
(In thousands)
20 (Continued)
2021 2020
Cash received from customers, including cash deposits $ 570,041 565,100 Cash received from tenants for rent 12,542 11,921
Cash paid to employees for services (132,235) (127,216) Cash paid to suppliers for goods and services (138,125) (133,064) Cash paid for judgments and claims (3,969) (3,976)
Net cash provided by operating activities 308,254 312,765 Cash flows from non-capital financing activities:

Cash received from grants 14,836 255
Cash received from settlements — 914
Cash received from miscellaneous revenues 4,643 5,771
Cash paid for rebates and program incentives (2,208) (529) Transfers from the City and County of San Francisco 21,025 1,220 Transfers to the City and County of San Francisco (16,654) (14,805) Net cash provided by (used in) non-capital financing activities 21,642 (7,174) Cash flows from capital and related financing activities:

Proceeds from sale of capital assets 2,647 397
Proceeds from bond issuance, net of premium, discount, refunding loss, and issuance costs 1,000,920 613,002
Proceeds from commercial paper borrowings 16,328 201,018 Proceeds from State revolving fund loan 57,861 —
Principal paid on commercial paper (272,820) —
Principal paid on long-term debt (704,344) (720,633)
Interest paid on long-term debt (210,276) (211,864)
Interest paid on commercial paper (348) (2,010)
Issuance cost paid on long-term debt (3,032) (1,913)
Acquisition and construction of capital assets (184,144) (200,600) Federal interest income subsidy from Build America Bonds 23,869 23,894 Net cash used in capital and related financing activities (273,339) (298,709) Cash flows from investing activities:

Interest income received 4,185 10,001
Proceeds from sale of investments outside City Treasury 323,586 347,361 Purchase of investments outside City Treasury (323,586) (297,633) Net cash provided by investing activities 4,185 59,729 Increase in cash and cash equivalents 60,742 66,611
Cash and cash equivalents:

Beginning of year 545,847 479,236
End of year 606,589 545,847
Reconciliation of cash and cash equivalents to the statement of net position:

Cash and investments with City Treasury:

Unrestricted 483,827 451,499
Less: Unrealized gain on investments with City Treasury (392) (3,567) Cash and investments outside City Treasury:

Unrestricted 301 353
Restricted 122,853 97,562
Cash and cash equivalents at end of year on $ 606,589 545,847 statements of cash flows
Cash flows from operating activities:

SAN FRANCISCO WATER ENTERPRISE
Statements of Cash Flows
Years Ended June 30, 2021 and 2020
(In thousands)
21 2021 2020
operating activities:

Operating income $ 132,769 185,234
Adjustments to reconcile operating income to
net cash provided by operating activities:

Depreciation and amortization 144,033 142,228
Provision for uncollectible accounts 2,945 781
Write-off of capital assets and other non-cash items 3,810 5,285 Changes in operating assets and liabilities:

Receivables:

Charges for services 1,537 (5,585)
Prepaid charges, advances, and other (2,385) (1,343)
Due from other City departments 93 323
Inventory (160) (351)
Accounts payable 5,609 (2,050)
Accrued payroll 1,354 1,548
Other post-employment benefits obligations (15,549) (3,739) Pension obligations 10,562 (7,351)
Accrued vacation and sick leave 2,296 1,520
Accrued workers’ compensation (346) (1,162)
Due to other City departments (674) 674
Wholesale balancing account (3,993) 28
Pollution remediation obligation (306) (617)
Damage claims liability 25,956 (742)
Unearned revenues, refunds, and other liabilities 703 (1,916) Total adjustments 175,485 127,531
Net cash provided by operating activities $ 308,254 312,765 Noncash transactions:

Accrued capital asset costs $ 27,263 29,951
Land acquired through real property exchange — 63,600
Interfund payable — 674
Unrealized (gain) on investments (392) (3,567)
Capital contribution 4,180 —
See accompanying notes to financial statements.

Reconciliation of operating income to net cash provided b y

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

22 (Continued)
(1) Description of Reporting Entity
The San Francisco Water Enterprise (the Enterprise) was established in 1930 under the provisions of the Charter of the City and County of San Francisc o (the City). The Enterprise acquired the fully developed, mature water works for San Francisco on March 3, 1930. Since then, the City has operated and maintained the water works as the San Francisco Water Enterprise. The Board of Supervisors of the City has adopted resolutions (the Water Resolutions) providing for the issuance of various water revenue and refunding bond series. The Water Resolutions require the City to keep separate books of records and accounts of the Enterprise. The Enterprise, which consists of a system of reservoirs, storage tanks, water treatment plants , pump stations, and pipelines, is engaged in the distribution of water to San Francisco and certain suburban areas. In fiscal year 2021, the Enterprise sold approximately 68,812 million gallons, i.e., ab out 189 million gallons per day of water, to approximately 2.7 million people within San Francisco and certain suburban areas.

The San Francisco Public Utilities Commission (SFP UC or the Commission), established in 1932, is responsible for providing operational oversight of the public utility enterprises of the City, which include the Enterprise along with the City’s power and sewer utilities (i.e., Hetch Hetchy Water and Power and CleanPowerSF, of which the Power Enterprise is a component, and the San Francisco Wastewater Enterprise). The Commission is responsible for determining such matters as the rates and charges for services, approval of contracts, and organizational policy.

U n t i l A u g u s t 1 , 2 0 0 8 , t h e C o m m i s s i o n c o n s i s t e d o f f i v e m e m b e r s , a l l a p p o i n t e d b y t h e M a y o r .

Proposition E, a City Charter amendment approved by the voters in the June 3, 2008 election, terminated the terms of all five existing members of the Commission, changed the process for appointing new members, and set qualifications for all members. Under the amended Charter, the Mayor continues to nominate candidates to the Commission, but nominees do not take office until the Board of Supervisors votes to approve their appointments by a majority (at least six members). The amended Charter provides for staggered four-year terms for the Commission members and requires them to meet the following qualifications:
 Seat 1 must have experience in environmental policy and an understanding of environmental justice issues.
 Seat 2 must have experience in ratepayer or consumer advocacy.  Seat 3 must have experience in project finance.
 Seat 4 must have expertise in water systems, power systems, or public utility management.  Seat 5 is an at-large member.

The SFPUC is a department of the City, and as such , the financial operations of the Enterprise, Hetch Hetchy Water and Power and CleanPowerSF, and the Wastewater Enterprises are included in the Annual Comprehensive Financial Report of the City as enterprise funds. These financial statements are intended to present only the financial position, and the changes in financial position and cash flows of only that portion of the City that is attributable to the transactions of the Enterprise. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2021 and 2020, the changes in its financial position, or, wh ere applicable, the cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles (GAAP).

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

23 (Continued)
(2) Significant Accounting Policies
(a) Basis of Accounting and Measurement Focus
The accounts of the Enterprise are organized on the basis of a proprietary fund type and are included as an enterprise fund of the City. The activities of this Enterprise are accounted for with a separate set of self-balancing accounts that comprise the Enterprise’s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, and expenses. Enterprise funds account for activities (i) that are financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity; or (ii) that are required by laws or regulations that the activity’s costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (iii) that the pricing policies of the activity es tablish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service).

The financial activities of the Enterprise are accounted for on a flow of economic resources measurement focus, using the accrual basis of a ccounting in accordance with U.S. GAAP. Under this method, all assets and liabilities associated with its operations are included on the statement of net position; revenues are recognized when earned, and expenses are recognized when liabilities are incurred. Operating revenues are defined as charges to customers, rental income, and capacity fees.

The Enterprise applies all a pplicable Governmental Accoun ting Standards Board (GASB) pronouncements.
(b) Cash and Cash Equivalents
The Enterprise considers its pooled cash and in vestments held with the City Treasury to be demand deposits and, therefore, cash and cash equivalents for financial reporting. The City Treasury also holds non-pooled cash and invest ments for the Enterprise. Non-pooled restricted deposits and investments held outside the City Treasury with original maturities of three months or less are also considered to be cash equivalents.
(c) Investments
Money market funds are carried at cost, which approximates fair value. All other investments are stated at fair value based on quoted market prices. Changes in fair value are recognized as investment gains or losses and are recorded as a component of non-operating revenues. (d) Inventory
Inventory consists primarily of construction materials and maintenance supplies and is valued at average cost. Inventory is expensed as it is consumed. (e) Capital Assets
Capital assets are defined as assets with an in itial individual cost of more than $5 and an estimated useful life in excess of one year. Capital assets with an original acquisition date prior to July 1, 1977 are recorded in the financial statements at estimated cost, as determined by an independent professional appraisal, or at cost, if known. All subsequent acquisitions have been recorded at cost. All donated capital assets are valued at estimated fair value at the time of donation. Depreciation and amortization are computed using the straight-line method over the

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

24 (Continued)
estimated useful lives of the related assets, which range from 1 to 100 years for equipment and 1 to 200 years for buildings, structures, and improvements. No depreciation or amortization is recorded in the year of acquisition, and depreciati on or amortization is recorded in the year of disposal.
(f) Intangible Assets
Under GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets , intangible assets are defined as identifiable, non-financial assets capable of being separated, sold, transferred, or licensed, and include contra ctual or legal rights. Examples of intangible assets include rights-of-way easements, land use rights, water rights, licenses, and permits. The accounting pronouncement also provides guidance on the capitalization of internally generated intangible assets, such as the development and installation of computer software by or on behalf of the reporting entity.

According to the standard, the Enterprise is required to capitalize intangible assets with a useful life extending beyond one reporting period. Th e Enterprise has established a capitalization threshold of $100. GASB Statement No. 51 also requires amortization of intangible assets over the benefit period, except for certain assets having an indefinite useful life. Assets with an indefinite useful life generally provide a benefit that is not constrained by legal or contractual limitations or any other external factor and, therefore, are not amortized (see Note 4). (g) Construction Work in Progress
The cost of acquisition and construction of major plant and equipment is recorded as construction work in progress. Costs of discontinued construction projects are recorded as an expense in the year in which the decision is made to discontinue such projects. (h) Capitalization of Interest
A portion of the interest cost incurred on capital projects is capitalized for assets that require a period of time to construct or to otherwise prepare them for their intended use. Such amounts are amortized over the useful lives of the assets (see Note 4). (i) Bond Discount, Premium, and Issuance Costs
Bond issuance costs related to prepaid insuranc e costs are capitalized and amortized using the effective interest method. Other bond issuance costs are expensed when incurred. Original issue bond discount or premium is offset agains t the related debt and is also amortized using the effective interest method.
(j) Accrued Vacation and Sick Leave
Accrued vacation pay, which may be accumulated up to 10 weeks per employee, is charged to expense as earned. Sick leave earned subsequent to December 6, 1978 is non-vesting and may be accumulated up to six months per employee.
(k) Workers’ Compensation
The Enterprise is self-insured for workers’ compensation claims and accrues the estimated cost of those claims, including the estimated cost of incurred but not reported claims (see Note 12(b)).

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

25 (Continued)
(l) General Liability
The Enterprise is self-insured for general liability and uninsurable property damage claims.

Commercially uninsurable property includes assets that are underground or provide transmission and distribution. Maintained commercial coverage does not cover claims attributed to loss from earthquake, contaminat ion, pollution remediation efforts, and other specific naturally occurring contam inants such as mold. The liability represents an estimate of the cost of all outstanding claims, including adverse loss development and estimated incurred but not reported claims (see Note 12(a)).
(m) Arbitrage Rebate Payable
Certain bonds are subject to arbitrage rebate requirements in accordance with regulations issued by the U.S. Treasury Department. The requirements generally stipulate that earnings from the investment of the tax-exempt bond proceeds that exceed related interest costs on the bonds must be remitted to the federal government on every fifth anniversary of each bond issue. The arbitrage rebate liability was $0 at June 30, 2021 and 2020. (n) Refunding of Debt
Gains or losses occurring from refunding of debt prior to maturity are reported as deferred outflows and deferred inflows of resources from refunding of debt. Deferred outflows and deferred inflows of resources are recognized as a component of interest expense using the effective interest method over the remaining life of the old debt or the life of the new debt, whichever is shorter.
(o) Income Taxes
As a department of a government agency, the Enterprise is exempt from both federal income taxes and California state franchise taxes.
(p) Revenue Recognition
Water service charges are based on water usage as determined by the Enterprise. Effective July 2013, the majority of residential and non-residential customers are billed on a monthly basis except for building and contractor customers, which are billed on a bi-monthly basis. Revenues earned but unbilled are accrued as charges for services and reflected as a receivable on the statements of net position. The unbilled amounts for the fiscal years ending June 30, 2021 and 2020 were $30,277 and $29,876, respectively.
(q) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses duri ng the reporting period. Actual results could differ from those estimates.
(r) Accounting and Financial Reporting for Pollution Remediation Obligations According to GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations , a government would have to estimate its expected outlays for

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

26 (Continued)
pollution remediation if it knows a site is pollute d, and any of the following recognition triggers occur:
 Pollution poses an imminent danger to the public or environment and a government has little or no discretion to avoid fixing the problem;
 A government has violated a pollution prevention-related permit or license;  A regulator has identified (or evidence indicate s it will identify) a government as responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the cleanup;
 A government is named (or evidence indicates that it will be named) in a lawsuit to compel it to address the pollution; or
 A government begins or legally obligates itself to begin cleanup or post-cleanup activities (limited to amounts the government is legally required to complete).

2) In August 2018, the GASB issued Statement No. 90, Accounting and Financial Reporting for Majority Equity Interests. GASB Statement No. 90 provides clarification when a government s h o u l d r e p o r t a m a j o r i t y e q u i t y i n t e r e s t i n a l e g a l l y s e p a r a t e o r g a n i z a t i o n a s e i t h e r a component unit or an investment. The new stan dard is effective for periods beginning after December 15, 2019. The Enterprise adopted the provisions of this Statement in fiscal year 2021, which did not have a significant effect on its financial statements.

3) In June 2020, the GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

27 (Continued)
Compensation Plans—an amendment of GA SB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 . GASB Statement No. 97 clarifies the criteria used in determining whether a fiduciary component unit exists and clarifies financial reporting for Internal Revenue Code section 457 deferred compensation plans. The new standard is effective for periods beginning after June 15, 2021. The Enterprise adopted early the provision of Statement No. 97 in fiscal year 20 21, which did not have a significant effect on its financial statements.

4) In October 2021, the GASB issued Statement No. 98, The Annual Comprehensive Financial Report. GASB Statement No. 98 updates existing accounting standards by changing the name of the Comprehensive Annual Financial Report to the Annual Comprehensive Financial Report. The new standard is effective for periods ending after December 15, 2021. The Enterprise adopted the provisions of this Statement in fiscal year 2021, which did not have a significant effect on its financial statements.
(u) GASB Statement Implemented in Fiscal Year 2020
1) In May 2020, the GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. The primary objective of this Statement is to provide temporary relief to governments and other stak eholders in light of the COVID-19 pandemic.

T h a t o b j e c t i v e i s a c c o m p l i s h e d b y p o s t p o n i n g the effective dates of certain provisions in Statements and Implementation Guides that first became effective or are scheduled to become effective for periods beginning after June 15, 2018. The Enterprise adopted the provisions of this Statement in fiscal year 2020.
(v) Future Implementation of New Accounting Standards
1) In June 2017, the GASB issued Statement No. 87, Leases. GASB Statement No. 87 establishes a single model for lease accounting and requires reporting of certain lease liabilities that currently are not reported. The new standard is effective for periods beginning after June 15, 2021. The Enterprise will implement the provisions of Statement No. 87 in fiscal year 2022.

2) In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period . GASB Statement No. 89 establishes accounting requirements for interest cost incurred before the end of a construction period. The new standard is effective for periods beginning after December 15, 2020. The Enterprise will implement the provisions of Statement No. 89 in fiscal year 2022.

3) In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations . GASB Statement No. 91 enhances the compatibility and consistency of conduit debt obligation reporting and reporting of related transactions by State and local government issuers. The new standard is effective for periods beginning after December 15, 2021. The Enterprise will implement the provisions of Statement No. 91 in fiscal year 2023.

4) In January 2020, the GASB issued Statement No. 92, Omnibus 2020. GASB Statement No. 92 addresses practice issues that have been identified during implementation and application of certain GASB Statements. The new standard is effective for periods beginning after June 15, 2021. The Enterprise will implement the provisions of Statement No. 92 in fiscal year 2022.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

28 (Continued)

5) In March 2020, the GASB issued Statement No. 93, Replacement of Interbank Offered Rates (IBOR). The objective of this Statement is to address those and other accounting and financial reporting implications that result from the replacement of an IBOR. The new standard is effective for periods beginning after June 15, 2021. The Enterprise will implement the provisions of Statement No. 93 in fiscal year 2022.

6) In March 2020, the GASB Issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). The new standard is effective for periods beginning after June 15, 2022. The Enterprise will implement the provisions of Statement No. 94 in fiscal year 2023.

7) In May 2020, the GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. This Statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) by a government. The new standard is effective for periods beginning after June 15, 2022. The Enterprise will implement the provisions of Statement No. 96 in fiscal year 2023. (3) Cash, Cash Equivalents, and Investments
The Enterprise’s cash, cash equiva lents, and investments with the City Treasury are invested in an unrated City pool pursuant to investment policy guidelines established by the City Treasurer. The objectives of the policy guidelines are, in order of priority, preservation of capital, liquidity, and yield.

The policy addresses soundness of financial institutions in which the City will deposit funds, types of investment instruments as permitted by the California Government Code, and the percentage of the portfolio that may be invested in certain instruments with longer terms to maturity. The City Treasurer allocates income from the investment of pooled cash at month-end in proportion to the Enterprise’s average daily cash balances. The primary objectives of the Enterprise’s investment policy are consistent with the City’s policy.

Restricted assets are held by an independent trustee outside the City’s investment pool. The assets are held for the purpose of paying future interest and principal on the bonds and for eligible capital project expenditures. The current balances as of June 30, 2021 and 2020 were $122,853 and $97,562, respectively. The Enterprise held all investments in guaranteed investment contracts, treasury and government obligations, commercial paper, corporate bonds, and notes, as well as money market mutual funds consisting of Treasury and Government Obligations.

Funds held by the trustee established under the 2002 Amended and Restated Indentures agreements are invested in “Permitted Investments,” as defined in the agreement, which includes money market funds and investment agreements. The agreement permits investment in money market funds registered under the Federal Investment Company Act of 1940 whose shares are registered under the Federal Securities Act of 1933 and have a rating by S&P of “AAAm-G,” “AAAm,” or “AAm,” and a rating by Moody’s of “Aaa,” “Aa1,” or “Aa2”. The credit ratings of the money market funds invested in as of June 30, 2021 were “A aa-mf” and “P-1” by Moody’s, and “AAAm” and “A-1+” by S&P. The credit ratings of the money market fu nds invested in as of June 30, 2020 were “Aaa-mf” and “P-1” by Moody’s, and “AAAm” and “A-1+” by S&P. Investment agreements must be with a U.S. bank or trust company that have a rating by Moody’s and S&P of “A” or higher, or are guaranteed by any entity with a rating of “A” or higher, at the time the agreement is entered.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

29 (Continued)
The Enterprise categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The inputs and techniques used for valuing securities are not necessarily an indi cation of risk associated with investing in those securities.

The following tables present the restricted and unrestricted cash and investments outside City Treasury as of June 30, 2021 and 2020:

Commercial paper is valued using a variety of techniqu es such as matrix pricing; market corroborated pricing inputs such as yield curve, indices, and other market related data. Commercial paper, money market investments, and cash and cash equivalents are exempt from fair value treatment under GASB Statement No. 72.

The restricted cash and investments outside City Treasury as of June 30, 2021 and 2020 included an unrealized gain due to changes in fair value on commercial paper of $0.

Additional cash outside of the investment pool included revolving fund and cash in transit. The revolving fund has a balance of $28 as of June 30, 2021 and 2020, respectively, which is held in a commercial bank in non-interest bearing checking accounts covered by Federal Deposit Insurance Corporation depository insurance. These accounts were established as provided by the City’s Administrative Code for revolving fund needs. The cash in transit was $273 and $325 as of June 30, 2021 and 2020, respectively.

Credit Ratings
(S&P/Moody's) Maturities Fair Value

U.S. Treasury Money Market Funds AAAm/Aaa-mf < 90 days 79,973 79,973 — — — Money Market Funds A-1+/P-1 < 90 days 55 55 — — —
Cash and Cash Equivalents N/A 42,825 42,825 — — —
Total Restricted Cash and Investments outside City Treasury $ 122,853 122,853 — — —

Cash and Cash Equivalents
N/A 301 301 — — —
Total Cash and Investments outside City Treasury $ 301 301 — — — Investments
exempt from
fair value
Fair Value Measurements Using
Investments
June 30, 2021
Cash and Investments outside City Treasury
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Credit Ratings
(S&P/Moody's) Maturities Fair Value

U.S. Treasury Money Market Funds AAAm/Aaa-mf < 90 days 84,463 84,463 — — — Money Market Funds A-1+/P-1 < 90 days 46 46 — — —
Cash and Cash Equivalents N/A 13,053 13,053 — — —
Total Restricted Cash and Investments outside City Treasury $ 97,562 97,562 — — —

Cash and Cash Equivalents
N/A 353 353 — — —
Total Cash and Investments outside City Treasury $ 353 353 — — — Investments
exempt from
fair value
Fair Value Measurements Using
Investments
June 30, 2020
Cash and Investments outside City Treasury
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
Inputs
(Level 3)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

30 (Continued)
The Enterprise’s cash, cash equivalents, an d investments are shown on the accompanying statements of net position as follows:

The following table shows the percentage distribution of the City’s pooled investments by maturity:

(4) Capital Assets
Capital assets with a useful life of 50 years or greater include buildings and structures, reservoirs, dams, treatment plants, pump stations, certain wate r mains and pipelines, sewer systems, tunnels, and bridges.

Capital assets as of June 30, 2021 and 2020 consist of the following:

2021 2020
Cash and investments with City Treasury $ 483,827 451,499 Cash and investments outside City Treasury 301 353
Restricted cash and investments outside City Treasury 57,165 16,638 Non-current assets:

Restricted cash and investments outside City Treasury 65,688 80,924 Total cash, cash equivalents, and investments $ 606,981 549,414 Current assets:

Fiscal years
ended June 30 Under 1 1 to less than 6 6 to less than 12 12 to 60 2021 14.5% 27.6% 29.7% 28.2%
2020 30.1% 32.4% 15.6% 21.9%
Investment maturities (in months)
2020 Increases Decreases 2021
Land $ 105,336 — (1,088) 104,248
Intangible assets 679 — — 679
Construction work in progress 492,682 197,669 (157,749) * 532,602 Total capital assets not being depreciated and amortized 598,697 197,669 (158,837) 637,529 Capital assets being depreciated and amortized:

Facilities and improvements 6,258,333 154,905 — 6,413,238 Intangible assets 23,497 275 — 23,772
Machinery and equipment 319,000 7,275 (149) 326,126
Total capital assets being depreciated and amortized 6,600,830 162,455 (149) 6,763,136 Less accumulated depreciation and amortization for:

Facilities and improvements (1,423,722) (130,793) — (1,554,515) Intangible assets (20,087) (1,601) — (21,688)
Machinery and equipment (225,173) (11,639) 149 (236,663) Total accumulated depreciation and amortization (1,668,982) (144,033) 149 (1,812,866) Total capital assets being depreciated and amortized, net 4,931,848 18,422 — 4,950,270 Total capital assets, net $ 5,530,545 216,091 (158,837) 5,587,799 * Decrease in construction work in progress includes $3,810 in capital project write-offs, mainly related to Eastside Recycled Water and San Andreas Spillway projects. The remaining difference of $8,516 is due to direct additions to facilities and improvements, intangible assets and machinery an d equipment.

Capital assets not being depreciated and amortized:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

31 (Continued)

GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 Financial Accounting Standards Board (FASB) and American Institute of Certified Public Accountants (AICPA) Pronouncements, requires that interest expense incurred during construction of assets be capitalized. Interest included in the construction work in progress and total interest expense incurred during the years ended June 30, 2021 and 2020 are as follows:

(5) Restricted Assets
Pursuant to the Indentures, all revenues of the Enterprise (except amounts on deposit in the rebate fund) are irrevocably pledged to the punctual payment of debt service on the Water Revenue and Refunding Bonds. Accordingly, the revenues of the Enterprise shall not be used for any other purpose while any of its Water Revenue and Refunding Bonds are outstanding, except as expressly permitted by the Indentures. Further, all revenues shall be deposited by the City Treasurer, by instruction of the Enterprise, in special funds designated as the Water Enterprise Revenue Fund (the Water Revenue Fund), which must be maintained in the City Trea sury. These funds, held at the City Treasury, are recorded in the statement of net position of the En terprise as cash and investments. Deposits in the Water Revenue Fund, including earnings thereon, sh all be appropriated, tran sferred, expended, or used for the following purposes pertaining to the financing, maintenance, and operation of the Enterprise in accordance with the following priority:

1. The payment of operation and maintenance expenses for such utility and related facilities; 2019 Increases Decreases 2020
Land $ 30,029 75,375 (68) 105,336
Intangible assets 679 — — 679
Construction work in progress 462,606 220,427 (190,351) * 492,682 Total capital assets not being depreciated and amortized 493,314 295,802 (190,419) 598,697 Capital assets being depreciated and amortized:

Facilities and improvements 6,088,534 169,799 — 6,258,333 Intangible assets 23,123 374 — 23,497
Machinery and equipment 311,154 8,559 (713) 319,000
Total capital assets being depreciated and amortized 6,422,811 178,732 (713) 6,600,830 Less accumulated depreciation and amortization for:

Facilities and improvements (1,297,056) (126,666) — (1,423,722) Intangible assets (17,986) (2,101) — (20,087)
Machinery and equipment (212,425) (13,461) 713 (225,173) Total accumulated depreciation and amortization (1,527,467) (142,228) 713 (1,668,982) Total capital assets being depreciated and amortized, net 4,895,344 36,504 — 4,931,848 Total capital assets, net $ 5,388,658 332,306 (190,419) 5,530,545 * Decrease in construction work in progress includes $5,285 in capital project write-offs, mainly related to Daly City Recycled Water, New Fuel Stati on, and Row Gaps projects. The remaining difference of $6,334 is related to $11,774 of construction work in progress transferred to land offset by $5,440 dire ct additions to intangible assets and machinery and equipment.

Capital assets not being depreciated and amortized:
2021 2020
Interest expensed $ 184,606 191,246
Interest included in construction work in progress 19,461 27,164 Total interest incurred $ 204,067 218,410

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

32 (Continued)

2. The payment of pension charges and proporti onate payments to such compensation and other insurance or outside reserve funds as the Enterprise may establish or the Board of Supervisors may require with respect to employees of the Enterprise;

3. The payment of principal, interest, reserve, sinking fund, and other mandatory funds created to secure Revenue Bonds and parity State revolving fund loans issued by the Enterprise for the acquisition, construction, or extension of facilities owned, operated, or controlled by the Enterprise;

4. The payment of principal and interest on General Obligation Bonds issued by the City for the Enterprise’s purposes;

5. Reconstruction and replacement as determined by the Enterprise or as required by any of the Enterprise’s Revenue Bond ordinances duly adopted and approved; and

6. The acquisition of land, real property, or intere st in real property for, and the acquisition, construction, enlargement, and improvement of, new and existing buildings, structures, facilities, equipment, appliances, and other property necessary or convenient to the development or improvement of such utilit y o w n e d , c o n t r o l l e d , o r o p e r a t e d b y t h e Enterprise; and for any other lawful purpose of the Enterprise, including the transfer of surplus funds pursuant to the Charter.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

33 (Continued)
In accordance with the Indenture, the bond financ ing program maintains that certain restricted cash and investment balances be held in trust. Restricted assets held in trust consisted of the following as of June 30, 2021 and 2020:

Restricted assets listed above as cash and investme nts with City Treasury are held in fund accounts within the Water Revenue Fund of the City Treasury.
2021 2020
Cash and investments outside City Treasury:
2010B Water revenue bond fund $ 21,492 21,581
2010D Water revenue bond fund — 2,935
2010E Water revenue bond fund 16,299 16,831
2010G Water revenue bond fund 17,698 17,691
2011A Water revenue bond fund — 1
2011B Water revenue bond fund 670 670
2011C Water revenue bond fund 140 802
2011D Water revenue bond fund — 1,981
2012A Water revenue bond fund 1 2,961
2012B Water revenue bond fund — 807
2012C1 Water revenue refunding bond fund — 1,181
2012C2 Water revenue refunding bond fund — 3,399
2015A Water revenue refunding bond fund — 1
2016B Water revenue refunding bond fund — 1
2017A Water revenue bond fund — 363
2017B Water revenue bond fund — 4,239
2017D Water revenue refunding bond fund — 1
2019A Water revenue refunding bond fund — 47
2019B Water revenue refunding bond fund — 6
2019C Water revenue refunding bond fund — 2
2020A Water revenue bond fund 7,370 —
2020B Water revenue bond fund 3,097 —
2020C Water revenue bond fund 3,463 —
2020D Water reveune bond fund 1,513 —
2020F Water revenue refunding bond fund 12 —
2020G Water reveune refunding bond fund 22 —
2020H Water revenue refunding bond fund 7 —
2009C Certificates of participation - 525 Golden Gate 1,638 1,816 2009D Certificates of participation - 525 Golden Gate 6,551 7,147 Commercial Paper - Tax Exempt 29,793 15
Commercial Paper - Taxable 34 31
Habitat reserve endowment fund 13,053 13,053
Total cash and investments outside City Treasury $ 122,853 97,562 Interest and other receivables:

Water bond construction fund including capacity fee receivables 3,987 3,778 Due from other government for State Revolving Fund 49,546 73,271 Total restricted assets $ 176,386 174,611

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

34 (Continued)
(6) Short-Term Debt
The Commission and the Board of Supervisors have authorized the issuance of up to $500,000 in commercial paper pursuant to the voter-approved 2002 Proposition E. As of June 30, 2021 and 2020, amounts outstanding under Proposition E were $105,862 and $362,354, respectively.

Commercial paper interest rates ranged from 0.1% to 2.2%.

With maturities up to 270 days, the Enterprise in tends to maintain the program by remarketing the commercial paper upon maturity over the near-to-medium term, at which time outstanding commercial paper will likely be refunded with revenue bonds. This is being done to take advantage of the continued low interest rate environment. If the commercial paper interest rates rise to a level that exceeds these benefits, the Enterprise will refinance the commercial paper with the long-term, fixed- rate debt.

In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowing and Direct Placements , the Enterprise had $394,138 and $137,646 in unused authorization as of June 30, 2021 and 2020, respectively. Significant Events of default as specified in the Reimbursement Agreements, or Revolving Credit Agreement include 1) payment defaults 2) material breach of warranty, representation, or ot her non-remedied breach of covenants as specified in the respective agreements (not cured within applicable grace periods) and 3) bankruptcy and insolvency events, which may result in all outstanding obligations to be immediately due and payable (unless waived by the respective Bank, if applicable ); or issuance of a No-Is suance Notice, reduction in credit to outstanding amount plus interest coverage, and/or termination of the respective agreement. As of June 30, 2021, there were no such events describe herein.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

35 (Continued)
(7) Changes in Long-Term Liabilities
Long-term liability activities for the years ended June 30, 2021 and 2020 are as follows:

Maturity Due
Interest (Calendar within
rate Year) 2020 Additions Reductions 2021 one year
2010B revenue bonds (Build America) 2040 $ 373,420 — (11,920) 361,500 12,330 2010D revenue refunding bonds 3.00 – 5.00 2021 30,990 — (30,990) — — 2010E revenue bonds (Build America) 4.90 – 6.00 2040 344,200 — — 344,200 — 2010G revenue bonds (Build America) 6.95 2050 351,470 — — 351,470 — 2011B revenue bonds 3.50 – 5.00 2041 1,485 — (730) 755 755 2011C revenue bonds 3.00 – 5.00 2041 1,620 — (795) 825 825 2011D revenue refunding bonds 4.00 – 5.00 2028 19,135 — (19,135) — — 2012A revenue bonds 4.00 – 5.00 2043 216,540 — (216,540) — — 2012B revenue bonds 4.00 – 5.00 2043 16,520 — (16,520) — — 2012C1 revenue refunding bonds 4.00 2031 8,465 — (8,465) — — 2012C2 revenue refunding bonds 4.00 – 5.00 2032 69,570 — (69,570) — — 2015A revenue refunding bonds 2.00 – 5.00 2036 412,380 — (14,635) 397,745 15,325 2016A revenue refunding bonds 4.00 – 5.00 2039 763,005 — (19,955) 743,050 23,315 2016B revenue refunding bonds 1.50 – 5.00 2030 95,980 — (14,455) 81,525 10,015 2016C revenue bonds 0.87 – 4.19 2046 242,755 — (5,705) 237,050 5,820 2017A revenue bonds 5.00 2047 121,140 — (94,140) 27,000 — 2017B revenue bonds 5.00 2047 147,725 — (114,795) 32,930 — 2017C revenue bonds 5.00 2047 70,675 — (54,925) 15,750 — 2017D revenue refunding bonds 2.00 – 5.00 2035 348,610 — (890) 347,720 925 2017E revenue refunding bonds 4.00 – 5.00 2031 48,890 — — 48,890 — 2017F revenue refunding bonds 5.00 2031 8,705 — — 8,705 — 2017G revenue refunding bonds 2.03 – 2.91 2024 33,280 — (500) 32,780 820 2019A revenue refunding bonds 1.81 – 3.47 2043 622,580 — (6,855) 615,725 24,405 2019B revenue refunding bonds 3.15 – 3.52 2041 16,450 — — 16,450 65 2019C revenue refunding bonds 3.15 – 3.52 2041 17,925 — — 17,925 75 2020A revenue bonds 4.00 – 5.00 2050 — 150,895 — 150,895 — 2020B revenue bonds 5.00 2050 — 61,330 — 61,330 —
2020C revenue bonds 4.00 2050 — 85,335 — 85,335 —
2020D revenue bonds 3.00 2050 — 49,200 — 49,200 —
2020E revenue refunding bonds 2.83 – 2.95 2047 — 341,435 — 341,435 5,900 2020F revenue refunding bonds 0.26 – 3.15 2047 — 136,880 — 136,880 1,425 2020G revenue refunding bonds 0.26 – 3.10 2043 — 120,585 — 120,585 5,820 2020H revenue refunding bonds 0.26 – 3.15 2047 — 65,495 — 65,495 680 Less issuance discount (143) — 10 (133) —
Add issuance premiums 311,923 73,542 (83,707) 301,758 — Total revenue bonds payable 4,695,295 1,084,697 (785,217) 4,994,775 108,500 2009C certificates of participation (COPs) 2.00 – 5.00 2022 8,918 — (2,824) 6,094 2,970 2009C COPs issuance premiums 161 — (92) 69 —
2009D COPs (Build America) 6.36 – 6.49 2041 92,499 — — 92,499 — State Revolving Funds Loan 1.00 2051 73,271 49,546 (15,410) 107,407 1,667 Other post-employment benefits obligations 163,684 14,036 (28,949) 148,771 — Net pension liability 178,133 93,066 (54,782) 216,417 — Accrued vacation and sick leave 11,620 10,109 (7,813) 13,916 6,787 Accrued workers’ compensation 9,174 1,912 (2,258) 8,828 1,694 Damage claims liability 10,767 27,643 (1,687) 36,723 14,400 Wholesale balancing account 64,857 — (3,993) 60,864 21,538 Pollution remediation obligation 1,577 — (306) 1,271 — Total $ 5,309,956 1,281,009 (903,331) 5,687,634 157,556 Revenue Bonds:

4.00% – 6.00%

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

36 (Continued)

The payments of principal and interest amounts on various bonds are secured by net revenues of the Enterprise.
(a) Capital Appreciation Bonds
The capital appreciation bonds mature from November 1, 2018 and November 1, 2019. The bonds were insured by Municipal Bond Insura nce Association (MBIA) and carried “Aaa” and “AAA” ratings from Moody’s and S&P, respectively. In February 2009, the bonds were further Maturity Due
Interest (Calendar within
rate Year) 2019 Additions Reductions 2020 one year
2009A revenue bonds 2019 $ 9,635 — (9,635) — —
2009B revenue bonds 4.00 – 5.00 2019 9,635 — (9,635) — — 2010A revenue bonds 2.00 – 5.00 2019 2,530 — (2,530) — — 2010B revenue bonds (Build America) 4.00 – 6.00 2040 384,975 — (11,555) 373,420 11,920 2010D revenue refunding bonds 3.00 – 5.00 2021 47,770 — (16,780) 30,990 17,640 2010E revenue bonds (Build America) 4.90 – 6.00 2040 344,200 — — 344,200 — 2010F revenue bonds 3.00 – 5.50 2030 23,975 — (23,975) — — 2010G revenue bonds (Build America) 6.95 2050 351,470 — — 351,470 — 2011A revenue bonds 4.25 – 5.00 2019 322,480 — (322,480) — — 2011B revenue bonds 3.50 – 5.00 2041 17,870 — (16,385) 1,485 730 2011C revenue bonds 3.00 – 5.00 2041 19,475 — (17,855) 1,620 795 2011D revenue refunding bonds 4.00 – 5.00 2028 19,135 — — 19,135 — 2012A revenue bonds 4.00 – 5.00 2043 459,455 — (242,915) 216,540 — 2012B revenue bonds 4.00 – 5.00 2043 16,520 — — 16,520 — 2012C1 revenue refunding bonds 4.00 2031 8,465 — — 8,465 — 2012C2 revenue refunding bonds 4.00 – 5.00 2032 69,570 — — 69,570 — 2012D revenue refunding bonds 1.75 – 5.00 2019 12,215 — (12,215) — — 2015A revenue refunding bonds 2.00 – 5.00 2036 426,380 — (14,000) 412,380 14,635 2016A revenue refunding bonds 4.00 – 5.00 2039 763,005 — — 763,005 19,955 2016B revenue refunding bonds 1.50 – 5.00 2030 104,900 — (8,920) 95,980 14,455 2016C revenue bonds 0.87 – 4.19 2046 248,360 — (5,605) 242,755 5,705 2017A revenue bonds 5.00 2047 121,140 — — 121,140 — 2017B revenue bonds 5.00 2047 147,725 — — 147,725 — 2017C revenue bonds 5.00 2047 70,675 — — 70,675 —
2017D revenue refunding bonds 2.00 – 5.00 2035 349,470 — (860) 348,610 890 2017E revenue refunding bonds 4.00 – 5.00 2031 48,890 — — 48,890 — 2017F revenue refunding bonds 5.00 2031 8,705 — — 8,705 — 2017G revenue refunding bonds 2.03 – 2.91 2024 33,780 — (500) 33,280 500 2019A revenue refunding bonds 1.81 – 3.47 2043 — 622,580 — 622,580 6,855 2019B revenue refunding bonds 3.15 – 3.52 2041 — 16,450 — 16,450 — 2019C revenue refunding bonds 3.15 – 3.52 2041 — 17,925 — 17,925 — Less issuance discount (154) — 11 (143) —
Add issuance premiums 366,297 — (54,374) 311,923 —
Total revenue bonds payable 4,808,548 656,955 (770,208) 4,695,295 94,080 1991 capital appreciation bonds 0.00 2019 2,029 71 (2,100) — — 2009C certificates of participation (COPs) 2.00 – 5.00 2022 11,606 — (2,688) 8,918 2,824 2009C COPs issuance premiums 287 — (126) 161 —
2009D COPs (Build America) 6.36 – 6.49 2041 92,499 — — 92,499 — State Revolving Funds Loan 1.00 2051 — 73,271 — 73,271 — Other post-employment benefits obligations 150,771 25,253 (12,340) 163,684 — Net pension liability 175,429 39,194 (36,490) 178,133 — Accrued vacation and sick leave 10,100 9,716 (8,196) 11,620 6,169 Accrued workers’ compensation 10,336 1,065 (2,227) 9,174 1,781 Damage claims liability 11,509 709 (1,451) 10,767 4,740 Wholesale balancing account 64,829 833 (805) 64,857 11,257 Pollution remediation obligation 2,194 — (617) 1,577 — Total $ 5,340,137 807,067 (837,248) 5,309,956 120,851

4.00 % – 5.25 %
Revenue Bonds:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

37 (Continued)
reinsured by National Public Finance Guarantees Corp. (NPFGC) and carried “Baa1” and “A” ratings from Moody’s and S&P, respectively. On May 29, 2013, the SFPUC transferred $2,500 to U.S. Bank, trustee of the 1991 Series A San Francisco Water Revenue Bonds (the Bonds), for the purpose of replacing the debt service reserve surety policy that had been satisfying the reserve requirement of the bonds. The surety po l i c y h a d b e e n p r o v i d e d b y N P F G C . W i t h t h i s transfer, the surety policy is effectively terminated. The amount deposited with the U.S. Bank will continue to satisfy the reserve requirement on the bonds. Interest on the capital appreciation bonds is due upon maturity and is recognized as annual interest expense over the life of the bonds using the interest method. The Enterprise has recognized $2,029 of unpaid principal and interest on the capital appreciation bonds as of June 30, 2019 and has reported it as capital appreciation bonds in the accompanying statements of net position. As of June 30, 2021 and 2020, the balance of unpaid principal and interest on the capital appreciation bonds was $0. (b) Water Revenue Bonds 2009 Series A
On April 16, 2015, the Enterprise issued $429, 600 of the 2015 Series A revenue bonds for the purpose of refunding $431,860 of the then outstanding 2006 Series A revenue bonds and $39,030 of the 2009 Series A revenue bonds. Th e 2015 bonds bear coupon rates of 2.0% and

5.0% and mature serially from 2018 to 203 6. The refunded 2009 Series A bonds carried coupon rates of 5.0% and matured serially between 2023 and 2026. Although the refunding resulted in the recognition of a deferred accounting loss of $6,168, the economic gain was $2,559 or 6.6% of the refunded principal. Th e remaining 2009 Series A bonds not refunded included serial and term bonds with interest rates ranging from 4.0% to 5.3%. The Bonds mature through November 1, 2039.

A portion of the 2015 Series A revenue refunding bonds proceeds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated April 1, 2015, to refund and legally defease a portion of the outstanding 2009 Series A bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease the 2009 Series A bonds maturing on November 1, 2023 to and including November 1, 2026.

A portion of the proceeds of the 2016 Series A refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated October 1, 2016, to refund and legally defease a portion of the outstanding 2009 Series A bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease bonds maturing November 1, 2020 through and including November 1, 2022 and November 1, 2026 to and including November 1, 2039. As of June 30, 2021 and 2020, the principal amount of 2009 Series A bonds outstanding was $0.
(c) Water Revenue Bonds 2009 Series B
During fiscal year 2010, the Enterprise issued revenue bonds, 2009 Series B, in the amount of $412,000. The purpose of the bonds is to provide $377,778 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve.

The bonds were rated “AA-” and “A1” from S&P and Moody’s, respectively. The bonds include

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serial and term bonds with interest rates varying from 4.0% to 5.0%. The bonds mature through November 1, 2039. The 2009 Series B bonds have a true interest cost of 4.5%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. Prepayment proceeds in the amount of $24,014 were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2009 Series B bonds. This deposit, together with certain othe r available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2009 Series B bonds maturing November 1, 2013 through 2018.

A portion of the 2016 Series A revenue refunding bonds proceeds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated October 1, 2016, to refund and legally defease a portion of the outstanding 2009 Series B bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease all of the maturities of the 2009 Series B bonds starting on November 1, 2020 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2009 Series B bonds outstanding was $0. (d) Water Revenue Bonds 2010 Series AB
In fiscal year 2010, the Enterprise issued revenue bonds, 2010 Series ABC in the combined principal amount of $488,705. The purpose of th e bonds is to refund $14,400 of outstanding 2001 Series A revenue bonds, to provide $58,748 in proceeds for the Advanced Meter Infrastructure System (AMI) Project and to provide $364,757 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve fund. The bonds were rated “AA-” and “Aa2” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates ranging from 2.0% to 6.0%.

The 2010 Series A Bonds in the par amount of $56,945 were issued as tax-exempt bonds to provide funds for the SFPUC’s AMI Project and pay financing costs. The 2010 Series A bonds were issued as serial bonds with coupons ranging from 2.0% to 5.0% and have a final maturity of 2030. The Series A bonds have a true interest cost of 3.8%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. Prepayment proceeds in the amount of $11,681 were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2010 Series A bonds. This deposit, together with certain othe r available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2010 Series A bonds maturing November 1, 2013 through 2018.

A portion of the proceeds of the 2016 Series B refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated October 1, 2016, to refund and legally defease a portion of the outstanding 2010 Series A bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow

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Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem all of the maturities of the 2010 Series A bonds starting on November 1, 2020 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2010 Series A bonds outstanding was $0.

The 2010 Series B Bonds in the par amount of $417,720 were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $364,757 in new money for WSIP capital projects and pay financing costs. The 2010 Series B bonds were issued as serial and term bonds with coupons ranging from 4.0% to 6.0% and have a fi nal maturity of 2040. The Series B bonds have a true interest cost (net of federal subsidy) of 3.9%. As of June 30, 2021 and 2020, the principal amount outstanding was $361,500 and $373,420, respectively. (e) Water Revenue Bonds 2010 Series DE
In July 2010, the Enterprise issued revenue bonds 2010 Series DE in the combined principal amount of $446,925. The purpose of the bonds is to advance refund $31,570 of outstanding 2002 Series A revenue bonds and to provide $372,689 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve fund. The bonds were rated “AA-” and “Aa2” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates ranging from 3.0% to 6.0%.

The 2010 Series D Bonds in the par amount of $1 02,725 were issued as tax-exempt bonds to provide $72,243 in new money for WSIP capital projects and $35,080 to advance refund a portion of outstanding 2002 Series A revenue bonds. The Series D bonds were issued as serial bonds with coupons ranging from 3.0% to 5.0% and have a final maturity of 2021. The Series D bonds have a true interest cost of 2.5%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $12,360 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2010 Series D bonds. BAWSCA repayment funds were combined with $165 from the 2010 Series D Capitalized Interest Account. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2010 Series D bonds maturing November 1, 2015 through 2017. A portion of the proceeds from 2020 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated October 1, 2020, to refund and legally defease the outstanding 2010 Series D bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease all of the maturities of the 2010 Series D bonds starting on November 1, 2021. As of June 30, 2021 and 2020, the principal amount of 2010 Series D bonds outstanding was $0 and $30,990, respectively.

The 2010 Series E Bonds in the par amount of $344,200 were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $300,446 in new money proceeds for WSIP capital projects. The Series E bonds were issued as serial and term bonds with coupons ranging from

4.9% to 6.0% and have a final maturity of 2040. The Series E bonds have a true interest cost

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(net of federal subsidy) of 3.8%. As of June 30, 2021 and 2020, the principal amount of 2010 Series E bonds outstanding was $344,200.
(f) Water Revenue Bonds 2010 Series FG
In December 2010, the Enterprise issued revenue bonds 2010 Series FG in the combined principal amount of $532,430. The purpose of th e bonds is to provide $437,980 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve. The bonds were rated “AA-” and “Aa2” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates ranging from 3.0% to 7.0%.

The $180,960 Series F bonds were issued as tax-exempt bonds to provide $149,728 in new money for WSIP capital projects. The Series F bonds were issued as serial and term bonds with coupons ranging from 3.0% to 5.5% and have a final maturity of 2030. The Series F bonds have a true interest cost of 4.8%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $3,646 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2010 Series F bonds. BAWSCA repayment funds were combined with $131 fr om the 2010 Series F Capitalized Interest Account. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2010 Series F bonds maturing November 1, 2017 and 2018.

A portion of the proceeds of the 2016 Series A refunding bonds and 2019 Series A refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated October 1, 2016 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2010 Series F bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease all of the maturities of the 2010 Series F bonds starting on November 1, 2020 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2010 Series F bonds outstanding was $0.

The $351,470 Series G bonds were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $288,252 in new money for WSIP capital projects. The Series G bonds were issued as term bonds with a coupon of 7.0% an d have a final maturity of 2050. The Series G bonds have a true interest cost (net of federal subsidy) of 4.5%. As of June 30, 2021 and 2020, the principal amount of 2010 Series G bonds outstanding was $351,470. (g) Water Revenue Bonds 2011 Series ABCD
In August 2011, the Enterprise issued revenue bonds, 2011 Series ABCD in the combined principal amount of $720,750. The purpose of the bonds is to provide new money for WSIP capital projects, to finance Hetch Hetchy Water Improvements, and to finance the Local Water Main Replacement Projects, as well as refund $56,670 of outstanding 2001 Series A and 2002 Series A revenue bonds, with the balance applied to financing costs and a cash-funded debt

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service reserve. The bonds were rated “AA-” and “Aa3” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates varying from 3.0% to 5.0%.

The $602,715 Series A bonds were issued as tax-exempt bonds to provide $525,000 in new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons ranging from 4.3% to 5.0% and have a final maturity of 2041. The Series A bonds have a true interest cost of 4.6%.

A portion of the proceeds of the 2017 Series D and G and 2019 Series A refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series A bonds starting on November 1, 2020 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2011 Series A bonds outstanding was $0.

The $28,975 Series B bonds were issued as tax-exempt bonds to provide $27,710 to finance improvements to certain up-country water st orage and transmission facilities under the jurisdiction of Hetch Hetchy Water and Power and CleanPowerSF. The Series B bonds were issued as serial and term bonds with coupons ranging from 3.5% to 5.0% and have a final maturity of 2041. The Series B bonds have a true interest cost of 4.5%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $515 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Es crow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2011 Series B bonds. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2011 Series B bonds maturing November 1, 2017 through 2018.

A portion of the proceeds from the 2017 Series F and 2019 Series B refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series B bonds starting on November 1, 2022 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2011 Series B bonds outstanding was $755 and $1,485, respectively.

The $33,595 Series C bonds were issued as ta x-exempt bonds to provide $33,772 to finance certain water main replacement projects within the City. The Series C bonds were issued as serial and term bonds with coupons ranging from 3.0% to 5.0% and have a final maturity of 2041. The Series C bonds have a true interest cost of 4.4%.

On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $3,824 of the repayment proceeds were deposited with the

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trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2011 Series C bonds. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2011 Series C bonds maturing November 1, 2014 through 2018.

A portion of the proceeds of the 2017 Series E and 2019 Series C refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series C bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series C bonds starting on November 1, 2022 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2011 Series C bonds outstanding was $825 and $1,620, respectively.

The $55,465 Series D bonds were issued as tax-exempt bonds to provide $59,381 to refund, on a current basis, a portion of the 2001 Series A bonds as well as refund, on an advance basis, a portion of the 2002 Series A bonds. The Series D bonds were issued as serial bonds with coupons ranging from 4.0% to 5.0% and have a final maturity of 2028. The Series D bonds have a true interest cost of 3.8%.

A portion of the proceeds of the 2017 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and October 1, 2020, respectively, to refund and legally defease a portion of the outstanding 2011 Series D bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series D bonds starting on November 1, 2022 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2011 Series D bonds outstanding was $0 and $19,135, respectively.
(h) Water Revenue Bonds 2012 Series AB and C (C1 and C2) In June 2012, the Enterprise issued revenue bonds, 2012 Series ABC in the combined principal amount of $701,880. The purpose of the bonds was to provide $530,000 of new money for WSIP capital projects, $15,750 to reimburse the Enterprise for costs to settle litigation arising out of certain capital projects of benefit to the Enterprise, and to refund $99,180 of outstanding 2001 Series A and 2002 Series A revenue bonds, with the balance applied to financing costs and a cash-funded debt service reserve. The bo nds were rated “AA-” and “Aa3” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates varying from

4.0% to 5.0%.

The $591,610 Series A bonds were issued as tax-exempt bonds to provide $530,000 in new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons ranging from 4.0% to 5.0% and have a final maturity of 2043. The Series A bonds have a true interest cost of 4.3%. A portion of the proceeds of the 2017 Series D, 2019 Series A, and 2020 Series E refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017, December 1, 2019, and October

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1, 2020 respectively, to refund and legally defease a portion of the outstanding 2012 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2012 Series A bonds starting on November 1, 2031 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2012 Series A bonds outstanding was $0 and $216,540, respectively.

The $16,520 Series B bonds were issued as tax-exempt bonds to reimburse the Enterprise $15,750 for costs to settle litigation arising out of certain capital projects of benefit to the Enterprise. The Series B bonds were issued as serial and term bonds with coupons ranging from

4.0% to 5.0% and have a final maturity of 2043. The Series B bonds have a true interest cost of

4.1%. A portion of the proceeds of the 2020 Series G refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2012 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to re deem the maturities of the 2012 Series B bonds starting on November 1, 2031 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2012 Series B bonds outstanding was $0 and $16,520, respectively.

The $93,750 Series C bonds were issued as ta x-exempt bonds to provide $101,147 to refund, on a current basis, a portion of the 2001 Series A bonds as well as refund, on an advance basis, a portion of the 2002 Series A bonds. The Series C bonds were issued as serial bonds with coupons ranging from 4.0% to 5.0% and have a fi nal maturity of 2032. The Series C bonds have a true interest cost of 3.7%. A portion of the proceeds of the 2017 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements dated December 1, 2017 and October 1, 2020, respectively, to refund and legally defease a portion of the outstanding 2012 Series C bonds. This deposit, together with certain other available monies was held by th e escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2012 Series C bonds starting on November 1, 2025 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2012 Series C bonds outstanding was $0 and $78,035, respectively. (i) Water Revenue Refunding Bonds 2012 Series D
In August 2012, the Enterprise issued tax-exem pt revenue bonds, 2012 Series D in the amount of $24,040 for the purpose of refunding the remaining portion of the outstanding 2002 Series B bonds maturing on and after November 1, 2013. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2012 Se ries D refunding bonds include serial bonds with interest rates ranging from 1.8% to 5.0% and have a final maturity in 2019. The Series D bonds have a true interest cost of 1.34%. Unamortized 2002 Series B bond issuance costs were $258 at the date of the refunding. The refundin g resulted in the recognition of a deferred accounting loss of $582, $108 gross debt service savings over the next seven-year terms, and an economic gain of $1,397 or 5.8% of the refunded principal. As of June 30, 2021 and 2020, the principal amount of 2012 Series D bonds outstanding was $0.

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(j) Water Revenue Refunding Bonds 2015 Series A
In April 2015, the Enterprise issued tax-exempt revenue bonds, 2015 Series A in the amount of $429,600 for the purpose of refunding all the outstanding 2006 Series A bonds maturing on and after November 1, 2015 and portion of the outstanding 2009 Series A bonds maturing on and after November 1, 2023. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2015 Series A bonds include serial bonds with interest rates varying from 2.0% to 5.0% and have a final maturity in 2036. The Series A bonds have a true interest cost of 3.3%.

Unamortized 2006 Series A bond issuance costs were $1,392, and there were no unamortized bond issuance costs for 2009 Series A bonds at the date of the refunding. The refunding resulted in the recognition of a deferred accounting loss of $25,365, gross debt service savings of $28,148 over the next 20 two-year terms, and an economic gain of $48,561 or 10.3% of refunded principal. As of June 30, 2021 and 2020, the principal amount of 2015 Series A bonds outstanding was $397,745 and $412,380, respectively. (k) Water Revenue Refunding Bonds 2016 Series AB
In October 2016, the Enterprise issued tax-exempt revenue bonds, 2016 Series AB in the aggregate amount of $893,820. The 2016 Series A bonds were issued for the purpose of refunding a portion of the outstanding 2009 Series A bonds maturing on and after November 1, 2020, a portion of the outstanding 2009 Series B bonds maturing on and after November 1, 2020, and a portion of the outstanding 2010 Series F bonds maturing on and after November 1, 2021. The 2016 Series B bonds were issued for the purpose of refunding, on a current basis, all the outstanding 2006 Series B and Series C bonds, and a portion of the outstanding 2010 Series A bonds maturing on and after November 1, 2020, the bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2016 Series AB bonds include serial bonds with interest rates varying from 1.5% to 5.0% and have a final maturity in 2039. The Series AB bonds have a true interest cost of 2.9%. Un amortized bond issuance costs at the date of refunding were $145 for 2006 Series B bonds and $54 for 2006 Series C bonds. The refunding resulted in the recognition of a deferred accounting loss of $106,205, gross debt service savings of $135,966, and an economic gain of $1 07,152 or 11.5% of refunded principal. As of June 30, 2021 and 2020, the principal amount of 2016 Series AB bonds outstanding was $824,575 and $858,985, respectively.
(l) Water Revenue Bonds 2016 Series C
In December 2016, the Enterprise issued taxa ble bonds, 2016 Series C in the amount of $259,350. The bonds were issued as Green Bonds. The purpose of the bonds was to refund all of the outstanding taxable commercial paper notes in the approximate amount of $237,000, and to provide $19,975 of new money for WSIP capital projects. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2016 Series C bonds include serial bonds with interest rates varying from 0.9% to 4.0% and have a final maturity in 2046, and two term bonds with 4.0% and 4.2% interest rates and final maturities of 2041 and 2046. The Series C bonds have a true interest cost of 3.9%. As of June 30, 2021 and 2020, the principal amount of 2016 Series C bonds outstanding was $237,050 and $242,755, respectively. (m) Water Revenue Bonds 2017 Series ABC
In December 2017, the Enterprise issued tax-exempt revenue bonds, 2017 ABC in the aggregate amount of $339,540. The purpose of the 2017 Series ABC Bonds was to refund approximately $120,500 aggregate principal amount of commercial paper notes and to provide

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$230,500 new money for WSIP capital projects, other various capital projects of the Water Enterprise, and capital projects of Hetch Hetchy Water. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. Th e 2017 Series ABC bonds include serial bonds with coupon rates of 5.0% and have final maturity in 2045, and four term bonds with coupons of

5.0% and final maturities from 2045 to 2047.

The $121,140 2017 Series A bonds were issued as tax-exempt Green Bonds to refund approximately $60,265 of commercial paper notes and to provide $65,500 in new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons of

5.0% and a final maturity of 2047. The Series A bonds have a true interest cost of 3.8%. A portion of the proceeds of the 2020 Series E refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocabl e Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to re deem the maturities of the 2017 Series A bonds starting on November 1, 2030 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2017 Series A bonds outstanding was $27,000 and $121,140, respectively.

The $147,725 2017 Series B bonds were issued as tax-exempt bonds to provide $150,000 in new money for Water Enterprise capital projects (non-WSIP). The Series B bonds were issued as serial and term bonds with coupons of 5.0% and have a final maturity of 2047. The Series B bonds have a true interest cost of 3.8%. A portion of the proceeds of the 2020 Series F refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2017 Series B bonds starting on November 1, 2030 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2017 Series B bonds outstanding was $32,930 and $147,725, respectively.

The $70,675 2017 Series C bonds were issued as tax-exempt bonds to refund approximately $60,266 of commercial paper notes and to provide $15,000 in new money for Hetch Hetchy Water capital projects. The Series C bonds were issued as serial bonds and a term bond with coupons of 5.0% and have a final maturity of 2047. The Series C bonds have a true interest cost of 3.8%. A portion of the proceeds of the 2020 Series H refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series C bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2017 Series C bonds starting on November 1, 2030 and thereafter. As of June 30, 2021 and 2020, the principal amount of 2017 Series C bonds outstanding was $15,750 and $70,675, respectively. (n) Water Revenue Refunding Bonds 2017 Series DEFG
In December 2017, the Enterprise issued tax- exempt revenue bonds, 2017 Series DEF, and taxable 2017 Series G refunding bonds in the aggregate amount of $442,180. The 2017 Series D (WSIP, Green) bonds were issued for the purp ose of refunding a portion of the outstanding

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2011 Series A (WSIP) bonds maturing on and after November 1, 2022, a portion of the outstanding 2012 Series A bonds maturing on and after November 1, 2031.

The 2017 Series E bonds were issued for the purp ose of refunding a portion of the outstanding 2011 Series C bonds maturing on or after Nove mber 1, 2022, a portion of the outstanding 2011 Series D bonds maturing on and after November 1, 2022, a portion of 2012 Series C1 bonds maturing on or after November 1, 2029.

The 2017 Series F bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series B bonds maturing on or after November 1, 2022.

The taxable 2017 Series G (WSIP, Green) bonds were issued to refund a portion of the outstanding 2011 Series A bonds maturing on and after November 1, 2022.

The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2017 Series DEFG bonds include serial bonds with interest rates varying from 2.0% to 5.0% and have a final maturity in 2035. The Series DEFG bonds have a true interest cost of 2.9%. The refunding resulted in the recognition of a deferred accounting loss of $34,275, gross debt service savings of $68,942, and an economic gain of $51,698 or 10.7% of refunded principal. As of June 30, 2021 and 2020, the principal amount of 2017 Series DEFG bonds outstanding was $438,095 and $439,485, respectively.
(o) Water Revenue Refunding Bonds 2019 Series ABC
In January 2020, the Enterprise issued taxable revenue bonds, 2019 Series ABC refunding bonds in the aggregate amount of $656,955. The 2019 Series A (WSIP, Green) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series F (WSIP) bonds maturing on and after November 1, 2020, a po rtion of the outstanding 2011 Series A (WSIP) bonds maturing on and after November 1, 2020, and a portion of the outstanding 2012 Series A (WSIP) bonds maturing on and after November 1, 2035.

The 2019 Series B (Hetch Hetchy Water) bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series B bonds maturing on or after November 1, 2032.

The 2019 Series C (Local) bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series C bonds maturing on or after November 1, 2032.

The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P, respectively. The 2019 Series ABC bonds include serial bonds with interest rate s varying from 1.8% to 3.5% and have a final maturity in 2043. The Series ABC bonds have a true interest cost of 3.3%. The refunding resulted in the recognition of a deferred accounting loss of $17,329, gross debt service savings of $119,827, and an economic gain of $92,556 or 14.0% of refunded principal. As of June 30, 2021 and 2020, the principal amount of 2019 Series ABC bonds outstanding was $650,100 and $656,955, respectively.
(p) Water Revenue Bonds 2020 Series ABCD
In September 2020, the Enterprise issued tax-exempt revenue bonds, 2020 Series ABCD in the aggregate amount of $346,760. The purpose of the 2020 Series ABCD Bonds was to refund approximately $229,770 aggregate principal amount of commercial paper notes and to provide $164,632 new money for various capital projects of the Water Enterprise, and capital projects of Hetch Hetchy Water. The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P,

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

47 (Continued)
respectively. The 2020 Series ABCD bonds includ e term bonds with coupons of 3.0% to 5.0% and final maturities from 2045 to 2050.

The $150,895 2020 Series A bonds were issued as tax-exempt Green Bonds to refund approximately $180,000 of commercial paper notes for WSIP capital projects. The Series A bonds were issued as term bonds with coupons of 4.0% and 5.0% and a final maturity of 2050.

The 2020 Series A bonds have a true interest cost of 3.3%. As of June 30, 2021, the principal amount of 2020 Series A bonds outstanding was $150,895.

The $61,330 Series B bonds were issued as tax-exempt bonds to provide $69,644 in new money for Water Enterprise capital projects (non-WSIP, Regional). The Series B bonds were issued as term bonds with coupons of 5.0% an d have a final maturity of 2050. The Series B bonds have a true interest cost of 3.7%. As of June 30, 2021, the principal amount of 2020 Series B bonds outstanding was $61,330.

The $85,335 Series C bonds were issued as tax-exempt bonds to provide $94,948 in new money for Water Enterprise capital projects (non-WSIP, Local). The Series C bonds were issued as term bonds with coupons of 4.0% and have a final maturity of 2050. The Series C bonds have a true interest cost of 3.0%. As of June 30, 2021, the principal amount of 2020 Series C bonds outstanding was $85,335.

The $49,200 Series D bonds were issued as tax-exempt bonds to refund approximately $49,761 of commercial paper notes for Hetch Hetchy Water capital projects. The Series D bonds were issued as term bonds with coupons of 3.0% and a final maturity of 2050. The 2020 Series D bonds have a true interest cost of 2.7%. As of June 30, 2021, the principal amount of 2020 Series D bonds outstanding was $49,200.
(q) Water Revenue Refunding Bonds 2020 Series EFGH
In October 2020, the Enterprise issued taxable revenue bonds, 2020 Series EFGH refunding bonds in the aggregate amount of $664,395. The 2020 Series E (WSIP, Green) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series D (WSIP) bonds maturing on and after November 1, 2020, a portion of the outstanding 2012 Series A (WSIP) bonds maturing on and after November 1, 2038, and a portion of the outstanding 2017 Series A (WSIP) bonds maturing on and after November 1, 2030.

The 2020 Series F (non-WSIP, Regional) bonds were issued for the purpose of refunding a portion of the outstanding 2017 Series B bonds maturing on or after November 1, 2030.

The 2020 Series G (non-WSIP, Local) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series D bonds maturing on or after November 1, 2020, a portion of the 2011 Series D bonds maturing on or after November 1, 2022, a portion of 2012 Series B bonds maturing on or after November 1, 2031, and a portion of 2012 Series C bonds maturing on or after November 1, 2025.

The 2020 Series H (Hetch Hetchy Water) bonds is sued for the purpose of refunding a portion of the outstanding 2017 Series C bonds maturing on or after November 1, 2030.

The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P, respectively. The 2020 Series EFGH bonds include serial bonds and term bonds wi th interest rates varying from 0.3% to 3.1% and have a final maturity in 2047. The Series EFGH bonds have a true interest cost of 2.7%. The refunding resulted in the recognition of a deferred accounting loss of $27,010, gross debt

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

48 (Continued)
service savings of $117,114, and an economic gain of $75,212 or 12.0% of refunded principal.

As of June 30, 2021, the principal amount of 2020 Series EFGH bonds outstanding was $664,395.
(r) Future Annual Debt Service of Revenue Bonds
The following table presents the future annual debt service relating to the revenue and refunding bonds outstanding as of June 30, 2021. The federal interest subsidy amounts represent 35.0%, excluding sequestration, of the interest for the revenue bond 2010 Series B, E, and G.

As defined in the Indentures, the principal and interest of the Enterprise’s revenue and refunding bonds are payable from its revenues, as well as monies deposited in certain funds and accounts pledged thereto (see Note 5).
(s) Clean Water State Revolving Fund (CWSRF) Loan and Grant In September 2017, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Wa ter State Revolving Fund (CWSRF) Loan and Grant to fund the Enterprise’s SF Westside Recycled Water Project. The CWSRF loan is in the amount of $186,220, which includes $15,000 of principal forgiveness, or a grant. It will bear an interest rate of 1.0% for a 30-year term, with loan repayment beginning one year after substantial completion of project construction. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The principal outstanding as of June 30, 2021 was $107,407. In addition, there was $15,000 of principal forgiveness. As of June 30, 2020, principal outstanding was $73,271.

Principal
Interest
before
subsidy
Federal
interest
subsidy*
Interest net
of subsidy
2022 $ 108,500 207,724 (21,621) 186,103
2023 125,285 203,067 (21,290) 181,777
2024 135,095 197,481 (20,841) 176,640
2025 140,485 191,563 (20,370) 171,193
2026 151,930 185,085 (19,876) 165,209
2027-2031 855,920 810,584 (90,665) 719,919
2032-2036 1,043,890 590,944 (70,000) 520,944
2037-2041 1,130,175 340,236 (41,112) 299,124
2042-2046 530,145 166,499 (19,364) 147,135
2047-2051 471,725 61,353 (7,098) 54,255
4,693,150 2,954,536 (332,237) 2,622,299
Less: Current portion (108,500)
Less: Unamortized bond discount (133)
Add: Unamortized bond premiums 301,758
Long-term portion as of June 30, 2021 $ 4,886,275
* The SFPUC received IRS notice dated June 29, 2021 that the federal interest subsidies on the 2010 Series B bonds, 2010 Series E bonds, and 2010 Series G bonds are reduced by 5.7%, or a total reduction of $20,081, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same.

Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

49 (Continued)

(t) Proposition A
On November 5, 2002, the San Francisco voters passed Proposition A, which provides for the issuance of revenue bonds and/or other forms of indebtedness by the Commission in a principal amount not to exceed $1,628,000 to finance the acquisition and construction of improvements to the City’s Water System. As of June 30, 2021, there was no commercial paper outstanding pursuant to this authorization and $1 ,499,230 of bonds had been issued in fiscal years 2006, 2010, 2012, 2021 against Prop A. The total authorization against Prop A was $1,499,230 as of June 30, 2021.
(u) Proposition E
On November 5, 2002, the San Francisco voters passed Proposition E, which authorizes the Board of Supervisors’ approval of the issu ance of revenue bonds and/or other forms of indebtedness by the Commission to finance costs for the Commission’s capital programs, including WSIP. As of June 30, 2021, the Board of Supervisors authorized the issuance of $4,617,099 in revenue bonds with $3,660,525 i ssued against this authorization; and in September 2017, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Water Stat e Revolving Fund (CWSRF) Loan and Grant to fund the Enterprise’s SF Westside Recycled Water Project in the amount of $186,220 (which includes a $15,000 grant and $107,407 in reimbursements requested on the loan as of June 30, 2021). Additionally, $105,862 and $362,354 in commercial paper was outstanding pursuant to this authorization as of June 30, 2021 and 2020, respectively. (v) Certificates of Participation Issued for the 525 Golden Gate Avenue Headquarters Building In October 2009, the City issued $167,670 in certificates of participation to fund the headquarters building of the SFPUC at 525 Golden Gate Avenue. The 2009 Series C were issued for $38,120 and 2009 Series D for $129,550 as “Build America Bonds” on a taxable basis under the 2009 American Recovery and Reinvestment Act. The 2009 Series C certificates carry interest rates ranging from 2.0% to 5.0% and mature on November 1, 2022. The 2009 Series D certificates carry interest rates ranging from 6.4% to 6.5% and mature on November 1, 2041, after adjusting for the federal interest subsidy, the true interest cost averages 3.4% and

4.3% for Series C and Series D, respectively.

California Clean Water State Revolving Fund Loan Principal Interest Total 2022 $ 1,667 574 2,241
2023 3,222 1,057 4,279
2024 3,254 1,025 4,279
2025 3,287 993 4,280
2026 3,320 960 4,280
2027-2031 17,103 4,294 21,397
2032-2036 17,975 3,422 21,397
2037-2041 18,892 2,505 21,397
2042-2046 19,856 1,541 21,397
2047-2051 18,831 529 19,360
107,407 16,900 124,307
Less: Current portion (1,667)
Long-term portion as of June 30, 2021 $ 105,740
Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

50 (Continued)
Under the terms of a memorandum of understanding (MOU) between the City and the SFPUC dated October 1, 2009, the City conveyed the real property to the Trustee, the Bank of New York Mellon Trust Company, N.A., which was replaced by U.S. Bank in March 2014 under a property lease in exchange for the proceeds of the sale of the certificates. The Trustee has leased the property back to the City for the City’s use under a project lease. The City is obligated under the project lease to pay base rental payments and other payments to the Trustee each year during the 32-year term of the project lease. The Commission makes annual base rental payments to the City for the building equal to annual debt service on the certificates. It is anticipated these lease costs will be offset with reductions in costs associated with current office rental expense.

There are no events of default stated in the MOU.

Each of the three Enterprises has an ownership interest in the building equal to their projected usage of space as follows: Water (73%), Wastewater (15%), and Power (12%). Similarly, each Enterprise is responsible for a portion of the annual base rental payment based on their ownership percentages less contributed equity. Th e percentage share of base rental payments for the Enterprises is as follows: Water (71.4%), Wastewater (18.9%), and Power (9.7%).

The future annual debt services relating to the certificates of participation 2009 Series C and D outstanding as of June 30, 2021 are as follows:

(w) Events of Default and Remedies
In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowing and Direct Placements . Significant Events of default as specified in the Water Enterprise Indenture (applicable to Water Revenue Bonds, Capital Appreciation Bonds and SRF Principal Interest Total
2022 $ 2,970 230 3,200
2023 3,124 78 3,202
6,094 308 6,402
Less: Current portion (2,970)
Add: Unamortized bond premiums 69
Long-term portion as of June 30, 2021 $ 3,193
Certificates of Participation 2009 Series C (Tax-Exempt) Fiscal years ending June 30:

Principal
Interest before
subsidy
Federal interest
subsidy *
Interest net
of subsidy
2022 $ — 5,968 (1,970) 3,998
2023 — 5,968 (1,970) 3,998
2024 3,267 5,864 (1,935) 3,929
2025 3,402 5,652 (1,865) 3,787
2026 3,545 5,431 (1,792) 3,639
2027-2031 20,099 23,497 (7,755) 15,742
2032-2036 24,751 16,291 (5,377) 10,914
2037-2041 30,523 7,357 (2,428) 4,929
2042 6,912 224 (74) 150
Total 76,252 (25,166) 51,086
Long-term portion as of June 30, 2021 $ 92,499
Certificates of Participation 2009 Series D (Taxable)
* The SFPUC received IRS notice dated June 29, 2021 that the federal interest subsidy on the 2009 Series D bonds is reduced by 5.7%, or a total reduction of $1,521, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same.

Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

51 (Continued)
Loan) include 1) Non-payment 2) material breach of warranty, representation or indenture covenants (not cured within applicable grace peri ods) and 3) bankruptcy and insolvency events, which may result in the Trustee (upon written request by the majority of the owners (by aggregate amount of the bond obligations or of a credit provider), declaring the principal and the interest accrued thereon, and of all Capital Appr eciation bonds then outstanding, in the amount of the Accreted Value thereof, to be due and payable immediately. As of June 30, 2021, there were no such events describe herein.
(8) Revenue Pledge
The Enterprise has pledged future revenues to repay various revenue bonds and State Revolving Fund loans. Proceeds from the revenue bonds and State Revolving Fund loans provided financing for various capital construction projects, and to refund previously issued bonds. The bonds and State Revolving Fund loans are payable solely from revenues of the Enterprise through the fiscal year ending 2051.

The original amount of revenue bonds and State Revolving Funds loan issued, total principal and interest remaining, principal and interest paid during fiscal years 2021 and 2020, applicable net revenues and funds available for debt service are as follows:

(9) Wholesale Balancing Account

Water Supply Agreement
From 1984-2009, the Enterprise provided water service pursuant to the terms of the 1984 Water Settlement Agreement and Master Water Sales Contract, which established the basis for water rates to be charged to those customers (Wholesale Cust omers). The Master Water Sales Contract expired on June 30, 2009. The Commission and the Wholesale Customers approved a Water Supply Agreement (WSA) effective July 1, 2009 (the contract was restated and amended by the SFPUC on December 11, 2018). The WSA has a 25-year term from July 1, 2009 with two options for five-year extensions. The existing 184 million gallons per day (mgd) Supply Assurance continues under the WSA and no increase in the Supply Assurance will be considered before December 31, 2028. During the period from 2009 to 2028, the WSA limits the quantity of water delivered to Retail Customers and Wholesale Customers from the watersheds to 265 mgd. Under the WSA, annual operating expenses, including debt service on bonds sold to finance re gional system improvements and regional capital projects funded from revenues, will be allocated between Retail Customers and Wholesale Customers on the basis of proportionate annual water use. The original WSA stated the Wholesale Customers’ share of net book value of existing regional assets as of June 30, 2009 would be recovered on level annual payment over the 25-year term of the WSA at an interest rate of 5.13%. The 25-year term repayment obligation was settled in February 2013. The Wholesale Customers made an early repayment to the Enterprise of the outstanding balance of $356,139 as discussed further in the “BAWSCA Early Repayment” Section 5.03 of the WSA. The WSA continues much of the rate setting, 2021 2020
Bonds issued with revenue pledge $ 4,891,480 4,585,440 Principal and interest remaining due at the end of the year 7,771,993 7,388,886 Clean Water State Revolving Fund (CWSRF) loans with revenue pledge 107,407 73,271 Principal and interest paid during the year 248,427 269,210 Net revenues for the year ended June 30 339,046 339,947 Funds available for debt service 467,738 581,878

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

52 (Continued)
accounting, and dispute resolution provisions contained in the expired contract, and has emergency and drought-pricing adjustment provisions.

Pursuant to the terms of the WSA, the Enterprise is required to establish water rates applicable to the Wholesale Customers annually. The wholesale water rates are based on an estimate of the level of revenues necessary to recoup the cost of distributing water to the Wholesale Customers in accordance with the methodology outlined in Article V of the WSA (the Wholesale Revenue Requirement (WRR), previously known as the Suburban Revenue Requirement). During fiscal years ending in 2021 and 2020, the WRR, net of adjustments, charged to such wholesale customers was $275,992 and $256,280, respectively. Such amounts are subject to final review by the Wholesale Customers, along with a trailing wholesale balancing account compliance audit of the WRR calculation.

Pursuant to Article VII, Section 7.02 of the WSA, the Enterprise is required to re-compute the WRR after the close of each fiscal year based on the actual costs incurred in the delivery of water to the Wholesale Customers. The difference between the wholesale revenues earned during the year and the “actual” WRR is recorded in a separate acco unt (the Balancing Account) and represents the cumulative amount that is either owed to the Wholesale Customers (if the wholesale revenues exceed the WRR) or owed to the City (i f the WRR exceeds the wholesale reve nues paid). In accordance with Article VI of the WSA, the amount recorded in the Balancing Account shall earn interest at a rate equal to the average rate received by the City during th e year on the invested pooled funds of the City Treasury, and shall be taken into consideration in the determination of subsequent wholesale water rates. The Enterprise owed the Wholesale Customers $60,864 and $64,857 for the years ended June 30, 2021 and 2020, respectively, a decrease of $3,993. Refer to the compliance audit report for the final balancing account available at https://sfpuc. org/about-us/reports/audited-financial-statements- annual-financial-reports.

In addition to advancing funds to acquire the pre- 2009 assets as discussed previously, the Enterprise has also previously appropriated funds, advanced through rates charged to Retail Customers, for construction of capital projects that were not yet placed into service as of June 30, 2009. Wholesale Customers’ share of these construction work in progress costs is calculated in accordance with the provisions in the WSA, including a 10-year repayment term and payment of annual principal and interest rate calculated at 4.0% annually. The total obligation of the Wholesale Customers to the Enterprise is estimated at $9,542, and the level a nnual payment including principal and interest is approximately $1,159. The Wholesale Customers made the first annual payment as of June 30, 2015 and will end on June 30, 2024.
(10) Employee Benefits

(a) Pension Plan
The Enterprise participates in a cost-sharing multiple-employer defined benefit pension Plan (the Plan). The Plan is administered by the San Francisco City and County Employees’ Retirement System (SFERS). For purposes of measuring the net pension liability, deferred outflows/inflows of resources related to pensions, pension expense, information about the fiduciary net position of the SFERS Plan, and additions to/deductions from the SFERS Plan’s fiduciary net position have been determined on the same basis as they are reported by the SFERS Plan. Contributions are recognized in the period in which they are due pursuant to legal requirements. Benefit payments (including refunds of employee contributions) are recognized

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

53 (Continued)
when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Replacement Benefits Plan – The Replacement Benefits Plan (RBP) is a qualified excess benefit plan established in October 1989. Internal Revenue Code Section 415(m) provides for excess benefit arrangements that legally permit benefit payments above the Section 415 limits, provided that the payments are not paid from the SFERS Plan. The RBP allows the City to pay SFERS retirees any portion of the Charter-mandated retirement allowance that exceeds the annual Section 415(b) limit. The RBP plan does not meet the criteria of a qualified trust under GASB Statement No. 73 because RBP assets are subject to the claims of the employer’s general creditors under federal and state law in the event of insolvency.

GASB Statements No. 68 and 73 require that the SFERS Plan and RBP reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:

The City is an employer of the plan with a proportionate share of 94.39% as of June 30, 2020 (measurement date), and 94.13% as of June 30, 2019 (measurement date), 0.26% increase from prior year. The Enterprise’s allocation percentage was determined based on the Enterprise’s employer contributions divided by the City’s total employer contributions for fiscal years 2020 and 2019. The Enterprise’s net pension liability, deferred outflows/inflows of resources related to pensions, amortization of deferred outflows/inflows, and pension expense is based on the Enterprise’s allocated percentage. The Enterprise’s allocation of the City’s proportionate share was 4.21% as of June 30, 2020, and 4.23% as of June 30, 2019 (measurement dates).

Replacement Benefits Plan – The Enterprise’s allocation percentage was determined based on the Enterprise’s headcount (both active members and retirees) divided by the City’s total headcount for fiscal year 2020. The Enterprise’s total pension liability, deferred outflows/inflows of resources related to pensions, amortizati on of deferred outflows/inflows and pension expense is based on the Enterprise’s allocated percentage. The Enterprise’s allocation of the City’s proportionate share was 0.64% as of the measurement date.

Plan Description – The Plan provides basic service retirement, disability, and death benefits based on specified percentages of defined fina l average monthly salary and provides annual cost-of-living adjustments after retirement. The Plan also provides pension continuation benefits to qualified survivors. The San Francisco City and County Charter and the Administrative Code are the authorities which establish and amend the benefit provisions and employer obligations of the Plan. The Retirement System issues a publ icly available financial report that includes financial statements and required supplementary information for the Plan. That report may be obtained on the Retirement System’s website or by writing to the San Francisco City and County Valuation Date (VD) June 30, 2019 updated to June 30, 2020 Measurement Date (MD) June 30, 2020
Measurement Period (MP) July 1, 2019 to June 30, 2020
Valuation Date (VD) June 30, 2018 updated to June 30, 2019 Measurement Date (MD) June 30, 2019
Measurement Period (MP) July 1, 2018 to June 30, 2019
Fiscal year 2021
Fiscal year 2020

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

54 (Continued)
Employees’ Retirement System, 1145 Market Street, 5th Floor, San Francisco, CA 94103 or by calling (415) 487-7000.

Benefits – Retirement System provides service retirement, disability and death benefits based on specified percentages of defined final averag e monthly salary and annual cost of living adjustments (COLA) after retirement. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plan. The Retirement System pays benefits according to the category of employment and the type of benefit coverage provided by the City and County. The four main categories of Plan members are:
a) Miscellaneous Non-Safety Members – staff, oper ational, supervisory, and all other eligible employees who are not in special membership categories. b) Sheriff’s Department and Miscellaneous Safety Members – sheriffs assuming office on and after January 7, 2012, and undersheriffs, deputized personnel of the sheriff’s department, and miscellaneous safety employees hired on and after January 7, 2012. c) Firefighter Members – firefighters and other employees whose principal duties are in fire prevention and suppression work or who occupy positions designated by law as firefighter member positions.
d) Police Members – police officers and other employees whose principal duties are in active law enforcement or who occupy positions designated by law as police member positions.

The membership groups and the related service retirement benefits are included in the Notes to the Basic Financial Statements of San Francisco Employees’ Retirement System.

All members are eligible to apply for a disability retirement benefit, regardless of age, when they have 10 or more years of credited service and they sustain an injury or illness that prevents them from performing their duties. Safety members are eligible to apply for an industrial disability retirement benefit from their first day on the job if their disability is caused by an illness or injury that they receive while performing their duties.

All retired members receive a benefit adjustment each July 1, which is the Basic COLA. The majority of adjustments are determined by ch anges in CPI with increases capped at 2%. The Plan provides for a Supplemental COLA in years when there are sufficient “excess” investment earnings in the Plan. The maximum benefit adjustment each July 1 is 3.5% including the Basic COLA. Effective July 1, 2012, voters approved changes in the criteria for payment of the Supplemental COLA benefit, so that Supplemental COLAs would only be paid when the Plan is also fully funded on a market value of assets ba sis. Certain provisions of this voter-approved proposition were challenged in the Courts. A decision by the California Courts modified the interpretation of the proposition. Effective July 1, 2012, members who retired before November 6, 1996 will receive a Supplemental COLA only when the Plan is also fully funded on a market value of assets basis. However, the “full fundin g” requirement does not apply to members who retired on or after November 6, 1996 and were hired before January 7, 2012. For all members hired before January 7, 2012, all Supplemental COLAs paid to them in retirement benefits will continue into the future even where an additional Supplemental COLA is not payable in any given year. For members hired on and after January 7, 2012, a Supplemental COLA will only be paid to retirees when the Plan is fully funded on a market value of asset basis and in addition for these members, Supplemental COLAs will not be permanent adjustments to retirement benefits. That is, in years when a Supplemen tal COLA is not paid, all previously paid Supplemental COLAs will expire.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

55 (Continued)
Funding and Contribution Policy
SFERS Plan – Contributions are made by both the City and the participating employees.

Employee contributions are mandatory as required by the Charter. Employee contribution rates varied from 7.5% to 13.0% as a percentage of gross covered salary in fiscal years 2021 and 2020. Most employee groups agreed through collective bargaining for employees to contribute the full amount of the employee contributions on a pretax basis. The City is required to contribute at an actuarially determined rate. Based on the July 1, 2019 actuarial report, the required employer contribution rate for fiscal year 2021 was 22.40% to 26.90%. Based on the July 1, 2018 actuarial report, the required employer contribution rate for fiscal year 2020 was

20.69% to 25.19%.

Employer contributions and employee contributions made by the employer to the Plan are recognized when due and the employer has made a formal commitment to provide the contributions. The City’s proportionate share of employer contributions recognized by the Retirement System in fiscal year ended June 30, 2020 and 2019 (measurement period) were $701,307 and $607,408, respectively. The Enterprise’s allocation of employer contributions for fiscal year 2020 and 2019 (measurement period) were $29,647, and $26,440, respectively.

Replacement Benefits Plan – The RBP is and will remain unfunded and the rights of any participant and beneficiary are limited to those specified in the RBP. The RBP constitutes an unsecured promise by the City to make benefit payments in the future to the extent funded by the City. The City paid $3,600 replacement benefits in the year ended June 30, 2021.

Pension Liabilities, Pension Expenses, and Deferre d Outflows and Inflows of Resources Related to Pensions
Fiscal Year 2021
The City reported net pension liabilities for its proportionate share of the pension liability of the Plan and RBP of $5,292,473 as of June 30, 2021. The City’s net pension liability for the SFERS Plan is measured as the proportionate share of the net pension liability. The net pension liability of the SFERS Plan is measured as of June 30, 2020 (measurement date), and the total pension liability for the SFERS Plan and RBP used to ca lculate the net pension liability was determined by an actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. The City’s proportion of the net pension liability for the SFERS Plan was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension liability for the Plan as of June 30, 2021 was $215,240. The Enterprise's allocation of the total pension liability for the RBP as of June 30, 2021 was $1,177.

For the year ended June 30, 2021, the City’s recognized pension expense was $962,576 including amortization of deferred outflow/in flow related pension items. The Enterprise’s allocation of pension expense including amortizati on of deferred outflow/inflow related pension items was $43,929. Pension expense increased from the prior year, largely due to the amortization of deferrals.

As of June 30, 2021, the Enterprise’s reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

56 (Continued)

Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in pension expense as follows:

Fiscal Year 2020
The City reported net pension liabilities for its proportionate share of the pension liability of the Plan of $4,213,808 as of June 30, 2020. The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2019 (measurement date), and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018 rolled forward to June 30, 2019 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension liability for the Plan as of June 30, 2020 was $178,133.

For the year ended June 30, 2020, the City’s recognized pension expense was $883,395 including amortization of deferred outflow/in flow related pension items. The Enterprise’s allocation of pension expense including amortizati on of deferred outflow/inflow related pension items was $22,296. Pension expense decreased from the prior year, largely due to the amortization of deferrals.

As of June 30, 2020, the Enterprise’s reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows
of Resources
Deferred Inflows
of Resources
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contribution subsequent to measurement date $ 33,367 — — — Differences between expected and actual experience 7,310 674 112 — Changes in assumptions 11,817 3,728 315 13
Net difference between projected and actual earnings on pension plan investments
4,507 — — —
Change in employer’s proportion 6,987 54 382 416
Total $ 63,988 4,456 809 429
SFERS Plan Replacement Benefits Plan
Fiscal Year 2021 Schedule of Deferred Outflows and Inflows of Resources Fiscal years SFERS Plan
Replacement
Benefits Plan
2022 $ 54 109
2023 6,166 193
2024 11,286 12
2025 8,659 66
Total $ 26,165 380

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

57 (Continued)

Actuarial Assumptions
Fiscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability for both SFERS Plan and RBP as of June 30, 2020 (measurement year) is provided below, including any assumptions that differ from those used in the July 1, 2019 actuarial valuation. Refer to the July 1, 2019 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.

Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contribution subsequent to measurement date $ 29,647 — Differences between expected and actual experience 1,319 1,961 Changes in assumptions 25,333 —
Net difference between projected and actual earnings on pension plan investments
— 32,824
Change in employer’s proportion 10,785 109
Total $ 67,084 34,894
Fiscal Year 2020 Schedule of Deferred Outflows and Inflows of Resources Fiscal years
2021 $ 11,020
2022 (8,610)
2023 (2,494)
2024 2,627
Total $ 2,543
Deferred Outflows/(Inflows) of
Resources

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

58 (Continued)

For healthy annuitants, the sex distinct 2009 CalPERS healthy annuitant mortality table, adjusted 1.014 for females and 0.909 for males. For active members, the sex distinct 2009 CalPERS employee mortality tables, adjusted 0.918 for females and 0.948 for males. Rates are projected generationally from the 2009 base year using a modified version of the MP-2015 projection scale.

The actuarial assumptions used at the June 30, 2020 measurement date was based upon the result of a demographic experience study for the period July 1, 2009 through June 30, 2014 and an economic experience study as of July 1, 2019.

Fiscal Year 2020
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability as of June 30, 2019 (measurement period) is provided below, including any assumptions that differ from those used in the July 1, 2018 actuarial valuation. Refer to the July Key Actuarial Assumptions
Valuation Date June 30, 2019 updated to June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method Entry - Age Normal Cost
Expected Rate of Return 7.40% net of pension plan investment, including inflation Municipal Bond Yield 3.50% as of June 30, 2019

2.21% as of June 30, 2020
Bond Buyer 20 - Bond GO Index, June 27, 2019 and June 25, 2020 Inflation 2.75%
Projected Salary Increases 3.50% plus merit component based employee classification and years of service Discount Rate 7.40% as of June 30, 2019

7.40% as of June 30, 2020
Administrative Expenses 0.60% of payroll as of June 30, 2019

0.60% of payroll as of June 30, 2020
Basic COLA
Old Miscellaneous
and All New Plans
Old Police & Fire,
pre 7/1/75
Old Police & Fire
Charters A8.595
and A8.596
Old Police & Fire
Charters A8.559
and A8.585
June 30, 2019 2.00% 2.50% 3.10% 4.20%
June 30, 2020 2.00% 2.50% 3.10% 4.20%
Key Actuarial Assumptions
Valuation Date June 30, 2019 updated to June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method Entry - Age Normal Cost
Municipal Bond Yield 2.21% as of June 30, 2020
Bond Buyer 20 - Bond GO Index, June 27, 2019 and June 25, 2020 Inflation 2.75%
Projected Salary Increases 3.50% plus merit component based employee classification and years of service Discount Rate 2.21% as of June 30, 2020
Administrative Expenses 0.60% of payroll as of June 30, 2020 Basic COLA Old Miscellaneous Old Police & Fire
Old Police & Fire,
Charters
Old Police & Fire,
Charters
June 30, 2020 2.00% 2.50% 3.10% 4.20%
SFERS Plan
Replacement Benefits Plan

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

59 (Continued)
1, 2018 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.

Mortality rates for active members and healthy annuitants were based upon the adjusted Employee and Healthy Annuitant CalPERS mortality tables projected generationally from the 2009 base year using a modified version of the MP-2015 projection scale.

Discount Rate
Fiscal Year 2021
SFERS Plan – The beginning and end of year me asurements are based on different assumptions and contribution methods that may resu lt in different discount rates. The discount rate was 7.40% as of June 30, 2020 (measurement date) and June 30, 2019 (measurement date).

The discount rate used to measure the Total Pension Liability as of June 30, 2020 was 7.40%.

The projection of cash flows used to determine the discount rate assumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2019 actuarial valuation. That policy includes contributions equal to the employer portion of the entry age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.

The amortization payment is based on closed periods that vary in length depending on the source. Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 years and changes to inactive member benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19-year peri od commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full Valuation Date June 30, 2018 updated to June 30, 2019
Measurement Date June 30, 2019
Actuarial Cost Method Entry - Age Normal Cost
Expected Rate of Return 7.4% net of pension plan investment, including inflation Municipal Bond Yield 3.87% as of June 30, 2018

3.50% as of June 30, 2019
Bond Buyer 20 - Bond GO Index, June 28, 2018 and June 27, 2019 Inflation 2.75%
Salary Increases 3.50% plus merit component based employee classification and years of service Discount Rate 7.50% as of June 30, 2018

7.40% as of June 30, 2019
Administrative Expenses 0.60% of payroll as of June 30, 2018

0.60% of payroll as of June 30, 2019
Basic COLA
Old Miscellaneous
and All New Plans
Old Police & Fire,
pre 7/1/75
Old Police & Fire,
Charters A8.595
and A8.596
Old Police & Fire,
Charters A8.559
and A8.585
June 30, 2018 2.00% 2.50% 3.10% 4.20%
June 30, 2019 2.00% 2.50% 3.10% 4.20%
Key Actuarial Assumptions

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

60 (Continued)
amortization payment for the 2015 assumption chan ges is phased in over a period of 5 years.

For the July 1, 2016 valuation, the increase in th e unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and July 1, 2014 are amortized over 17-years and 5-years respectively. All amortization schedules ar e established as a level percentage of payroll so payments increase 3.50% each year. The unfund ed actuarial liability is based on an actuarial value of assets that smooths investment gains and losses over five years and a measurement of the actuarial liability that excludes the value of any future Supplemental COLAs.

While the contributions and measure of actuaria l liability in the funding valuation do not anticipate any future Supplemental COLAs, the projected contributions for the determination of the discount rate include the anticipated future amortization payments on future Supplemental COLAs for current members when they are expected to be granted. For members who worked after November 6, 1996 and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual investment earnings during the year exceed the expected investment earnings on the actuarial value of assets. For members who did not work after November 6, 1996 and before Proposition C passed, the market value of assets must also exceed the actuarial liability at the beginning of the year for a Supplemental COLA to be granted.

When a Supplemental COLA is granted, the amou nt depends on the amount of excess earnings and the basic COLA amount for each membership group. The large majority of members receive a 1.50% Supplemental COLA when granted.

Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2020 for the probability and amount of Supplemental COLA for each future year. There were no excess earnings during the fiscal year ending June 30, 2020; consequently, no Supplemental COLA will be paid effective July 1, 2020. The table be low shows the net assumed Supplemental COLA for members with a 2.00% Basic COLA for sample years.

The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.

Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.

The long-term expected rate of return on pensio n plan investments was 7.40%. It was set by the Retirement Board after consideration of both expected future returns and historical returns Fiscal years
2022 0.75 % 0.19 %
2024 0.75 0.27
2026 0.75 0.30
2028 0.75 0.33
2030 0.75 0.35
2032 0.75 0.37
2034+ 0.75 0.38
Before 11/6/96 or
After Prop C96 - Prop C
Assumed Supplemental COLA for Members with a 2.00% Basic COLA

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

61 (Continued)
experienced by the Retirement System. Expected future returns were determined by using a building-block method in which best-estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long-term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.

Replacement Benefits Plan – The beginning and end of year measurements are based on different assumptions that result in different disc ount rates. The discount rate was 2.21% as of June 30, 2020. This reflects the yield for a 20-year, tax-exempt general obligation municipal bond with an average rating of AA/Aa or higher. The Municipal Bond Yields are the Bond Buyer 20-Year GO Index as of June 27, 2019 and June 25, 2020. These are the rates used to determine the total pension liability as of June 30, 2020.

The inflation assumption of 2.75% compounded annually was used for projecting the annual IRC Section 415(b) limitations. However, the actual IRC Section 415(b) limitations published by the IRS of $230 for 2020 was used for the 2020 measurement date.

The SFERS assumptions about Basic and Supplemental COLA previously discussed also apply to the Replacement Benefits Plan, including the impact of the State Appeals Court determination that the full funding requirement for payment of Supplemental COLA included in Proposition C was unconstitutional and the impact is accounted for as a change in benefits.

On June 30, 2021, City’s membership in the RBP had a total of 683 active members and 105 retirees and beneficiaries currently receiving benefits. The Enterprise has 4 active members and 1 retiree and beneficiary currently receiving benefits.

Fiscal Year 2020
The beginning and end of year measurements are based on different assumptions and contribution methods that may result in different discount rates. The discount rate was 7.40% as of June 30, 2019 (measurement date) and 7.50% as of June 30, 2018 (measurement date).

The discount rate used to measure the Total Pension Liability as of June 30, 2019 was 7.40%.

The projection of cash flows used to determine the discount rate assumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2018 actuarial valuation. That policy includes contributions equal to the employer portion Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 31.0 % 4.9 %
Private Equity 18.0 7.9
Real Assets 17.0 5.7
Hedge Funds/Absolute Return 15.0 3.0
Private Credit 10.0 4.8
Treasuries 6.0 -0.5
Liquid Credit 3.0 2.7
Total 100.0
Long- Term Expected Real Rates of Return

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

62 (Continued)
of the entry age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.

The amortization payment is based on closed periods that vary in length depending on the source. Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 years and changes to inactive member benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19-year peri od commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015 assumption chan ges is phased in over a period of 5 years.

Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, the following assumptions were developed for the probability and amount of Supplemental COLA for each future year. The City has assumed that a full Supplemental COLA will be paid to all Post 97 Retirees effective July 1, 2019. The table below shows the net assumed Supplemental COLA for members with a 2.00% Basic COLA for sample years.

The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.

Fiscal years
2021 0.75 % 0.27 %
2023 0.75 0.34
2025 0.75 0.36
2027 0.75 0.37
2030+ 0.75 0.38
Before 11/6/96 or
After Prop C96 - Prop C
Assumed Supplemental COLA for Members with a 2.00% Basic COLA

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

63 (Continued)
Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.

Projected benefit payments are discounted at the long-term expected return on assets of 7.40% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 3.50% to the extent they are not available. The single equivalent rate used to determine the Total Pension Liability as of June 30, 2019 is 7.40% The long-term expected rate of return on pensio n plan investments was 7.40%. It was set by the Retirement Board after consideration of both expected future returns and historical returns experienced by the Retirement System. Expected future returns were determined by using a building-block method in which best-estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long-term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.

Sensitivity of Proportionate Share of the Net Pension Liability to Changes in the Discount Rate – The following presents the Enterprise’s allocation of the employer’s proportionate share of the net pension liability for the SFERS Plan, calculated using the discount rate, as well as what the Enterprise’s allocation of the employer’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate.

Fiscal Year 2021

Fiscal Year 2020

The following presents the Enterprise’s allocation of the employer’s proportionate share of the total pension liability for the Replacement Benefits Plan, calculated using the discount rate, as well as what the Enterprise’s allocation of the employer’s proportionate share of the net pension liability would be if it were calc ulated using a discount rate that is 1% lower or 1% higher than the current rate.

Asset Class Long-Term Expected Real Rate of Return
Global Equity % 5.3 %
Treasuries 0.9
Liquid Credit 3.6
Private Credit 5.2
Private Equity 8.3
Real Assets 5.4
Hedge Funds/Absolute Return 3.9
Total
Long- Term Expected Real Rates of Return
Target Allocation

31.0 15.0

18.0 6.0

10.0 100.0

17.0 3.0
Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPL
@ 7.40%
1% Increase Share
of NPL @ 8.40%
Water 380,571$ 215,240 78,645 Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPL
@ 7.40%
1% Increase Share
of NPL @ 8.40%
Water 336,241 $ 178,133 47,500

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

64 (Continued)
Fiscal Year 2021

(b) Other Post-Employment Benefits
The Enterprise participates in a single-employer defined benefit other postemployment benefits plan (the Plan). The Plan is maintained by the City and is administered through the City’s Health Service System. It provides postemployment medical, dental and vision insurance benefits to eligible employees, retired employees, surviving spouses, and domestic partners. Health benefit provisions are established and may be amended through negotiations between the City and the respective bargaining units. The City does not issue a separate report on its other postemployment benefit plan.

GASB Statement No. 75 requires that reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used.

The Enterprise’s proportionate share percentage of the Plan was determined based on its percentage of citywide “pay-as-you-go” contributions for the year ended June 30, 2020 and June 30, 2019. The Enterprise’s net OPEB liability, de ferred outflows/inflows of resources related to OPEB, amortization of deferred outflows/inflo ws and OPEB expense to each department is based on the Enterprise’s allocated percentage. The Enterprise’s proportionate share of the City’s OPEB elements as of June 30, 2020 and 2019 measurement dates were 3.89% and

4.18%, respectively.

Benefits
Permanent full-time and elected employees are eligible to retire and receive postretirement health insurance benefits when they are eligible for retirement benefits from the City and County of San Francisco’s Retirement System. The eligibility requirements are as follows:

Normal Retirement Miscellaneous Age 50 with 20 years of credited service 1 A g e 6 0 w i t h 1 0 y e a r s o f c r e d i t e d s e r v i c e Safety Age 50 with 5 years of credited service
Disabled Retirement2 Any age with 10 years of credited service Terminated Vested 5 years of credited service at separation Employer 1% Decrease @ 1.21%
Measurment
Date @ 2.21% 1% Increase @ 3.21%
Water 1,418 $ 1,177 989 Valuation Date (VD) June 30, 2020
Measurement Date (MD) June 30, 2020
Measurement Period (MP) July 1, 2019 to June 30, 2020
Valuation Date (VD) June 30, 2018 updated to June 30, 2019 Measurement Date (MD) June 30, 2019
Measurement Period (MP) July 1, 2018 to June 30, 2019
San Francisco Health Service System Retiree Plan - Single-Employer Fiscal year 2021
Fiscal year 2020

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

65 (Continued)

1 Age 53 with 20 years of credited service, age 60 with 10 years of credited service, or age 65 for Miscellaneous members hired on or after January 7, 2012.
2 No service requirement for Safety members retiring under the industrial disability benefit or for surviving spouses / domestic partners of those killed in the line of duty.

Retiree healthcare benefits are administered by the San Francisco Health Service System and include the following:

Medical: PPO – City Health Plan (sel f-insured) and UHC Medicare Advantage (fully-insured)
HMO – Kaiser (fully-insured) and Blue Shield (flex-funded) Dental: Delta Dental, DeltaCare USA and UnitedHealthcare Dental Vision: Vision benefits are provided under the medical insurance plans and are administered by Vision Service Plan.

Projections of the sharing of benefit related costs are based on an established pattern of practice.

Contributions
Benefits provided under the Plan are currently paid through “pay as you go” funding.

Additionally, under the City Charter, active officers and employees of the City who commenced employment on or after January 10, 2009, shall contribute to the Retiree Health Care Trust Fund (Trust Fund) a percentage of compensation not to exceed 2% of pre-tax compensation. The City shall contribute 1% of compensation for officers and employees who commenced employment on or after January 10, 2009 until the City’s GASB Actuary has determined that the City’s portion of the Trust Fund is fully funded. At that time, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 2% of pre-tax compensation.

Starting July 1, 2016, active officers and employees of the City who commenced employment on or before January 9, 2009, shall contribute 0.25% of pre-tax compensation into the Trust Fund.

Beginning on July 1st of each subsequent year, the active officers and employees of the City who commenced employment on or before January 9, 2009, shall contribute an additional

0.25% of pre-tax compensation up to a maximum of 1%. Starting July 1, 2016, the City shall contribute 0.25% of compensation into the Trust Fund for each officer and employee who commenced employment on or before January 9, 2009. Beginning on July 1st of each subsequent year, the City shall contribute an additional 0.25% of compensation, up to a maximum of 1% for each officer and employee who commenced employment on or before January 9, 2009. When the City’s actuary has determined that the City’s portion of the Trust Fund is fully funded, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 1% of pre-tax compensation.

Additional or existing contribution requirements may be established or modified by amendment to the City’s Charter.

For the fiscal years ending June 30, 2021 and 2020, funding was based on “pay-as-you-go” plus a contribution of $39,555 and $39,518 to the Retiree Healthcare Trust Fund, respectively. The “pay-as-you-go” portion paid by the City was $206,439 for a total contribution of $245,994 for the fiscal year ending June 30, 2021, and $196,445 for a total contribution of $235,963 for the

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

66 (Continued)
fiscal year ending June 30, 2020. The Enterprise’s proportionate share of the City’s contributions for fiscal year 2021 was $9,572, and for fiscal year 2020 was $9,863.

OPEB liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB Fiscal Year 2021
As of June 30, 2021, the City reported net OPEB liabilities related to the Plan of $3,823,334.

The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2021 was $148,771.

For the year ended June 30, 2021, the City ’s recognized OPEB expense was $320,684.

Amortization of the City’s deferred outflows an d inflows is included as a component of OPEB expense. The Enterprise’s proportionate share of the City’s OPEB expense was a credit of $5,978.

As of June 30, 2021, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

Fiscal Year 2020
As of June 30, 2020, the City reported net OPEB liabilities related to the Plan of $3,915,814.

The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2020 was $163,684.

Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 9,572$ - $ Differences between expected and actual experience 5,394 21,315 Changes in assumptions 7,531 -
Change in Proportion 15,168
Net difference between projected and actual earnings
on plan investments
97 -
Total 37,762$ 21,315$
Year ended June 30:
2022 1,266 $
2023 1,324
2024 1,312
2025 1,351
2026 1,368
Thereafter 254
Total 6,875$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

67 (Continued)
For the year ended June 30, 2020, the City ’s recognized OPEB expense was $330,673.

Amortization of the City’s deferred inflow is in cluded as a component of pension expense. The Enterprise’s proportionate share of the City’s OPEB expense was $6,125.

As of June 30, 2020, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

Actuarial Assumptions
Fiscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2020 (measurement date) is provided below:

Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 9,863$ - $ Differences between expected and actual experience 6,953 11,517 Changes in assumptions 3,318 -
Change in Proportion 7,449 -
Net difference between projected and actual earnings
on plan investments - 255
Total 27,583$ 11,772 $
Year ended June 30:
2021 909 $
2022 909
2023 972
2024 960
2025 1,002
Thereafter 1,196
Total 5,948$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

68 (Continued)

The mortality rates in the base tables are projected generationally from the base year using the MP-2019 projection scale.

Fiscal Year 2020
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2019 (measurement date) is provided below:

Valuation Date June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method The Entry Age Actuarial Cost Method is used to measure the Plan's Total OPEB Liability Healthcare Cost Trend Rates Pre-Medicare trend starts at 4.00% in 2022, 7.00% in 2023, trending down to ultimate rate of 4.04% in 2075 Medicare trend starts at 1.00% in 2022, 7.50% in 2023, trending down to ultimate rate of 4.04% in 2075 10-County average trend starts at 4.5% in 2022, 5.50% in 2023, trending down to ultimate rate of 4.04% in 2075 Vision and expenses trend remains a flat 3.0% for all years Expected Rate of Return on Plan Assets 7.00%
Salary Increase Rate Wage Inflation Component: 3.25%
Additional Merit Component (dependent on years of service):

Police: 0.50% - 7.50%
Fire: 0.50% - 14.00%
Muni Drivers: 0.00% - 16.00%
Craft: 0.50% - 3.75%
Misc: 0.30% - 5.50%
Inflation Rate Wage Inflation: 3.25% compounded annually Consumer Price Inflation: 2.50% compounded annually
Mortality Tables
Published Table Male Female
Miscellaneous PubG-2010 Employee 0.834 0.866
Safety PubS-2010 Employee 1.011 0.979
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubS-2010 Employee 0.947 1.044
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.045 1.003
Safety PubS-2010 Employee 0.916 0.995
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubG-2010 Employee 1.031 0.977
Adjustment Factor
Beneficiaries
Key Actuarial Assumptions
Base mortality tables are developed by multiplying a published table by an adjustment factor developed in SFERS experience study for the period ending June 30, 2019.

Non-Annuitants
Healthy Retirees
Disabled Retirees
Adjustment Factor
Adjustment Factor
Adjustment Factor

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

69 (Continued)

The mortality rates in the base tables are projected generationally from the base year using the modified version of the MP-2015 projection scale. The scale was modified using the Society of Actuaries’ model implementation tool with ra tes converging to the ultimate rate in 2017 (instead of 2029) and an ultimate rate of improvement of 0.85% (instead of 1.00%) up to age 85 decreasing to 0.70% (instead of 0.85%) at age 95.

Sensitivity of Liabilities to Changes in the Healthcare Cost Trend Rate and Discount Rate The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the healthcare cost trend rate, as well as what the Enterprise’s allocation of the City’s net OPEB liability would be if it were calc ulated using a healthcare cost trend rate that is 1% lower or 1% higher than the current rate:

Valuation Date June 30, 2018 updated to June 30, 2019
Measurement Date June 30, 2019
Actuarial Cost Method The Entry Age Actuarial Cost Method is used to measure the Plan's Total OPEB Liability Healthcare Cost Trend Rates Pre-Medicare trend starts at 6.35% in 2021 and trends down to ultimate rate of 3.93% in 2076 Medicare trend starts at 7.00% in 2021 and trends down to ultimate rate of 3.93% in 2076 10-County average trend starts at 5.82% in 2021 and trends down to ultimate rate of 3.93% in 2076 Vision and expenses trend remains flat 3.5% for all years Expected Rate of Return on Plan Assets 7.40%
Discount Rate 7.40%
Salary Increase Rate Wage Inflation Component: 3.50%
Additional Merit Component (dependent on years of service):

Police: 1.50% - 8.00%
Fire: 1.50% - 15.00%
Muni Drivers: 0.00% - 15.00%
Craft: 0.00% - 3.50%
Misc: 0.00% - 5.25%
Inflation Rate Wage Inflation: 3.50% compounded annually Consumer Price Inflation: 2.75% compounded annually
Mortality Tables
Gender
Adjustment
Factor Base Year
Female 0.918 2009
Male 0.948 2009
Gender
Adjustment
Factor Base Year
Female 1.014 2009
Male 0.909 2009
Gender
Adjustment
Factor Base Year
Female 1.066 2006
Male 0.942 2006
Gender
Adjustment
Factor Base Year
Female 0.983 2009
Male 0.909 2009
Safety Disables Annuitants - CalPERS industrial disability mortality table without scale BB projection Key Actuarial Assumptions
Base mortality tables are developed by multiplying a published table by an adjustment factor developed in SFERS experience study for the period ending June 30, 2014.

Non-Annuitant - CalPERS employee mortality tables without scale BB projection Healthy Annuitants - CalPERS healthy annuitant mortality table without scale BB projection Miscellaneous Disable Annuitants - RP-2014 Disabled Retiree Tables without MP-2014 projection

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

70 (Continued)

Discount Rate
Fiscal Year 2021
The discount rate used to measure the Total OPEB Liability as of June 30, 2020 was 7.0%.

Based on the assumption that plan member contributions will continue to be made at the rates specified in the Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal to the benefit payments projected for each future period. As such, the long-term expected rate of return on plan inve stments was applied to all periods of projected benefit payments to determine the total OPEB liability.

The long-term expected rate of return on OPEB plan investments was 7.0% based on expected future returns and historical returns experienced by the Trust Fund. Expected future returns were determined based on 10-year and 20-year capital market assumptions for the Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:

The asset allocation targets summarized above have a 20-year return estimate of 6.90%, which was weighted against a 10-year model estimating a 6.93% return, resulting in the ultimate long- term expected rate of return of 7.00%.

Fiscal Year 2021
Employer -1.00% Healthcare Trend 1.00%
Water 128,633$ 148,771 $ 175,020 $ Fiscal Year 2020
Employer -1.00% Healthcare Trend 1.00%
Water 141,666$ 163,684 $ 191,022 $ Target Allocation
Long-term
Expected Real
Rate of Return
Equities
U.S. Large Cap 28.0% 8.4%
U.S. Small Cap 3.0% 9.8%
Developed Market Equity (non-U.S.) 15.0% 9.6%
Emerging Market Equity 13.0% 11.7%
Credit
Bank Loans 3.0% 4.9%
High Yield Bonds 3.0% 4.9%
Emerging Market Bonds 3.0% 4.8%
Rate Securities
Investment Grade Bonds 9.0% 2.2%
Long-term Government Bonds 4.0% 3.1%
Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.9% Private Markets
Private Equity 5.0% 12.5%
Core Private Real Estate 5.0% 6.4%
Risk Mitigating Strategies
Global Macro 5.0% 4.1%
Total 100.0%
Asset Class

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

71 (Continued)
The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the discount rate, as well as what the Enterprise’s proportionate share of the City’s net OPEB liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:

Fiscal Year 2020
The discount rate used to measure the Total OPEB Liability as of June 30, 2019 was 7.4%.

The long-term expected rate of return on OPEB plan investments was 7.4% based on expected future returns and historical returns experienced by the Trust Fund. Expected future returns were determined based on 10-year and 20-year capital market assumptions for the Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:

The asset allocation targets summarized above have a 20-year return estimate of 8.3%, which was weighted against a 10-year model estimating a 7.5% return, resulting in the ultimate long- term expected rate of return of 7.4%.

The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the discount rate, as well as what the Enterprise’s proportionate share of the City’s net OPEB liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:
1% Decrease

6.00%
Discount Rate

7.00%
1% Increase

8.00%
172,646$ 148,771$ 129,281$ Target Allocation
Long-term
Expected Real
Rate of Return
Equities
U.S. Equities 41.0% 8.1%
Developed Market Equity (non-U.S.) 20.0% 8.5%
Emerging Market Equity 16.0% 10.4%
Credit
High Yield Bonds 3.0% 6.5%
Bank Loans 3.0% 6.1%
Emerging Market Bonds 3.0% 5.2%
Rate Securities
Treasury Inflation Protected Securities 5.0% 3.6%
Investment Grade Bonds 9.0% 3.9%
Total 100.0%
Asset Class

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

72 (Continued)

The City issues a publicly available financial report that includes the complete note disclosures and required supplementary information related to the City’s postemployment health care obligations. The report may be obtained by writing to the City and County of San Francisco, Office of the Controller, 1 Dr. Carlton B. Goodlett Place, Room 316, San Francisco, California 94102, or by calling (415) 554-7500.
(11) Related Parties
Various common costs incurred by the Commission are allocated among the Enterprise, Hetch Hetchy Water and Power and CleanPowerSF Enterprise, and the Wastewater Enterprise. The allocations are based on the Commission management’s best estimate and may change from year to year depending on the activities incurred by each Enterprise and the information available. The administrative costs including COVID-19 Project expenses of $48,374 or 49.4% and $45,533 or 49.3% were allocated to the Enterprise for the years ended June 30, 2021 and 2020, respectively.

The City performs certain administrative services such as maintenance of accounting records and investment of cash for all fund groups within the City. The various funds are charged for these services based on the City’s indirect cost allocation plan.

The Enterprise purchases water from Hetch Hetchy Water. The amounts, totaling $44,149 and $34,585 for the years ended June 30, 2021 and 2020, respectively, have been included in the services provided by other departments in the accompanying financial statements.

The Enterprise purchases electricity from Hetch Hetchy Power at market rates. The amounts, totaling $9,790 and $9,909 for the years ended June 30, 2021 and 2020, respectively, have been included in services provided by other departments in the accompanying financial statements.

The Enterprise sold water to the Wastewater Enterprise at retail rates. This amount, totaling $1,308 and $1,474 for the years ended June 30, 2021 and 2020, respectively, has been included in charges for services in the accompanying financial statements.

Since fiscal year 2008, the Enterprise has charged City departments for water usage except for fire hydrants, which are used for general public safety. In fiscal years 2021 and 2020, the Enterprise delivered water for fire hydrant purposes totaling $7, based on metered usage and applicable water rates, and the amount has been excluded from op erating revenues in the accompanying financial statements.

A variety of City departments provide services such as engineering, purchasing, legal, data processing, telecommunications, and human resources to the Enterprise and charge amounts designed to recover those departments’ costs. These charges, totaling $16,239 and $16,634 for the years ended June 30, 2021 and 2020, respectively, have been included in services provided by other departments in the accompanying financial statements.

During the fiscal year ended June 30, 2021, the Enterprise transferred $16,000 to Hetch Hetchy Water to fund various upcountry capital projects, $622 to the Arts Commission for arts enrichment, and $32 to the Office of the City Administrator for the Surety Bond Program. The Enterprise received 1% Decrease

6.40%
Discount Rate

7.40%
1% Increase

8.40%
189,008$ 163,684 $ 142,994 $

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

73 (Continued)
$20,040 from the City for the Emergency Firefighting Water system, and $985 from the General Fund for low income assistance programs and the Native Plant Garden project.

As of June 30, 2021, the Enterprise has no payables to other City departments. As of June 30, 2020, the Enterprise had payables in the amount of $606 to the Office of the City Attorney for legal services provided, and $68 to the Department of Public Works for sidewalk inspection and repair projects.

SFPUC’s 75-year lease agreement with the San Francisco Recreation and Park Department, for the use of parking spaces for its fleet of vehicles at the Civic Center Garage, commenced on February 1, 2011. The total payment under this agreement is $6,274, which was fully made as of fiscal year 2015. The expenses and prepayments among the three SFPUC Enterprises are based on 525 Golden Gate occupancy. As of June 30, 2021, the Enterprise’s allocable shares of expenses and prepayment were $45 and $3,309, respectively; and at June 30, 2020, the Enterprise’s allocable shares of expenses and prepayment were $45 and $3,354, respectively. (12) Risk Management
The Enterprise’s Risk Management program includes both self-ins ured (i.e., self-retention) and insured exposures at risk. Risk assessments and purchasing of insurance coverage are collaboratively coordinated by SFPUC Risk Management and the City’s Office of Risk Management. With certain exceptions, the City and the Enterprise’s general approach is to first evaluate the exposure at risk for self-insurance. Based on this analysis, internal mi tigation strategies and financing through a self- retention mechanism is generally more economical as the SFPUC in coordination with the City Attorney’s Office, administers, adjusts, settles, de f e n d s , a n d p a y s c l a i m s f r o m b u d g e t e d r e s o u r c e s ( i . e . , p a y - a s - y o u - g o f u n d ) . W h e n e c o n o m i c a l l y m o r e v i a b l e o r w h e n r e q u i r e d b y d e b t f i n a n c i n g covenants, the Enterprise obtains commercial insurance. At least annually, the City actuarially determines general liability and workers’ compensa tion risk exposures. The Enterprise does not maintain commercial earthquake coverage, with certain minor exceptions, such as a sub-limit for fire- sprinkler leakage due to earthquake under the SF PUC Property Insurance program. In the past three years, there was no settlements that exceeded insurance coverage.

(a) General Liability
Through coordination with the Controller Office and the City Attorney’s Office, the general liability risk exposure is actuarially determined and is addressed through pay-as-you-go funding as part of the budgetary process. Associated costs and estimates are recorded as expenses as required Risk Coverage Approach
(a) General liability Self-Insured
(b) Workers’ compensation Self-Insured through Citywide Pool (c) Property Purchased Insurance and Self-Insured
(d) Public officials liability Purchased Insurance
(e) Employment practices liability Purchased Insurance
(f) Cyber Liability Purchased Insurance
(g) Crime Purchased Insurance
(h) Electronic data processing Purchased Insurance and Self-Insured (i) Surety bonds Purchased and Contractual Risk Transfer (j) Errors and omissions Purchased and Contractual Risk Transfer (k) Builders’ risk Contractual Risk Transfer

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

74 (Continued)
under GAAP for financial statement purposes for both the Enterprise and the City and County of San Francisco’s Annual Comprehensive Financial Report. The claim expense allocations are determined based on actuarially determined anticipated claim payments and the projected timing of disbursement.

The changes for the general liability (damage claims) for the years ended June 30, 2021 and 2020 are as follows:

(b) Workers’ Compensation
The City actuarially determines and allocates workers’ compensation costs to the Enterprise according to a formula based on the following: (i) the dollar amount of claims; (ii) yearly projections of payments based on historical expe rience; and (iii) the size of the Enterprise’s payroll. The administration of workers’ compensation claims and payouts are handled by the Workers’ Compensation Division of the City’s Department of Human Resources. Statewide workers’ compensation reforms have resulted in budgetary savings in recent years. The City continues to develop and implem ent improved programs, such as return-to-work programs, to lower or mitigate the growth of workers’ co mpensation costs. Programs include accident prevention, investigation, and du ty modification for injured employees with medical restrictions so return to work can occur as soon as possible.

The changes in the liabilities for workers’ compensation for the years ended June 30, 2021 and 2020 are as follows:

Beginning Claims and changes Claims End of
of year in est imates pa id year
$ 10,767 27,643 (1,687) 36,723
11,509 709 (1,451) 10,767
Fi sca l years
2020
2021
Beginning Claims and changes Claims End of
of year in est imates pa id year
$ 9,174 1,912 (2,258) 8,828
10,336 1,065 (2,227) 9,174
Fi sca l years
2020
2021

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

75 (Continued)
(e) Employment Practices Liability
A Policy is retained to protect against employment-related claims and liabilities. (f) Cyber Liability
A Policy is retained to protect against cyber-related claims and liabilities. (g) Crime
The Enterprise also retains a Commercial Crime Policy, in lieu of bonding its employees, to provide coverage against liabilities or losses due to third-party crime or employee fraud. (h) Electronic Data Processing
The Electronic Data Processing policy protects selected high-value electronic property in case of damage or loss.
(i) Surety Bonds
Bonds are required in most phases of the public utilities construction contracting process for such phases as bid, performance, and payment or maintenance. Additionally, bonds may be required in other contracts where goods or services are provided to ensure compliance with applicable terms and conditions such as warranty.
(j) Errors and Omissions
Errors and omissions, also known as Profession al Liability, are commonly transferred through contract to the contracted professional, or retained through self-insurance on a case-by-case basis depending on the size, complexity, or sc ope of construction or professional service contracts. Examples of such contracts are inclusive of services provided by engineers, architects, design professionals, and other licensed or certified professional service providers. (k) Builders’ Risk
B u i l d e r s ’ r i s k p o l i c i e s o f i n s u r a n c e a r e r e q u i r e d t o b e p r o v i d e d b y t h e c o n t r a c t o r o n a l l construction projects for the full value of construction. (13) Commitments and Litigation
(a) Commitments
As of June 30, 2021 and 2020, the Enterprise has outstanding commitments with third parties of $185,161 and $208,832, respectively, for various capital projects and other purchase agreements for materials and services.
(b) Grants
Grants that the Enterprise receives are subject to audit and final acceptance by the granting agency. Current and prior year costs of such grants are subject to adjustment upon audit.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)
76 (c) Litigation
The Enterprise is a defendant in various legal ac tions and claims that arise during the normal course of business. The final disposition of those legal actions and claims is not determinable.

However, in the opinion of management, the outc ome of any litigation of these matters will not have a material effect on the financial position or changes in net position of the Enterprise. (d) Environmental Issue
As of June 30, 2021 and 2020, the Enterpri se recorded $1,271 and $1,577 in pollution remediation liability, respectively. This decrease of $306 in pollution remediation liability in fiscal year 2021 is for expenses relating to the excavation of contaminated soil that contained polycyclic aromatic hydrocarbons from the Pacific Rod & Gun Club site in the Lake Merced area, and remediation activities for the 17
th and Folsom site. As of June 30, 2021, the pollution
remediation liability of $1,271 was related to the Pacific Rod & Gun Club site. As of June 30, 2020, the pollution remediation liability of $1,577 consisted of $1,274 for the Pacific Rod & Gun Club site, and $303 for the 17
th and Folsom site.
(14) Subsequent Events
(a) Declaration of Emergency
On August 23, 2021 a water main ruptured at 22 nd Avenue and Sloat Boulevard, causing flooding to adjacent areas. In accordance with Chapter 6, Article IV, Section 6.60(d) of the Administrative Code of the City, the SFPUC declared an emergency relating to this event. As of issuance date, the Enterprise has spent $387 towards restoration. (b) SFPUC’s Claim to California State for Arrearages Relief The California State Water Board is administer ing funds to community water and wastewater systems for the California Water and Wastewater Arrearage Payment Program (Program) during fiscal year 2022, sourced by the American Rescue Plan Act. The Program was created to provide relief for unpaid bills related to the COVID-19 pandemic. The SFPUC has submitted surveys to the State Water Board with information on water arrearages accrued during the pandemic and is in the process of submitting an applicat ion. Funds of approximately $7,310 for water arrearage relief are expected to reach the SFPUC sometime in early 2022.

Independent Auditors’ Report 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
The Honorable Mayor and Board of Supervisors
City and County of San Francisco, California:

We have audited, in accordance with the 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 San Francisco Water Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco, California (the City), which comprise the statement of net position as of June 30, 2021, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 27, 2022.

Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Enterprise’s internal control over financial reporting (internal control) as a basis for designing 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 Enterprise’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Enterprise’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 co rrect, 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 Enterprise’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 financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our test s disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
78 Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compli ance and the results of that testing, and not to provide an opinion on the effectiveness of the Enterprise’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 Enterprise’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

San Francisco, California
January 27, 2022

San Francisco Public Utilities Commission
An Enterprise Department of the City and
County of San Francisco, California
To provide our customers with high-quality,
efficient and reliable water, power and
sewer services in a manner that values
environmental and community interests
and sustains the resources entrusted to
our care.

Our mission
Cover photo: Alameda Creek, Alameda Watershed
Back photo: Bay Division Pipeline Tunnel Event, Pulgas Water Temple, water flow
Photos by: Robin Scheswohl
如果您需要中文翻譯, 請致電:
(415) 554-3289. Si necesita una
traducción o asistencia en español llame al: (415) 554-3289.

Communications Division
Date of Publication: January 2022

Financial Services
525 Golden Gate Avenue, 4th Floor
San Francisco, CA 94102-3220
sfpuc.org

SAN FRANCISCO WASTEWATER ENTERPRISE
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 3
Financial Statements:

Statements of Net Position 17
Statements of Revenues, Expenses, and Changes in Net Position 18 Statements of Cash Flows 19
Notes to Financial Statements 21
Independent Auditors’ Report 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 67

Independent Auditors’ Report
The Honorable Mayor and Board of Supervisors
City and County of San Francisco, California:

Report on the Financial Statements
We have audited the accompanying financial statements of the San Francisco Wastewater Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco, California (the City) , as of and for the years ended June 30, 2021 and 2020, and the related notes to the financial statements, which collectively comprise the Enterprise’s basic financial statements as listed in the tables of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of fina ncial statements that are free from material misstatement, whether due to fraud or error.

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 materia l respects, the respective financial position of the Enterprise, as of June 30, 2021 and 2020, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with U.S. generally accepted accounting principles.
2 Emphasis of Matter
As discussed in Note 1, the financial statements of the Enterprise are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only that portion of the City that is attributable to the transactions of the Enterprise. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2021 and 2020, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter.

Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages 3 – 16 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited proced ures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

San Francisco, California
January 27, 2022

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

3 (Continued)

This section presents management’s analysis of the San Francisco Wastewater Enterprise’s (the Enterprise) financial condition and activities as of and for the fiscal years ended June 30, 20 21 and 20 20.

Management’s Discussion and Analysis (MDA) is intended to serve as an introduction to the Enterprise’s financial statements. This information should be read in conjunction with the audited financial statements that follow this section. All dollar amounts, unless otherwise noted, are expressed in thousands of dollars.

The information in this MDA is presented under the following headings:
• Organization and Business
• Overview of the Financial Statements
• COVID-19
• Financial Analysis
• Capital Assets
• Debt Administration
• Rates and Charges
• Request for Information
Organization and Business

The San Francisco Public Utilities Commission (SFPUC or the Commission) is a department of the City and County of San Francisco (the City) that is responsible for the maintenance, operation, and development of three utility enter prises: Water, Hetch Hetchy Water and Powe r and CleanPowerSF, and Wastewater (the Enterprise). The primary responsibility of the Enterprise is to protect the public health and the surrounding bay and ocean receiving waters by collecting, transmitting, trea ting, and discharging storm and sanitary flows generated in the service area. This includes 1,125 miles of combined , sanitary, and storm collection system pipes including: gravity mains, force mains , culverts, transport storage boxes, and tunnels. San Francisco is the only coastal city in California with a combined sewer system that collects both wastewater and stormwater in the same network of pipes and provides treatment to remove harmful pollutants before discharging into the San Francisco Bay and Pacifi c Ocean. In addition, the Enterprise serves on a contractual basis certain municipal customers located outside of the City limits, including the North San Mateo County Sanitation District No. 3, Bayshore Sanitary District, and the City of Brisbane. The Ent erprise recovers costs of service through user fees based on the volume and strength of sanitary flow . As of June 30, 2021, the Enterprise serves 147,926 residential accounts, which discharge about 16. 6 million units of sanitary flow per year (measured in hundreds of cubic feet, or ccf) and 26,430 non-residential accounts, which discharge about 4.6 million ccf per year. These reflected decreases of 2.2 million units in non - residential accounts and 0 .3 million units in residential accounts compared to prior year due to the COVID - 19 public health precaution.

Overview of the Financial Statements

The Enterprise’s financial statements include the following:

Statements of Net Position present information on the Enterprise’s assets, deferred outflows, liabilities, and deferred inflows as of year -end, with the difference reported as net position. Ove r time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Enterprise is improving or worsening.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

4 (Continued)

While the Statements of Net Position provide information about the nature and amount of resources and obligations at year -end, the Statements of Revenues, Expenses, and Changes in Net Position present the results of the Enterprise’s operations over the course of the fiscal year and informati on as to how the net position changed during the year. These statements can be used as an indicator of the extent to which the Enterprise has successfully recovered its costs through user fees and other charges. All changes in net position are reported dur ing the period in which the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in these statements from some items that will result in cash flows in future fiscal periods, such as delayed collection of operating revenues and the expenses of employee earned but unused vacation leave.

The Statements of Cash Flows present changes in cash and cash equivalents resulting from operational, capital financing, non -capital financing, and investing activities. These statements summarize the annual flow of cash receipts and cash payments, without consideration of the timing of the event giving rise to the obligation or receipt and exclude non-cash accounting measures of depreciation or amortization of assets.

The Notes to Financial Statements provide information that is essential to a full understanding of the financial statements that is not displayed on the face of the financial statements.

COVID-19

On February 25, 2020 , the City’s Mayor issued a proclamation declaring a local emergency to exist in connection with the imminent spread within the City of the novel coronavirus (“COVID -19”). On March 16, 2020, the City’s Health Officer issued a stay safe at home order, Health Officer Order No. C19-07 (the “Stay Safe At Home Order”), requiring most people and City employees to remain in their homes subject to certain exceptions including obtaining essential goods such as “food and necessary supplies ”, and requiring the closure of nonessential businesses. In addition, Section 2 of the second supplement to the emergency proclamation authorizes the SFPUC to suspend the (a) discontinuation or shut off of water service for residents and businesses in the City for non -payment of water and sewer bills and (b) the imposition of late payment penalties or fees for delinquent water and/or sewer bills through July 11, 2020. The proclamation was extended on December 8, 2020 through June 30, 2021 and then again on April 27, 2021, through to March 31, 2022. This proclamation did not have a material effect on the operations of the Wastewater enterprise.

Financial Analysis

Financial Highlights for Fiscal Year 2021
• Total assets of the Enterprise exceeded total liabilities by $1,266,577. • Net position increased by $9,647 or 0.7% during the year. • Capital assets, net of accumulated depreciation and amortization, increased by $544,562 or

17.8% to $3,606,850.
• Operating revenues decreased by $16,463 or 4.8% to $327,665. • Operating expenses increased by $29,961 or 11.4% to $292,220.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

5 (Continued)

Financial Highlights for Fiscal Year 2020
• Total assets of the Enterprise exceeded total liabilities by $1,273,337. • Net position increased by $63,793 or 5.2% during the year. • Capital assets, net of accumulated depreciation and amortization, increased by $340,484 or

12.5% to $3,062,288.
• Operating revenues increased by $13,047 or 3.9% to $344,128. • Operating expenses increased by $2,446 or 0.9% to $262,259.

Financial Position
The following table summarizes the Enterprise’s changes in net position.

2021 2020 2019
2021-2020
Change
2020-2019
Change
Total assets:

Current and other assets $ 354,789 473,620 821,796 (118,831) (348,176) Capital assets, net of accumulated depreciation and amortization 3,606,850 3,062,288 2,721,804 544,562 340,484 Total assets 3,961,639 3,535,908 3,543,600 425,731 (7,692) Deferred outflows of resources:

Unamortized loss on refunding of debt 91 189 326 (98) (137) Pensions 30,219 30,422 26,886 (203) 3,536 Other post-employment benefits 15,109 10,065 4,669 5,044 5,396 Total deferred outflows of resources 45,419 40,676 31,881 4,743 8,795 Liabilities:

Current liabilities:

Revenue bonds 22,880 23,240 22,085 (360) 1,155 Certificates of participation 785 747 711 38 36 Commercial paper 638,518 207,939 291,498 430,579 (83,559) State revolving fund loans 2,483 2,458 1,239 25 1,219 Other liabilities 147,038 148,585 101,156 (1,547) 47,429 Subtotal current liabilities 811,704 382,969 416,689 428,735 (33,720) Long-term liabilities:

Revenue bonds 1,567,042 1,598,493 1,630,524 (31,451) (32,031) Certificates of participation 25,302 26,112 26,892 (810) (780) State revolving fund loans 106,076 86,091 86,793 19,985 (702) Other liabilities 184,938 168,906 164,316 16,032 4,590 Subtotal long-term liabilities 1,883,358 1,879,602 1,908,525 3,756 (28,923) Total liabilities:

Revenue bonds 1,589,922 1,621,733 1,652,609 (31,811) (30,876) Certificates of participation 26,087 26,859 27,603 (772) (744) Commercial paper 638,518 207,939 291,498 430,579 (83,559) State revolving fund loans 108,559 88,549 88,032 20,010 517 Other liabilities 331,976 317,491 265,472 14,485 52,019 Total liabilities 2,695,062 2,262,571 2,325,214 432,491 (62,643) Deferred inflows of resources:

Related to pensions 2,148 16,892 16,157 (14,744) 735 Other post-employment benefits 7,265 4,185 4,967 3,080 (782) Total deferred inflows of resources 9,413 21,077 21,124 (11,664) (47) Net position:

Net investment in capital assets 1,253,789 1,183,288 1,133,662 70,501 49,626 Restricted for debt service 2,992 1,227 1,279 1,765 (52) Restricted for capital projects — — 18,505 — (18,505) Unrestricted 45,802 108,421 75,697 (62,619) 32,724 Total net position $ 1,302,583 1,292,936 1,229,143 9,647 63,793

Table 1
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

6 (Continued)

Net Position, Fiscal Year 2021
For the year ended June 30, 202 1, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $1,302,583. The Enterprise’s total net position increased by $9,647 or 0.7% as a result of increases of $70,501 in net investment in capital assets and $1,765 in restricted for debt service offset by a decrease of $62,619 in unrestricted net position (see Table 1).

During the fiscal year 202 1, current and other assets decreased by $118,831 or 25.1%. The decrease was mainly due to a decrease of $136,773 in restricted and unrestricted cash and investments largely attributed to increased spending for the Sewer System Improvement Program (SSIP) and debt principal and interest repayment. Other decreases in cluded $666 in receivables for charges for services mainly due to $2,172 increase in allowance for doubtful accounts as there were more sewer charge receivables aging over 120 days attributable to the suspension of collection efforts in response to the COVID -19 emergency proclamation issued by the City Mayor . These decreases in current and other assets were offset by an increase of $17,490 in receivables from the State Water Resources Control Board (SWRCB) due to $20,755 in reimbursement receivable for disbursements claim relating to the Oceanside Plant ( OSP) Digester Gas Utilization Upgrade Project offset by cash receipts of $3,265 in State Revolving Fund (SRF) reimbursement requests consisting of $2,041 for the Southeast Plant (SEP) 521/522 and Disinfection Upgrade and $1,224 for the Lake Merced Green Infrastructure projects. The other increases included $680 in prepaid charges, advances, a nd other receivable consisting of $546 prepayments to the San Francisco Estuary Institute, Bay Area Air Quality Management District, and Water Research Foundation , $290 in rent receivable mainly due a receivable from the San Francisco Community College, and $1 7 in custom work receivable offset by $173 prepaid expenses recognized to expense for the current year, $181 in inventory as there were more purchases than issuances during the year , $166 in restricted and unrestricted interest and other receivable mainly due to an increase in Federal interest subsidy receivable , and $91 increase in interfund receivables consisting of $ 47 from the Department of Public Works (DPW) for the Mission Bay South and Hunters View Development Projects, $24 from the San Francisco Port Commission (Port) , and $20 from the Treasure Island Development Authority (TIDA).

Capital assets, net of accumulated depreciation and amortization, increased by $ 544,562 or 1 7.8% reflecting an increase in construction and capital improvement activities . The largest portion of the Enterprise’s net position of $1,253,789 or 96.3%, represents net investment in capital assets (see Capital Assets section of the MDA for more informati on). Deferred outflows of resources increased by $ 4,743 mainly due to $5,044 increase in other post-employment benefits based on actuarial report offset by $203 decrease in pensions based on actuarial report and $98 amortization of the 2013 Series A bonds loss on refunding.

Total liabilities increased by $432,491 or 19.1%. As of June 30, 202 1, total outstanding balance of $2,363,086 for revenue bonds payable, commercial paper, certificates of participation, and SRF loans represented 87.7% of total liabilities, a n increase of $ 418,006 or 21.5%. The increase was mainly due to $435,450 additional commercial paper issuance and $ 22,468 SRF loan to fund the OSP Digester Gas Utilization Upgrade, the SEP 521/522 and Disinfection Upgrade , and the Lake Merced Green Infrastructure projects offset by $ 31,316 in debt re payments and $8,596 in amortization of premium during the year.

Other liabilities of $331,976 such as payables to vendors, contractors, and other government agencies for goods and services under contractual agreements and employees, increased by $ 14,485 or 4.6%, due to increases of $17,511 in net pension liability based on actuarial report, $3,912 in employee related benefits including vacation, workers’ compensation , and accrued payroll mainly due to actuarial estimates, 3% increase of cost of living adjustment (COLA), and more da ys in current year-end payroll accrual compared to

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

7 (Continued)

prior year -end accrual , $822 in general liability based on actuarial estimates , $130 in customer credit balances mainly due to overpayments , and $26 in liens payable . These increases were offset by decreases of $7,472 in other post-employment benefits obligations based on actuarial report , $145 in bond and loan interest payable due to lower outstanding debt principal and lower interest rates , $135 in restricted and unrestricted payable due to higher voucher payments than vouchers generated , and $10 9 in payable to Hetch Hetchy Power due to payment for the 525 Golden Gate Living Machine System, $54 decrease in deposit from Pacific Gas & Electric due to expenses incurred for the Cross Bore Project , and $1 interfund payable to City Attorney’s Office . Deferred inflows of resources decreased by $11,664 due to $14,744 decrease in pensions based on actuarial report offset by $3,080 increase in other post -employment benefits based on actuarial report.

Net Position, Fiscal Year 2020
For the year ended June 30, 2020, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $1,292,936. The Enterprise’s total net position increased by $63,793 or 5.2% as a result of increases of $49,626 in net investment in capital assets and $32,724 in unrestricted net position , offset by decreases of $18,505 in restricted for capital projects and $ 52 in restricted for debt service (see Table 1).

During the fiscal year 20 20, current and other assets decreased by $348,176 or 42.4%. The decrease was mainly due to a d ecrease of $309,289 in restricted and unrestricted cash and investment s mainly due to increased spending for the Sewer System Improvement Program (SSIP) and debt principal and interest repayment. Other decreases included $ 39,043 in receivables from the State Water Resources Control Board (SWRCB) consisting of $36,152 in cash receipts for disbursements claim relating to the Southeast Plant (SEP) 521/522 and Disinfection Upgrade Project , $1,508 unreimbursed State Revolving Fund (SRF) claim, and $1,383 in cash receipts for the retention balance relating to the Stormwater Flood Management projects. The other decreases included $3,313 in restricted and unrestricted interest and other receivable due to lower cash balance in pooled cash fund, $30 in custom work interfund receivables mainly due to collection from the Department of Public Works (DPW) for the Mission Bay South and Hunters Point Projects, and $ 21 in charges for services . These decreases in current and other assets were offset by increases of $3,265 in reimbursement receivables from SWRCB for the SEP 521/522 and Disinfection Upgrade and Lake Merced projects, $192 in inventory as there were more purchases than issuances during the year and $63 in prepaid charges.

Capital assets, net of accumulated depreciation and amortization, increased by $340,484 or 12.5% reflecting an increase in construction and capital improvement activities . The largest portion of the Enterprise’s net position of $1,183,288 or 91.5%, represents net investment in capital assets (see Capital Assets section of the MDA for more information ). Deferred outflows of resources increased by $ 8,795 mainly due to increase s of $5,396 in other post -employment benefits and $3,536 in pensions based o n actuarial report offset by $137 in amortization of the 2013 Series A bonds loss on refunding.

Total liabilities decreased by $ 62,643 or 2.7%. As of June 30, 20 20, total outstanding balance of $1,945,080 for revenue bonds payable, commercial paper, certificates of participation, and SRF loans represented 86.0% of total liabilities , a decrease of $ 114,662 or 5.6%. The decrease was mainly due to $111,984 in debt repayments , $8,824 in amortization of premium during the year , and $1,508 loan reduction for the SRF SEP 521/522 and Disinfection Upgrade unreimbursed disbursements claim, offset by $4,390 additional commercial paper issuance and $3,26 4 SRF loan to fund for the SEP 521/522 and Disinfection Upgrade and Lake Merced projects. Other liabilities of $317,491 such as payables to vendors, contractors, and other government agencies for goods and services under contractual agreements,

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

8 (Continued)

increased by $ 52,019 or 19.6%, due to increases of $ 44,336 in restricted and unrestricted payable to vendors and contractors due to higher capital project spending , $4,616 in other post -employment benefits obligations based on actuarial report, $2,632 in employee related benefits including vacation , workers’ compensation, and accrued payroll mainly due to actuarial estimates , 3% increase of cost of living adjustment (COLA), and more days in current year -end accrual compared to prior year -end accrual, $1,198 in net pension liability based on actuarial report, $621 in customer credit balances mainly due to overpayments, $300 in pollution remediation liability due to increased estimated cleanup liabilities for the toxic sediments at Yosemite Creek, and $1 interfund payable to City Attorney’s Office. These increases were offset by decreases of $ 1,070 in bond and loan interest payable due to lower outstanding debt principal, $477 in general liability based on actuarial estimates, $107 in payable to Hetch Hetchy Power due to payment for the 525 Golden Gate Living Machine System, and $31 decrease in deposit from Pacific Gas & Electric due to expenses incurred for the Cross Bore Project. Deferred inflows of resources decreased by $47 due to $782 decrease in other post -employment benefits based on actuarial report offset by $ 735 increase in pensions based on actuarial report.

Results of Operations
The following table summarizes the Enterprise’s revenues, expenses, and changes in net position.

Results of Operations, Fiscal Year 2021
The Enterprise’s total revenues were $331,389 a decrease of $30,472 or 8.4% from prior year (see Table 2). Charges for services decreased by $ 13,485 or 4. 1% mainly due to a sanitary flow decrease of Table 2
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2021, 2020, and 2019
2021 2020 2019
2021-2020
Change
2020-2019
Change
Revenues:

Charges for services $ 318,236 331,721 317,761 (13,485) 13,960 Rents and concessions 642 664 702 (22) (38) Other operating revenues 8,787 11,743 12,618 (2,956) (875) Interest and investment (loss) income (1,187) 12,137 20,701 (13,324) (8,564) Net gain from transfer of assets — — 619 — (619) Other non-operating revenues 4,911 5,596 5,545 (685) 51 Total revenues 331,389 361,861 357,946 (30,472) 3,915 Expenses:

Operating expenses 292,220 262,259 259,813 29,961 2,446 Interest expenses 34,862 43,216 43,803 (8,354) (587) Amortization of premium, refunding loss, and issuance cost (8,497) (8,647) (5,697) 150 (2,950) Non-operating expenses 409 52 1,013 357 (961) Total expenses 318,994 296,880 298,932 22,114 (2,052) Change in net position before transfers 12,395 64,981 59,014 (52,586) 5,967 Transfers from the C ty and County of San Francisco 1,440 280 — 1,160 280 Transfers to the C ty and County of San Francisco (4,188) (1,468) (3,996) (2,720) 2,528 Net transfers (2,748) (1,188) (3,996) (1,560) 2,808 Change in net position 9,647 63,793 55,018 (54,146) 8,775 Net pos tion at beginning of year 1,292,936 1,229,143 1,174,125 63,793 55,018 Net pos tion at end of year $ 1,302,583 1,292,936 1,229,143 9,647 63,793

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

9 (Continued)

2,474,116 ccf or 10.2% from residential and non -residential customers and $2,172 increase in allowance for doubtful accounts as there were more sewer charge receivables aging over 120 days attributable to the suspension of collection efforts in response to the COVID -19 emergency proclamation issued by the City Mayor offset by an average 8% adopted rate increase . Interest and investment income decreased by $13,324 or 109.8% due to lower pooled and fiscal agent cash balances, and a lower annualized interest rate. Other operating revenues decreased by $2,956 or 25.2% mainly due to decreases of $2,186 in capacity fees resulting from a 25.2% decrease in average permit price and a 7.9% decrease in permits issued as only essential construction projects were allowed due to SF Health Order related to COVID-19 and $770 in other operating revenues to other City departments such as the Real Estate, Human Services Agency, and Academy of Science due to the COVID-19 shelter in place order . Other non-operating revenues decreased by $685 mainly due to decreases of $667 in miscellaneous revenue largely attributed to $642 receipts from California State Parks Foundation for a project at Yosemite Slough Site in prior year , $20 in gain from sale of assets, and $22 in Federal Emergency Management Agency (FEMA) grant relating to COVID-19 offset by $ 27 increase in federal interest subsidy . Rents and concessions decreased by $22 or

3.3% mainly due to the COVID-19 past due rent collection suspension as approved by the Commission.

Total expenses were $318,994, an increase of $22,114 or 7.4% due to increases of $29,961 in operating expenses, $357 in City grants program expenses as there were more expenses incurred for community - based organization services , and $150 decrease in amortization, refunding loss, and issuance cost due to $230 decrease in bond premium offset by decreases of $40 in issuance cost , and $40 in refunding loss amortization offset by a decrease of $8,354 in interest expenses due to lower interest rate compared to prior year and a decrease in outstanding bond principal balance . The increase of $ 29,961 in operating expenses was mainly due to increases of $20,866 in general and administrative and other operating expenses mainly due to higher capital project expenses related to the SSIP Biosolids Digester Project , $9,051 in depreciation expense due to more capitalized assets put in service, $1,004 in services provided by other departments mainly for Department of Public Works general admin istration and building repair services, General Services Agency ( GSA) facilities management services, and City risk management services, and $100 in materials and supplies mainly due to water sewage treatment supplies for Bayside Operations. These increases were offset by a decrease of $564 in personnel services mainly due $7,873 decrease in other post -employment benefits based on actuarial report offset by increases of $4,574 in expenses related to pension due to increase in retirement contribution rates , $2,051 in salaries and fringe benefits due to a 3% increase in cost of living adjustment ( COLA), and $684 in workers’ compensation claims. Other decrease included $496 in contractual services mainly due to lower professional and specialized services.

Net transfers of $ 2,748 included transfer out of $4,000 in art enrichment fund to the San Francisco Art Commission for the Southeast Plant Biosolids Digester Facilities , 1550 Southeast Community Center, and Treasure Island Capital Improvement Projects, $156 to Recreation & Park for Crocker Amazon Park, and $32 to the Office of the City Administrator for the Surety Bond Pr ogram, offset by $ 1,440 transfer in from General Fund for the Sidewalk Garden Grants Project.

Results of Operations, Fiscal Year 2020
The Enterprise’s total revenues were $36 1,861, an increase of $ 3,915 or 1.1% from prior year (see Table 2). Charges for services increased by $13,960 or 4.4% mainly due to an average 7% adopted rate increase , offset by a sanitary flow decrease of 215,896 ccf or 0.9% from residential and non -residential customers.

Other non -operating revenues increased slightly by $ 51 mainly due to $642 in miscellaneous revenue largely due to receipts from California State Parks Foundation for a project at Yosemite Slough Site, $38 gain from sale of assets in current year, $14 in federal interest s ubsidy, and $11 in Federal Emergency

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

10 (Continued)

Management Agency (FEMA) grant relating to COVID-19, offset by a decrease of $391 in biofuel revenue as the SFGreasecycle Program ended in prior year, grants received in prior year of $234 from the State for the stormwater flood management projects and $29 from the Green Infrastructure Leadership Exchange. These increases were offset by a decrease of $8,564 or 41.4% in interest and investment income due to lower pooled and fiscal agent cash balances and lower annualized interest rate. Other operating revenues decreased by $875 mainly due to $981 decrease in capacity fees resulting from a 16% decrease in permits issued and increase in uncollectible allowance, offset by $106 increase in charges for services to other City departments such as the Recreation & Park and San Francisco General Hospital, $619 gain from transfer of assets in prior year, and $38 decrease or 5.4% in r ents and concessions mainly due to $ 56 catch-up billing adjustment in prior year for a lease at Southeast Water Pollution Control Plant offset by $18 increase in rental revenue from tenants with 3% consumer price index average rate increase.

Total expenses were $296,880, a decrease of $2,052 or 0.7% due to decreases of $2,950 in amortization of premium, refunding loss, and issuance cost due to decrease of $2,760 in issuance cost attributable to bond series 2018 ABC issuance in prior year, decrease of $36 in refunding loss and increase of $154 in bond premium, $961 in other non-operating expenses mainly due to $987 loss from sale of assets in prior year offset by $2 6 increase in City grants program expenses as there were more expenses incurred for community-based organization services , and $587 decrease in interest expense s mainly due to more capitalization of interest expense for fixed assets in the current year. These decreases were offset by an increase of $2,446 in operating expenses. The increase of $2,446 in operating expenses was mainly due to $10,320 increase in per sonnel services due to 3% increase in COLA, increase in retirement contribution rates and expenses related to pension and other post -employment benefits , $2,934 in depreciation expense due to more capitalized assets put in service, $680 in services provide d by other departments mainly for legal services, street cleaning, neighborhood beautification, and risk management services, and $317 in contractual services mainly due to higher professional and specialized services. These increases were offset by decreases of $10,943 in general and administrative and other operating expenses mainly due to higher capitalization of capital project spending and prior year higher capital project expense related to the Southeast Plant Improvement Project and $862 in materials and supplies mainly due to water sewage treatment supplies for Bayside Operations.

Net transfers of $1,188 included transfer out of $1,436 to the San Francisco Art Commission for integrated artworks at the Headworks Facility and $32 to the Office of the C ity Administrator for the Surety Bond Program, offset by $240 transfer in from General Fund for the Central Shop Relocation Project contingency release and $40 for the Sidewalk Garden Grants Project.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

11 (Continued)

Capital Assets
The following table summarizes changes in the Enterprise’s capital assets.

Capital Assets, Fiscal Year 2021
The Enterprise has capital assets of $ 3,606,850, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2021 (see Table 3). This amount represents an increase of $ 544,562 or 17.8% from prior fiscal year. The investment in capital assets incl udes land, buildings, improvements, wastewater treatment plants, sewer pipes and mains, underground transport and storage boxes, pump stations, machinery, and equipment. Construction work in progress increased by $430,306 or 47.3%. Facilities, improvements, machinery, and equipment increased by $ 109,895 or 5.2%, and intangible assets increased by $4,361 or 143.2% due to asset additions of $2,457 for the Operational Decision System Project and $1,904 for the Customer Billing System Project.

Major additions to construction work in progress during the year ended June 30, 2021 include the following:

Table 3
Capital Assets, Net of Accumulated Depreciation and Amortization As of June 30, 2021, 2020, and 2019
2021 2020 2019
2021-2020
Change
2020-2019
Change
Facilities, improvements, machinery, and equipment $ 2,214,227 2,104,332 1,916,979 109,895 187,353 Intangible assets 7,407 3,046 3,183 4,361 (137) Land and rights-of-way 44,572 44,572 36,018 — 8,554 Construction work in progress 1,340,644 910,338 765,624 430,306 144,714 Total $ 3,606,850 3,062,288 2,721,804 544,562 340,484 Southeast Plant Biosolids and Digester Facilities Project $ 259,938 Southeast Plant New Headworks Grit Removal and Influent Pump Station 110,472 Southeast Community Center 47,373
Southeast Plant Power Feed and Primary Switchgear Upgrades 18,881 Mariposa Pump Station & Force Main 11,031
Oceanside Plant Digester Gas Handling Utilization 8,856 Seismic Reliability - Phase 1 7,647
Public Works Various Locations Number 35 Infrastructure Improvements 7,134 As-Needed Spot Sewer Replacement Number 40 7,101
Ocean Beach Project 6,727
Force Main Rehabilitation At Embarcadero And Jackson Streets 6,615 Facility-Wide Distributed Control System Upgrade 5,998
Van Ness Bus Rapid Transit Sewer Improvements 5,482
As-Needed Spot Sewer Replacement Number 38 4,972
Public Works Various Locations Number 40 Infrastructure Improvements 4,918 Southeast Plant 062 Archimedes Screw Pump 4,697
Taraval Sewer Improvements 4,070
As-Needed Main Sewer Replacement Number 7 4,043
Other project additions individually below $4,000 93,864 $ 619,819

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

12 (Continued)

Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service, including transfers of completed projects from construction work in progress, during the year ended June 30, 2021 include the following:

See Note 4 for additional information about capital assets.

Sewer System Improvement Program
The Sewer System Improvement Program (SSIP) includes three phases over 20 years to improve the existing wastewater system. In March 2016, the refined program scope a nd budget increased from $6.9 billion to $7.0 billion was endorsed by the Commission, which is now referred to as the 2016 SSIP Baseline program.

As of June 30, 20 21, 37 projects or 5 2.9% totaling $ 367 million were completed, 8 projects in pre - construction phase, 1 8 projects in construction phase, and 7 projects in close -out phase. The OSP Condition Assessment Repairs was completed on January 29, 2021 with reported project expenditures of $11.6 million. The project includes planning, design, and environmental review of major improvements to the plant including rehabilitation of building structures , rehabilitation or replacement of mechanical and electrical equipment, and seismic retrofit of process tanks and building s. Improvements focus on maintaining operational reliability and extending the service life of buildings that are required to remain in operation for 30 years or more. The SEP Seismic Reliability and Condition Assessment Improvements Project is on-going co nstruction. The project is reported at 86.0% complet ion and forecasted final completion is on March 8, 202 2. Program expenditures as of June 30, 20 21 totaled $ 1,546.1 million.

Additional details regarding the SSIP are available at https://sfpuc.org/construction-contracts/sewer- system-improvement-program.

Van Ness Bus Rapid Transit Sewer Improvements $ 20,665
Richmond Early Implementation Project 13,620
Geary Bus Rapid Transit Sewer Improvements 12,287
Public Works Lombard Street Infrastructure Improvements 11,794 Southeast Plant 062 Archimedes Screw Pump 10,421
Taraval Sewer Improvements 10,397
Sunset Green Infrastructure 9,932
Public Works Various Locations Number 35 Infrastructure Improvements 8,722 As-Needed Spot Sewer Replacements Number 40 7,112
Public Works Various Locations Number 39 Infrastructure Improvements 6,493 Public Works Various Locations Number 36 Infrastructure Improvements 6,056 Public Works Various Locations Number 43 Infrastructure Improvements 6,023 As-Needed Spot Sewer Replacement Number 38 4,972
Public Works Alemany Blvd Infrastructure Improvements 4,956 Beach And Sansome Street Combined Sewer Distribution Rehabilitation 4,708 Public Works Second Street Infrastructure Improvements 4,560 As-Needed Main Sewer Replacement Number 7 4,043
North Point Facility Dewatering Pump Replacement 3,725
Public Works Palou Avenue Infrastructure Improvements 3,514 Various Locations Sewer Replacements Number 7 3,429
Oceanside Plant Door Replacement 3,082
Other project additions individually below $3,000 25,763 $ 186,274

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

13 (Continued)

Capital Assets, Fiscal Year 2020
The Enterprise has capital assets of $3,062,28 8, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2020 (see Table 3). This amount represents an increase of $340,484 or 12.5% from prior fiscal year. The investment in capital assets includes land, buildings, improvements, wastewater treatment plants, sewer pipes and mains, underground t ransport and storage boxes, pump stations, machinery, and equipment. Facilities, improvements, machinery, and equipment increased by $187,35 3 or 9.8%, construction work in progress increased by $144,714 or

18.9%, and land and rights -of-way increased by $8, 554 or 23.7% due to the Rankin Street land purchase , offset by a decrease of $137 or 4.3% in intangible assets due to amortization.

Major additions to construction work in progress during the year ended June 30, 2020 include the following:

Southeast Plant Biosolids and Digester Facilities Project $ 116,761 Southeast Plant New Headworks Grit Removal and Influent Pump Station 69,287 Southeast Community Center 14,708
Seismic Reliability - Phase 1 13,066
Oceanside Plant Digester Gas Handling Utilization 11,087 As-Needed Spot Sewer Replacement No. 38 10,501
Southeast Plant Water System Improvements 9,206
Program Management 9,088
Public Works Lombard Street Infrastructure Improvements 7,729 Mariposa Pump Station & Force Main 7,411
Islais Creek Outfall 7,401
Geary Bus Rapid Transit Sewer Improvements 6,013
Southeast Plant 062 Archimedes Screw Pump 5,236
Richmond Early Implementation Project 5,211
Channel Tunnel/Bayside Drainage 5,180
Public Works Various Locations Pavement Number 37 4,966 Van Ness Bus Rapid Transit Sewer Improvements 4,674
Public Works Various Locations Number 39 Infrastructure Improvements 4,639 As-Needed Main Sewer Replacement #7 4,385
Ocean Beach Project 4,255
Westside Pump Station Reliability Improvements 4,245
Taraval Sewer Improvements 4,174
Other project additions individually below $4,000 76,575 Total $ 405,798

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

14 (Continued)

Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service, including transfers of completed projects from construction work in progress, during the year ended June 30, 2020 include the following:

See Note 4 for additional information about capital assets.

Sewer System Improvement Program
The Sewer System Improvement Program (SSIP) includes three phases over 20 years to improve the existing wastewater system. In March 2016, the refined program scope and budget increased from $6.9 billion to $7.0 billion endorsed by the Commission along with the baseline for scope, schedule and budget for phase I, II, and III projects.

As of June 30, 2020, 32 projects or 45.7% totaling $324 million were completed, with 1 5 projects in pre - construction phase, 17 projects in construction phase, and 6 projects in close-out phase. The SEP Existing Digester Gas Handling Improvements was completed on February 28, 2020 with reported project expenditures of $15.5 million . The goal of this project is to cost effectively integrate the digester gas handling sys tem at the SEP, improve the reliability of the cogeneration facility, and provide backup fuel source for the boilers. The SEP New Headworks Facility –Scope II.A is on-going construction. The project is reported at 82.7% complet ion and forecasted final completion is on No vember 14, 2020. Program expenditures as of June 30, 2020 totaled $1 ,079.0 million. Additional details regarding the SSIP are available at https://sfpuc.org/construction-contracts/sewer-system-improvement-program.

Southeast Plant Water System Improvements $ 64,526
Griffith Pump Station Improvements 20,305
Oceanside Plant Condition Assessment Repairs 15,440
Seismic Reliability - Phase 1 14,317
As Needed Spot Sewer Replacement Number 38 12,136
Islais Creek Outfall 9,206
South East Plant 740 Digester Gas Upgrade 8,688
Various Locations Sewer Replacement Number 3 8,245
Public Works Various Locations Pavement Number 37 7,123 Public Works Filbert Other Street Infrastructure Improvements 5,784 Public Works Various Locations Number 28 Infrastructure Improvements 5,772 Various Locations Sewer Replacement Number 5 5,013
Oceanside Plant Building 620 Digester Recirculation Pump 4,965 Westside Pump Station Reliability Improvements 4,756
5th/North/6th Division Street Combined Sewer Discharge 4,691 Public Works Evans Avenue Infrastructure Improvements 4,538 As Needed Main Sewer Replacement Number 7 4,385
Public Works As Needed Number 11 Infrastructure Improvements 4,284 Public Works Irving Street Phase 2 Infrastructure Improvements 4,115 Public Works Clayton Other Street Infrastructure Improvements 3,950 46th/47th/48th Avenues Sewer Replacement 3,149
Wastewater 16th Street Sewer Replacement 3,080
Oceanside Plant Facility Ventilation System 3,042
Other project additions individually below $3,000 28,880 Total $ 250,390

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

15 (Continued)

Debt Administration
As of June 30, 20 21, 2020, and 201 9, the Enterprise’s debt from revenue bonds, commercial paper, certificates of participation , and State revolving fund loans were $2,363,086, $1,945,080, and $2,059,742, respectively, as shown in Table 4. More detailed information about the Enterprise’s debt activity is presented in Notes 6, 7, and 8 to the financial statements.

The increase of $ 418,006 was mainly due to $435,450 issuance of commercial paper and $22,46 8 of State Revolving Fund loans for the OSP Digester Gas Utilization Upgrade , SEP 521/522 and Disinfection Upgrade and Lake Merced Green Infrastructure projects, offset by $31,316 repayment of outstanding debt and $8,596 of premium amortizations.

Credit Ratings and Bond Insurance – As of June 30, 20 21 and 2020, the Enterprise carried underlying ratings of “Aa2” and “AA” from Moody’s and Standard & Poor’s (S&P), respectively.

Debt Service Coverage – Pursuant to the Indenture for the Wastewater bonds, the Enterprise covenants to collect sufficient net revenues each fiscal year, together with any Enterprise funds (except Bond Reserve Funds) that are available for payment of debt service and are not budgeted to be expended, at least equal to 1.25 times annual debt service for said fiscal year . During fiscal years 2021 and 2020, the Enterprise’s net revenues, together with fund balances available to pay debt service and not budgeted to be expended, were sufficient to meet the rate covenant requirements under the Indenture (see Note 8).

Debt Authorization – Pursuant to the Charter Section 8B.124, the Enterprise can incur indebtedness upon two-thirds vote of the Board of Supervisors. As of June 30, 20 21, the Enterprise had $ 3,791,781 in combined debt issuance authorization from the Board of Sup ervisors under Proposition E, with $2,735,709 issued against this authorization. The Enterprise has a $750,000 authorized commercial paper program, with $ 638,518 in tax -exempt commercial paper outstanding as of June 30, 20 21 and $ 207,939 in tax - exempt commercial paper outstanding as of June 30, 2020.

Cost of Debt Capital – The coupon interest rates on the Enterprise’s outstanding revenue bonds ranged from 1.0% to 5.8%, with a blended true interest cost of 3.4%, after factoring in federal interest subsidy receipts on Build America Bonds at June 30, 20 21. The 2009 Series C certificates of participation carried coupon interest rates from 2.0% to 5.0% and 2009 Series D certificates of participation carried coupon interest rates from 6.4% to 6.5% in fiscal years 20 21 and 2020, respectively. The interest rates on short - term debt ranged from 0.1% to 0.2% during fiscal year 20 21 and from 0.2% to 1.9% during fiscal year 2020. The State revolving fund loans (CWSRF loans) carried interest rates ranging from 0.8% to 1.8% for a weighted average of 1.4% during fiscal year 2021.
2021-2020 2020-2019
2021 2020 2019 Change Change
Revenue bonds $ 1,589,922 1,621,733 1,652,609 (31,811) (30,876) Commercial paper 638,518 207,939 291,498 430,579 (83,559) Certificates of participation 26,087 26,859 27,603 (772) (744) State revolving fund loans 108,559 88,549 88,032 20,010 517 Total $ 2,363,086 1,945,080 2,059,742 418,006 (114,662) As of June 30, 2021, 2020, and 2019
Outstanding Debt, Net of Unamortized Costs
Table 4

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)
16 Rates and Charges
Rate Setting Process
Proposition E, as approved by the voters in November 2002, amended the City Charter by adding the new Article VIIIB, entitled “Public Utilities,” which established the Commission’s authority to issue new revenue bonds and set wastewater rates. The Commission is required to:
• Establish rates, fees, and charges based on cost of service; • Retain an independent rate consultant to conduct cost of service studies at least every five years; • Consider establishing new connection fees;
• Consider conservation incentives and lifeline rates;
• Adopt a rolling five-year forecast annually; and
• Establish a Rate Fairness Board.

Pursuant to the City and County of San Francisco Charter section 8B.125, an independent rate study is performed at least once every five years. In compliance with City Charter section 8B.125, a water and wastewater rate s tudy was completed in April 2018 and resulted in four -year wastewater rate increases from July 1, 201 8 through June 30, 20 22. The SFPUC Rates Schedules and Fees is available at https://sfpuc.org/accounts-services/water-power-and-sewer-rates.

The following table is the Enterprise’s ten-year approved average rate adjustments:

Request for Information
This report is designed to provide our citizens, customers, investors, and creditors with an overview of the Enterprise’s finances and to demonstrate the Enterprise’s accountability for the money it receives.

Questions regarding any of the information prov ided in this report or requests for additional financial information should be addressed to San Francisco Public Utilities Commission, Chief Financial Officer, Financial Services, 525 Golden Gate Avenue, 13th Floor, San Francisco, CA 94102.

This report is available at https://sfpuc.org/about-us/reports/audited-financial-statements-reports.

Effective Date Rate
July 1, 2012 5.0
1 %
July 1, 2013 5.0
1 July 1, 2014 5.0
2 July 1, 2015 5.0
2 July 1, 2016 7.0
2 July 1, 2017 11.0
2 1
Four-year rate increases adopted and effective July 1, 2009.

July 1, 2018 7.0
3 2
Four-year rate increases adopted and effective July 1, 2014.

July 1, 2019 7.0
3 3
Four-year rate increases adopted and effective July 1, 2018.

July 1, 2020 8.0
3 July 1, 2021 8.0
3 Ten-year Average Rate Adjustments

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Net Position
June 30, 2021 and 2020
(In thousands)

17 2021 2020
Assets
Current assets:

Cash and investments with City Treasury $ 281,572 351,915 Cash and investments outside City Treasury 366 356 Receivables:
33,081 33,749
Due from other City departments 281 190 Interest 189 983
Restricted due from other governments 20,755 3,265 2,841 1,864
Total current receivables 57,147 40,051
Prepaid charges, advances, and other receivables, current portion 877 195 Inventory 2,657 2,476
Restricted cash and investments outside City Treasury 298 11,043 Total current assets 342,917 406,036
Non-current assets:

Restricted cash and investments with City Treasury — 55,132 Restricted cash and investments outside City Treasury 9,898 10,461 450 467
341 339
Prepaid charges, advances, and other receivables, less current portion 1,183 1,185 Capital assets, not being depreciated and amortized 1,388,262 957,956 Capital assets, net of accumulated depreciation and amortization 2,218,588 2,104,332 Total non-current assets 3,618,722 3,129,872
Total assets 3,961,639 3,535,908
Deferred outflows of resources
Unamortized loss on refunding of debt 91 189 Pensions 30,219 30,422
Other post-employment benefits 15,109 10,065
Total deferred outflows of resources 45,419 40,676 Liabilities
Current liabilities:

Accounts payable 15,282 20,044
Accrued payroll 6,147 5,510
Accrued vacation and sick leave, current portion 5,811 4,801 Accrued workers’ compensation, current portion 1,198 1,112 Due to other City departments, current portion 110 110 Damage claims liability, current portion 5,892 8,994 Unearned revenues, refunds, and other 5,345 5,243 Bond and loan interest payable 17,271 17,416 Revenue bonds, current portion 22,880 23,240
Certificates of participation, current portion 785 747 Commercial paper 638,518 207,939
State revolving fund loans payable, current portion 2,483 2,458 Current liabilities payable from restricted assets 89,982 85,355 Total current liabilities 811,704 382,969
Long-term liabilities:

Other post-employment benefits obligations 50,711 58,183 Net pension liability 103,746 86,235
Accrued vacation and sick leave, less current portion 5,847 4,113 Accrued workers’ compensation, less current portion 5,384 4,939 Due to other City departments, less current portion 629 739 Damage claims liability, less current portion 10,821 6,897 Revenue bonds, less current portion 1,567,042 1,598,493 Certificates of participation, less current portion 25,302 26,112 State revolving fund loans payable, less current portion 106,076 86,091 Pollution remediation obligation 7,800 7,800 Total long-term liabilities 1,883,358 1,879,602
Total liabilities 2,695,062 2,262,571
Deferred inflows of resources
Related to pensions 2,148 16,892
Other post-employment benefits 7,265 4,185
Total deferred inflows of resources 9,413 21,077 Net position
Net investment in capital assets 1,253,789 1,183,288 Restricted for debt service 2,992 1,227
Unrestricted 45,802 108,421
Total net position $ 1,302,583 1,292,936
See accompanying notes to financial statements.

Charges for services, less current portion (net of allowance for doubtful accounts of $569 as of June 30, 2021 and $577 as of June 30, 2020)
Restricted interest, other receivable, and prepaid (net of allowance for doubtful accounts of $68 as of June 30, 2021 and $38 as of June 30, 2020)
Restricted interest, other receivable, and prepaid (net of allowance for doubtful accounts of $29 as of June 30, 2021 and June 30, 2020)
Charges for services (net of allowance for doubtful accounts of $5,369 as of June 30, 2021 and $3,189 as of June 30, 2020)

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2021 and 2020
(In thousands)

18 2021 2020
Operating revenues:

Charges for services $ 318,236 331,721
Rents and concessions 642 664
Capacity fees 3,710 5,896
Other revenues 5,077 5,847
Total operating revenues 327,665 344,128
Operating expenses:

Personnel services 90,449 91,013
Contractual services 18,861 19,357
Materials and supplies 9,091 8,991
Depreciation and amortization 72,018 62,967
Services provided by other departments 38,313 37,309 General and administrative and other 63,488 42,622 Total operating expenses 292,220 262,259
Operating income 35,445 81,869
Non-operating revenues (expenses):

Interest and investment (loss) income (1,187) 12,137 Interest expenses (34,862) (43,216)
Amortization of premium, refunding loss, and issuance costs 8,497 8,647 Net gain from sale of assets 18 38
Other non-operating revenues 4,893 5,558
Other non-operating expenses (409) (52)
Net non-operating expenses (23,050) (16,888)
Change in net position before transfers 12,395 64,981 Transfers from the City and County of San Francisco 1,440 280 Transfers to the City and County of San Francisco (4,188) (1,468) Net transfers (2,748) (1,188)
Change in net position 9,647 63,793
Net position at beginning of year 1,292,936 1,229,143 Net position at end of year $ 1,302,583 1,292,936

See accompanying notes to financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Cash Flows
Years ended June 30, 2021 and 2020
(In thousands)

19 (Continued)

2021 2020
Cash flows from operating activities:

Cash received from customers, including cash deposits $ 327,879 343,966 Cash received from tenants for rent 362 640 Cash paid to employees for services (90,918) (89,751) Cash paid to suppliers for goods and services (128,808) (99,755) Cash paid for judgments and claims (3,295) (4,105) Net cash provided by operating activities 105,220 150,995 Cash flows from non-capital financing activities:

Cash received from grants — 1,383 Cash received from miscellaneous revenues 831 1,522 Cash paid for rebates and program incentives (409) (52) Transfers from the City and County of San Francisco 1,440 280 Transfers to the City and County of San Francisco (4,188) (1,468) Net cash (used in) provided by non-capital financing activities (2,326) 1,665 Cash flows from capital and related financing activities:

Proceeds from sale of capital assets 12 38 Proceeds from commercial paper borrowings 435,450 4,390 Proceeds from State revolving fund loans 4,811 36,152 Principal paid on long-term debt (23,987) (22,796) Principal paid on commercial paper (4,871) (87,949) Principal paid on State revolving fund loans (2,458) (1,239) Interest paid on long-term debt (66,654) (67,775) Interest paid on commercial paper (484) (4,288) Interest paid on State revolving fund loans (1,123) (787) Issuance cost paid on long-term debt — (40) Acquisition and construction of capital assets (582,840) (337,299) Federal interest income subsidy for Build America Bonds 2,297 4,032 Net cash used in capital and related financing activities (239,847) (477,561) Cash flows from investing activities:

Interest income received 3,169 15,087
Proceeds from sale of investments outside City Treasury 134,955 101,291 Purchase of investments outside City Treasury (134,955) (92,971) Net cash provided by investing activities 3,169 23,407 Decrease in cash and cash equivalents (133,784) (301,494) Cash and cash equivalents:

Beginning of year 425,690 727,184
End of year $ 291,906 425,690

Reconciliation of cash and cash equivalents to the statements of net position:

Cash and investments with City Treasury:

Unrestricted $ 281,572 351,915
Restricted — 55,132
Less: Unrealized (gain) loss on investments with City Treasury (228) (3,217) Cash and investments outside City Treasury:

Unrestricted 366 356
Restricted 10,196 21,504
Cash and cash equivalents at the end of year on $ 291,906 425,690 statements of cash flows

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Cash Flows
Years ended June 30, 2021 and 2020
(In thousands)

20 2021 2020
Reconciliation of operating income to net cash provided by operating activities:

Operating income $ 35,445 81,869
Adjustment to reconcile operating income to net cash
provided by operating activities:

Depreciation and amortization 72,018 62,967
Provision for uncollectible accounts 2,201 908 Write-off of capital assets 4,203 4,728
Receivables:

Charges for services (1,506) (870)
Prepaid charges, advances, and other (716) (79) Due from other City departments 148 (129) Inventory (181) (192)
Accounts payable (4,762) 1,912
Accrued payroll 637 858
Other post-employment benefits obligations (9,436) (1,562) Pension obligations 2,970 (1,603)
Accrued vacation and sick leave 2,744 1,637 Accrued workers’ compensation 531 137
Due to other City departments — 1
Pollution remediation obligation — 300 Damage claims liability 822 (477)
Unearned revenues, refunds, and other liabilities 102 590 Total adjustments 69,775 69,126
Net cash provided by operating activities $ 105,220 150,995

Noncash transactions:

Accrued capital asset costs $ 89,982 85,355
Interfund payable 739 849
Unrealized (gain) loss on investments (228) (3,217) See accompanying notes to financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

21 (Continued)

(1) Description of Reporting Entity
The San Francisco Wastewater Enterprise (the Enterprise), formerly known as the San Francisco Clean Water Program (the Program), was established in 1977 follo wing the transfer of all sewage system-related assets and liabilities of the City and County of San Francisco (the City) to the Program.

In 1976, the electorate of the City approved a proposition authorizing the City to issue $240,000 in revenue bonds pursuant to the Revenue Bond Law of 1941 of the State of California fo r the purpose of acquiring, constructing, improving, and financing improvements to the City’s municipal sewage treatment and disposal system. Since then, the City’s Board of Supervisors has adopted resolutions (Wastewater Resolutions) providing for the iss uance of various sewer revenue and refunding bond series. The Wastewater Resolutions require the City to keep separate books of records and accounts of the Enterprise.

The Enterprise was placed under the jurisdiction of the San Francisco Public Utilities C ommission (SFPUC or the Commission) in 1996. The Commission, established in 1932, is responsible for providing operational oversight of the public utility enterprises of the City, which includes the Enterprise along with the City’s power and water utilitie s (i.e., Hetch Hetchy Water and Power and CleanPowerSF, of which the Power Enterprise is a component, and the San Francisco Water Enterprise). The Commission is responsible for determining such matters as the rates and charges for services, approval of contracts, and organizational policy.

Until August 1, 2008, the Commission consisted of five members, all appointed by the Mayor.

Proposition E, a City Charter amendment approved by the voters in the June 3, 2008 election, terminated the terms of all five existing members of the Commission, changed the process for appointing new members, and set qualifications for all members. Under the amended Charter, the Mayor continues to nominate candidates to the Commission, but nominees do not take office until the Board of Supervisors votes to approve their appointments by a majority (at least six members). The amended Charter provides for staggered four -year terms for the Commission members and requires them to meet the following qualifications:
• Seat 1 m ust have experience in environmental policy and an understanding of environmental justice issues.
• Seat 2 must have experience in ratepayer or consumer advocacy. • Seat 3 must have experience in project finance.
• Seat 4 must have expertise in water systems, power systems, or public utility management. • Seat 5 is an at-large member.

The SFPUC is a department of the City, and as such, the financial operations of the Enterprise, Hetch Hetchy Water and Power and CleanPowerSF , and the Water Enterprises are included i n the Annual Comprehensive Financial Report of the City as enterprise funds. These financial statements are intended to present only the financial position, and the changes in financial position and cash flows of only that portion of the City that is attri butable to the transactions of the Enterprise. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 20 21 and 20 20, the changes in its financial position, or, where applicable, the cash flows for the years the n ended , in conformity with U.S. generally accepted accounting principles (GAAP).

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

22 (Continued)

(2) Significant Accounting Policies
(a) Basis of Accounting and Measurement Focus
The accounts of the Enterprise are organized on the basis of a proprietary fund type, specifically an enterprise fund of the City. The activities of this Enterprise are accounted for with a separate set of self-balancing accounts that comprise the Enterpri se’s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, and expenses. Enterprise funds account for activities (i) that are financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity; or (ii) that are required by laws or regulations that the activity’s costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (iii) that the pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service).

The financial activities of the Enterprise are accounted for on a flow of economic res ources measurement focus, using the accrual basis of accounting in accordance with the U.S. GAAP. Under this method, all assets and liabilities associated with operations are included on the statements of net position; revenues are recognized when earned, and expenses are recognized when liabilities are incurred. Operating revenues are defined as charges to customers, rental income, and capacity fees.

The Enterprise applies all applicable Governmental Accounting Standards Board (GASB) pronouncements.
(b) Cash and Cash Equivalents
The Enterprise considers its pooled deposits and investments held with the City Treasury to be demand deposits and, therefore, cash and cash equivalents for financial reporting. The City Treasury also holds non -pooled cash and investmen ts for the Enterprise. Non -pooled restricted deposits and restricted deposits and investments held outside the City Treasury with original maturities of three months or less are also considered to be cash equivalents. (c) Investments
Money market funds are car ried at cost, which approximates fair value. All other investments are stated at fair value based upon quoted market prices. Changes in fair value are recognized as investment gains or losses and are recorded as a component of non-operating revenues. (d) Inventory
Inventory consists primarily of construction materials and maintenance supplies and is valued at average cost. Inventory is expensed as it is consumed.
(e) Capital Assets
Capital assets are defined as assets with an initial individual cost of more than $5 and an estimated useful life in excess of one year. Capital assets with an original acquisition date prior to July 1, 1977 are recorded in the financial statements at esti mated cost, as determined by an independent professional appraisal, or at cost, if known. All subsequent acquisitions have been recorded at cost.

All donated capital assets are valued at estimated fair value at the time of donation. Depreciatio n and amortization are computed using the straight-line method over the estimated useful lives of the

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

23 (Continued)

related assets, which range from 1 to 100 years for equipment and 1 to 200 years for building, structures, and improvements. No depreciation or amortization is recorded in the year of acquisition, and depreciation or amortization is recorded in the year of disposal. (f) Intangible Assets
Under GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets , intangible assets are defined as iden tifiable, non -financial assets capable of being separated, sold, transferred, or licensed, and include contractual or legal rights. Examples of intangible assets include rights-of-way easements, land use rights, water rights, licenses, and permits. The acc ounting pronouncement also provides guidance on the capitalization of internally generated intangible assets, such as the development and installation of computer software by or on behalf of the reporting entity.

According to the standard, the Enterprise i s required to capitalize intangible assets with a useful life extending beyond one reporting period. The Enterprise has established a capitalization threshold of $100. GASB Statement No. 51 also requires amortization of intangible assets over the benefit period, except for certain assets having an indefinite useful life. Assets with an indefinite useful life generally provide a benefit that is not constrained by legal or contractual limitations or any other external factor, and therefore, are not amortized (see Note 4). (g) Construction Work in Progress
The cost of acquisition and construction of major plant and equipment is recorded as construction work in progress. Costs of construction projects that are discontinued are recorded as an expense in the year in which the decision is made to discontinue such projects. (h) Capitalization of Interest
A portion of the interest cost incurred on capital projects is capitalized on assets that require a period of time for construction or to otherwise prepare them for their intended use. Such amounts are amortized over the useful lives of the assets (see Note 4). (i) Bond Discount, Premium, and Issuance Costs
Bond issuance costs related to prepaid insurance costs are capitalized and amortized using the effective interest method. Other bond issuance costs are expensed when incurred. Original issue bond discount or premium are offset against the related debt and are also amortized using the effective interest method.
(j) Accrued Vacation and Sick Leave
Accrued vacation pay, which may be accumulated up to 10 weeks per employee, is charged to expense as earned. Sick leave earned subsequent to December 6, 1978 is non -vesting and may be accumulated up to six months per employee.
(k) Workers’ Compensation
The Enterprise is self -insured for workers’ compensation claims and accrues the estimated cost of those claims, including the estimated cost of incurred but not reported claims (see Note 11( b)).

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

24 (Continued)

(l) General Liability
The Enterprise is self -insured for general li ability and uninsurable property damage claims.

Commercially uninsurable property includes assets that are underground or provide transmission and distribution. Maintained commercial coverage does not cover claims attributed to loss from earthquake, contam ination, pollution remediation efforts, and other specific naturally occurring contaminants such as mold. The liability represents an estimate of the cost of all outstanding claims, including adverse loss development and estimated incurred but not reported claims (see Note 11(a)).
(m) Arbitrage Rebate Payable
Certain bonds are subject to arbitrage rebate requirements in accordance with regulations issued by the U.S. Treasury Department. The requirements generally stipulate that earnings from the investment of the tax-exempt bond proceeds that exceed related interest costs on the bonds must be remitted to the federal government on every fifth anniversary of each bond issue. No arbitrage liability is due as of June 30, 2021 or 2020.
(n) Refunding of Debt
Gains or losses occurring from refunding of debt prior to maturity are reported as deferred outflows and deferred inflows of resources from refunding of debt. Deferred outflows and deferred inflows of resources are recognized as a component of interest expense using t he effective interest method over the remaining life of the old debt or the life of the new debt, whichever is shorter. (o) Income Taxes
As a department of a government agency, the Enterprise is exempt from both feder al income taxes and California State franchise taxes.
(p) Revenue Recognition
Sewer service charges are based on water usage as determined by the San Francisco Water Enterprise. Effective July 1, 2013, the majority of residential and non -residential customers are billed on a monthly basis except for building and contractor customers which are billed on a bi - monthly basis. Revenues earned but unbilled are accrued as charges for services and reflected as a receivable on the statements of net position. The unbilled amount for the fiscal years ending June 30, 2021 and 2020 were $14,175 and $13,429, respectively. (q) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabil ities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(r) Accounting and Financial Reporting for Pollution Remediation Obligations According to GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, a government would have to estimate its expected outlays for pollution remed iation if it

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

25 (Continued)

knows a site is polluted and any of the following recognition triggers occur:
• Pollution poses an imminent danger to the public or environment and a government has little or no discretion to avoid fixing the problem;
• A government has violated a pollution prevention-related permit or license; • A regulator has identified (or evidence indicates it will identify) a government as responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the cleanup;
• A government is named (or evidence indicates that it will be named) in a lawsuit to compe l it to address the pollution; or
• A government begins or legally obligates itself to begin cleanup or post -cleanup activities (limited to amounts the government is legally required to complete).

As a part of ongoing operations, situations may occur requ iring the removal of pollution or other hazardous material. These situations typically arise in the process of acquiring an asset, preparing an asset for its intended use, or during the design phase of projects under review by the project managers. Other t imes, pollution may arise during the implementation and construction of a major or minor capital project. Examples of pollution may include, but are not limited to: asbestos or lead paint removal, leaking of sewage in underground pipes or neighboring areas , chemical spills, removal and disposal of known toxic waste, harmful biological and chemical pollution of water, or contamination of surrounding soils by underground storage tanks (see Note 12(d)). (s) Other Post-Employment Benefits Other Than Pensions (OPEB) As prescribed under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions , net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB expense are actuarially dete rmined on a citywide basis. Net OPEB liability is measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees attributed to those employees’ past service, less the amount of the Retiree Healthcare Trust Fund investments measured at fair value. (t) New Accounting Standard Adopted in Fiscal Year 2021 1) In January 2017, the GASB issued Statement No. 8 4, Fiduciary Activities. GASB Statement No. 84 establishes criteria for state and local governments to identify fiduciary activities and how those activities should be reported . The new standard is effective for periods beginning after December 15, 2019. The Enterprise adopted the provisions of this Statement in fiscal year 2 021, which did not have a significant effect on its financial statements. 2) In August 2018, the GASB issued Statement No. 90, Accounting and Financial Reporting for Majority Equity Interests. GASB Statement No. 90 provides clarification when a government should report a majority equity interest in a legally separate organization as either a component unit or an investment. The new standard is effective for periods beginning after December 15, 2019. The Enterprise adopted the provisions of this Statement in fiscal year 2021, which did not have a significant effect on its financial statements.
3) In June 2020, The GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

26 (Continued)

supersession of GASB Statement No. 32. GASB Statement No. 97 clarifies rules related to reporting of fiduciary activities under Statements No. 14 and No. 84 and enhances the accounting and financial reporting of IRS Code section 457 plans that meet the definition of a pension plan.

The new stan dard is effective for periods beginning after June 15, 2021. The Enterprise adopted early the provisions of Statement No. 97 in fiscal year 2021 , which did not have a significant effect on its financial statements.
4) In October 2021, the GASB issued Statement No. 98, The Annual Comprehensive Financial Report. GASB Statement No. 98 updates existing accounting standards by changing the name of the Comprehensive Annual Financial Report to the Annual Comprehensive Financ ial Report. The new standard is effective for periods ending after December 15, 2021. The Enterprise adopted the provisions of this Statement in fiscal year 2021, which did not have a significant effect on its financial statements.
(u) GASB Statement implemented in Fiscal Year 2020
1) In May 2020, the GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. The primary objective of this Statement is to provide temporary relief to governments and other stakeholders in light of the COVID -19 pandemic. That objective is accomplished by postponing the effective dates of certain provisions in Statements and Implementation Guides that first became effective or are scheduled to become effective for the periods beginning after June 15, 2018. The Enterprise adopted the provisions of this Statement in fiscal year 2020.
(v) Future Implementation of New Accounting Standards
1) In June 2017, the GASB issued Statement No. 87, Leases. GASB Statement No. 87 establishes a single model for lease accounting and requires repo rting of certain lease liabilities that currently are not reported. The new standard is effective for periods beginning after June 15, 2021. The Enterprise will implement the provisions of Statement No. 87 in fiscal year 2022. 2) In June 2018, the GASB issued Statement No. 8 9, Accounting for Interest Cost Incurred before the End of a Construction Period . GASB Statement No. 8 9 establishes accounting requirements for interest cost incurred before the end of construction period. The new standard is effective for periods beginning after December 15, 20 20. The Enterprise will implement the provisions of Statement No. 89 in fiscal year 2022.
3) In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations . GASB Statement No. 91 enhances the compatibility and consistency of conduit debt obligation reporting and reporting of related transactions by State and local government issue rs. The new standard is effective for periods beginning after December 15, 202 1. The Enterprise will implement the provisions of Statement No. 91 in fiscal year 2023.
4) In January 2020, the GASB issued Statement No. 92 , Omnibus 2020. GASB Statement No. 92 addresses practice issues that have been identified during implementation and appl ication of certain GASB Statements. The new standard is effective for periods beginning after June 15, 2021. The Enterprise will implement provisions of Statement No. 92 in fiscal year 2022. 5) In March 2020, the GASB issued Statement No. 93 , Replacement of I nterbank Offered Rates (IBOR). The objective of this Statement is to address those and other accounting and financial

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

27 (Continued)

reporting implications that result from the replacement of an IBOR. The new standard is effective for periods beginning after June 15, 202 1. The Enterprise will implement the provisions of Statement No. 93 in fiscal year 2022.
6) In March 2020, the GASB issued Statement No. 94, Public-Private and Public -Public Partnerships and Availability Payment Arrangements . The primary objective of this Statement is to improve financial reporting by addressing issues related to public -private and public -public partnership arrangements (PPPs). The new standard is effective for periods beginning after June 15, 2022. The Enterprise will implement the provisions of Statement No. 94 in fiscal year 2023. 7) In May 2020, the GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. This Statement provides guidance on the accounting and financial reporting for subscription-based informatio n technology arrangements (SBITAs) by a government. The new standard is effective for periods beginning after June 15, 2022. The Enterprise will implement the provisions of Statement No. 96 in fiscal year 2023. (w) Reclassifications
The Enterprise has reclassified certain amounts relating to the prior period to conform to its current period presentation. Th ese reclassifications had no effect on previously reported changes in net position.
(3) Cash, Cash Equivalents, and Investments
The Enterprise’s cash, cash equivalents, and investments with the City Treasury are invested in an unrated City pool pursuant to investment policy guidelines established by the City Treasurer. The objectives of the policy guidelines are, in order of priority, preservation of capital, liquidity, and yield. The policy addresses soundness of financial institutions in which the City will deposit funds, types of investment instruments as permitted by the California Government Code, and the percentage of the portfolio that may be invested in certain instruments with longer terms to maturity. The City Treasurer allocates income from the investment of pooled cash at month -end in proportion to the Enterprise’s average daily cash balances. The primary objectives of the En terprise’s investment policy are consistent with the City’s policy.

The restricted cash for bond reserves is held by an independent trustee outside the City investment pool. The balances as of June 30, 20 21 and 20 20 were $ 10,196 and $ 21,504, respectively. Funds held by the trustee established under the 2003 Indenture are invested in “Permitted Investments” as defined in the Indenture. “Permitted Investments” include money market funds registered under the Federal Investment Company Act of 1940 and whose shares are registered under the Federal Securities Act of 1933 and having a rating by S&P of “AAAm -G,” “AAAm ,” or “AAm” and a rating by Moody’s of “Aaa,” “Aa1,” or “Aa2.”

The Enterprise categorizes its fair value measurements within the fair va lue hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets ; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The inputs and techniques used for valuing securities are not necessarily an indication of risk associated with investing in those securities.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

28 (Continued)

The following is a summary of the restricted and unrestricted cash and investments outside City Treasury and the fair value hierarchy as of June 30, 2021 and 2020.

In vestmen ts
Credit Ratin gs
( S&P/Moody's) Matu rities Fair Valu e
U.S. Treasury Money Market Funds AAAm/Aaa-mf < 90 days $ 10,159 10,159 — — — Money Market Funds A-1+/P-1 < 90 days 26 26 — — — Cash and Cash Equivalents N/A 11 11 — — — Total Restricted Cash and Investments outside City Treasury $ 10,196 10,196 — — — Cash and Cash Equivalents N/A 366 366 — — — Total Cash and Investments outside City Treasury $ 366 366 — — — Cash and Investments outside City Treasury
Fair Value Measurements Using
In vestmen ts
exempt from
fair valu e
Qu oted prices
in active
markets for
iden tical
assets
( Level 1)
Sign ifican t
other
observable
in pu ts
( Level 2)
Un observable
In pu ts
( Level 3)
Ju n e 30, 2021
In vestmen ts
Credit Ratin gs
( S&P/Moody's) Matu rities Fair Valu e
U.S. Treasury Money Market Funds AAAm/Aaa-mf < 90 days $ 21,372 21,372 — — — Money Market Funds A-1+/P-1 < 90 days 124 124 — — — Cash and Cash Equivalents N/A 8 8 — — — Total Restricted Cash and Investments outside City Treasury $ 21,504 21,504 — — — Cash and Cash Equivalents N/A 356 356 — — — Total Cash and Investments outside City Treasury $ 356 356 — — — Cash and Investments outside City Treasury
Fair Value Measurements Using
In vestmen ts
exempt from
fair valu e
Qu oted prices
in active
markets for
iden tical
assets
( Level 1)
Sign ifican t
other
observable
in pu ts
( Level 2)
Un observable
In pu ts
( Level 3)
Ju n e 30, 2020

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

29 (Continued)

Commercial paper is valued using a variety of techniques such as matrix pricing; market corroborated pricing inputs such as yield curve, indices, and other market related data. Commercial paper, money market investments, and cash and cash equivalents are exempt from fair value treatment under GASB Statement No. 72.

The restricted cash and investments outside City Treasury as of June 30, 20 21 and 2020 included a $0 unrealized gain due to changes in fair values on Commercial Paper.

The Enterprise’s cash, cash equivalents, and investments are shown on the accompanying statements of net position as follows:

The following table shows the percentage distribution of the City’s pooled investments by maturity:

2021 2020
Current assets:

Cash and investments with City Treasury $ 281,572 351,915 Cash and investments outside City Treasury 366 356 Restricted cash and investments outside City Treasury 298 11,043 Non-current assets:

Restricted cash and investments with City Treasury — 55,132 Restricted cash and investments outside City Treasury 9,898 10,461 Total cash, cash equivalents, and investments $ 292,134 428,907

Fiscal years
ended June 30 Under 1 1 to less than 6 6 to less than 12 12 to 60 2021 14.5% 27.6% 29.7% 28.2%
2020 30.1% 32.4% 15.6% 21.9%
Investment maturities (in months)

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

30 (Continued)

(4) Capital Assets
Capital assets with a useful life of 50 years or greater include buildings and structures, sewers, wastewater treatment plants, pump stations, and other pipelines.

Capital assets as of June 30, 2021 and 2020 consisted of the following:

2020 Increases Decreases 2021
Capital assets not being depreciated and amortized:

Land and rights-of-way $ 44,572 — — 44,572 Intangible assets 3,046 — — 3,046 Construction work in progress 910,338 619,819 (189,513) * 1,340,644 Total capital assets not being depreciated and amortized 957,956 619,819 (189,513) 1,388,262 Capital assets being depreciated and amortized:

Facilities and improvements 3,419,029 180,949 — 3,599,978 Intangible assets 4,615 4,361 — 8,976 Machinery and equipment 101,595 964 (162) 102,397 Total capital assets being depreciated and amortized: 3,525,239 186,274 * (162) 3,711,351 Less accumulated depreciation and amortization for:

Facilities and improvements (1,344,830) (67,279) — (1,412,109) Intangible assets (4,615) — — (4,615) Machinery and equipment (71,462) (4,739) 162 (76,039) Total accumulated depreciation and amortization (1,420,907) (72,018) 162 (1,492,763) Total capital assets being depreciated and amortized, net 2,104,332 114,256 — 2,218,588 Total capital assets, net $ 3,062,288 734,075 (189,513) 3,606,850 * Decrease in construction work in progress is greater than increase in capital assets being depreciated is explained by $4,203 in capital project write- offs, mainly related to the Watershed Storm Management Project, Operational Decision System Ph2 Project, and the Seacliff Ave Sewer Replacement- 627 Project offset by $964 direct additions to machinery and equipment. 2019 Increases Decreases 2020
Capital assets not being depreciated and amortized:

Land and rights-of-way $ 36,018 8,554 — 44,572 Intangible assets 3,046 — — 3,046 Construction work in progress 765,624 405,798 (261,084) * 910,338 Total capital assets not being depreciated and amortized 804,688 414,352 (261,084) 957,956 Capital assets being depreciated and amortized:

Facilities and improvements 3,171,227 247,802 — 3,419,029 Intangible assets 4,615 — — 4,615 Machinery and equipment 99,961 2,588 (954) 101,595 Total capital assets being depreciated and amortized: 3,275,803 250,390 * (954) 3,525,239 Less accumulated depreciation and amortization for:

Facilities and improvements (1,286,210) (58,620) — (1,344,830) Intangible assets (4,478) (137) — (4,615) Machinery and equipment (67,999) (4,417) 954 (71,462) Total accumulated depreciation and amortization (1,358,687) (63,174) 954 (1,420,907) Total capital assets being depreciated and amortized, net 1,917,116 187,216 — 2,104,332 Total capital assets, net $ 2,721,804 601,568 (261,084) 3,062,288 * Decrease in construction work in progress is greater than increase in capital assets being depreciated is explained by $4,728 in capital project write-offs, mainly related to the Collection System Condition Assessment Project, Westside Pump Station Force Main Project, and the Oceanside Plant Improvements Project. The remaining difference of $5,966 is related to $8,554 of construction work in progress transferred to land offset by $2,588 direct additions to intangible assets and machinery and equipment.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

31 (Continued)

GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre - November 30, 1989 F inancial Accounting Standards Board (FASB) and American Institute of Certified Public Accountants (AICPA) Pronouncements, requires that interest expense incurred during construction of assets be capitalized. Interest included in the construction work in progress and total interest expense incurred during the years ended June 30, 2021 and 2020 are as follows:

(5) Restricted Assets
The Master Bond Resolution was discharged upon the issuance of the 2003 Series A Refunding Bonds .

Pursuant to the Indenture, which became effective with the issuance of the 2003 Series A Refunding Bonds, all net revenues of the Enterprise (except amounts on deposit in the rebate fund) are irrevocably pledged to the punctual payment of debt service on the Wastewater revenue bonds. Accordingly, the net revenues of the Enterprise shall not be used for any other purpose while any of its revenue bonds are outstanding except as expressly permitted by the Indenture. Further, all net revenues shall be deposit ed by the City Treasurer, by instruction of the Enterprise, in special funds designated as the Revenue Fund, which must be maintained in the City Treasury. These funds, held at the City Treasury, are recorded in the statements of net position of the Enterp rise as cash and investments. Deposits in the Revenue Fund, including earnings thereon, shall be appropriated, transferred, expended, or used for the following purposes and only in accordance with the following priority:

1. The payment of operation and maintenance costs of the Enterprise;

2. The payment of State revolving fund loans;

3. The payment of bonds, parity State revolving fund loans, policy costs, and amounts due as reimbursement under any letter of credit agreement; and

4. Any other lawful purpose of the Enterprise.

2021 2020
Interest expensed $ 34,862 43,216
Interest included in construction work in progress 33,420 28,563 Total interest incurred $ 68,282 71,779

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

32 (Continued)

In accordance with the Indenture, the Enterprise maintains certain restricted cash and investment balances in trust. Restricted assets held in trust consisted of the following as of June 30, 2021 and 2020:

Restricted assets listed above as cash and investments with City Treasury are held in fund accounts within the Sewer Revenue Fund of the City Treasury.
2021 2020
Cash and investments with City Treasury:

Wastewater revenue bond construction fund $ — 55,132 Cash and investments outside City Treasury:
2009 Series C Certificates of Participation - 525 Golden Gate 433 480 2009 Series D Certificates of Participation - 525 Golden Gate 1,732 1,890 2010 Series A Wastewater revenue bond fund 3,592 3,621 2010 Series B Wastewater revenue bond fund 4,401 6,493 2018 Series A Wastewater revenue bond fund — 4,002 2018 Series B Wastewater revenue bond fund — 3,462 2018 Series C Wastewater revenue bond fund — 1,424 Commercial Paper - Tax Exempt 38 132
Total cash and investments outside City Treasury 10,196 21,504 Interest and other receivables:

Wastewater revenue bond construction fund including capacity fee receivables 3,291 2,331 Due from other government for State Revolving Fund 20,755 3,265 24,046 5,596
Total restricted assets $ 34,242 82,232

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

33 (Continued)

(6) Short-Term Debt
Under the voter approved 2002 Proposition E, the Commission and Board of Supervisors authorized the issuance of up to $750,000 in commercial paper for the purpose of reconstructing, expanding, repairing, or improving the Enterp rise’s facilities. The Enterprise had $638,518 and $207,939 in commercial paper outstanding as of June 30, 2021 and 2020, respectively.

In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements , t he Enterprise had $111,482 and $ 542,061 in unused authorization as of June 30, 20 21 and 2020, respectively. Significant Events of default as specified in the Reimbursement Agreements, Revolving Credit and Term Loan Agreements, or Revolving Credit Agreements include 1) payment defaults 2) material breach of warranty , representation, or other non - remedied breach of covenants as specified in the respective agreements (not cured within applicable grace periods), and 3) bankruptcy and insolvency events, which may result in all outstanding obligations to be immediately due and payable (unless waived by the respective Bank, if applicable); or issuance of a No -Issuance Notice, reduction in credit to outstanding amount plus in terest coverage, and/or termination of the respective agreement. As of June 30, 20 21, there were no such events described herein.

(7) Changes in Long-Term Liabilities
Long-term liability activities for the years ended June 30, 2021 and 2020 are as follows:

Matu rity Du e
In terest ( Calen dar within
rate Year) 2020 Addition s Redu ction s 2021 on e year
Revenue Bonds:
2010 Series A 4.00% - 5.00% 2021 $ 17,210 — (8,390) 8,820 8,820 2010 Series B (Build America) 4.65 - 5.82 2040 192,515 — — 192,515 — 2013 Series A 1.00 - 5.00 2025 44,445 — (14,850) 29,595 14,060 2013 Series B 4.00 - 5.00 2042 331,585 — — 331,585 — 2016 Series A 4.00 - 5.00 2046 240,580 — — 240,580 — 2016 Series B 4.00 - 5.00 2046 67,820 — — 67,820 — 2018 Series A 4.00 - 5.00 2043 229,050 — — 229,050 — 2018 Series B 5.00 2043 185,950 — — 185,950 — 2018 Series C 2.13 2048 179,145 — — 179,145 — For issuance premiums 133,433 — (8,571) 124,862 — Total revenue bonds payable 1,621,733 — (31,811) 1,589,922 22,880 2009 Series C Certificates of Participation (COPs) 2.00 - 5.00 2022 2,358 — (747) 1,611 785 2009 Series C COPs issuance premiums 43 — (25) 18 — 2009 Series D COPs (Build America) 6.36 - 6.49 2041 24,458 — — 24,458 — State Revolving Fund Loans (CWSRF loans) 0.8 - 1.80 2051 88,549 22,468 (2,458) 108,559 2,483 Other post-employment benefits obligations 58,183 6,609 (14,081) 50,711 — Net pension liability 86,235 42,533 (25,022) 103,746 — Accrued vacation and sick leave 8,914 5,406 (2,662) 11,658 5,811 Accrued workers' compensation 6,051 2,616 (2,085) 6,582 1,198 Due to other City departments 849 — (110) 739 110 Damage claims liability 15,891 6,428 (5,606) 16,713 5,892 Pollution remediation obligation 7,800 — — 7,800 — Total $ 1,921,064 86,060 (84,607) 1,922,517 39,159

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

34 (Continued)

The payments of principal and interest amounts on various bonds are secured by net revenues of the Enterprise.

(a) Wastewater Revenue Bonds 2010 Series A
During fiscal year 2010, the Enterprise issued revenue bonds 2010 Series A in the amount of $47,050 with interest rates ranging from 4.0% to 5.0%. Proceeds from the bonds were used to redeem $50,000 in outstanding commercial paper notes, fund a cash debt service reserve fund, and pay the costs of issuing the bonds. The bonds were rated “Aa3” and “AA-” by Moody’s and S&P, respectively, at the time of issuance . Bonds mature through October 1, 2021. The true interest cost is 2.9%. As of June 30, 20 21 and 20 20, the 2010 Series A bonds’ principal amount outstanding was $8,820 and $17,210, respectively.
(b) Wastewater Revenue Bonds 2010 Series B
During fiscal year 2010, the Enterprise issued revenue bonds 2010 Series B (Federally Taxable – Build America Bonds – Direct Payment) in the amount of $192,515 with interest rates ranging from

4.7% to 5.8%. Proceeds from the bonds were used to redeem $53,5 00 in outstanding commercial paper notes, provide funding for capital projects in the amount of $112,429, fund a cash debt service reserve fund, and pay financing costs for the bonds. The bonds were rated “Aa3” and “AA-” by Moody’s and S&P, respectively , at the time of issuance . Bonds mature through October 1, 2040.

The true interest cost is 3. 7%. As of June 30, 20 21 and 2020, the 2010 Series B bonds’ principal amount outstanding was $192,515.

Matu rity Du e
In terest ( Calen dar within
rate Year) 2019 Addition s Redu ction s 2020 on e year
Revenue Bonds:
2010 Series A 4.00% - 5.00% 2021 $ 25,190 — (7,980) 17,210 8,390 2010 Series B (Build America) 4.65 - 5.82 2040 192,515 — — 192,515 — 2013 Series A 1.00 - 5.00 2025 58,550 — (14,105) 44,445 14,850 2013 Series B 4.00 - 5.00 2042 331,585 — — 331,585 — 2016 Series A 4.00 - 5.00 2046 240,580 — — 240,580 — 2016 Series B 4.00 - 5.00 2046 67,820 — — 67,820 — 2018 Series A 4.00 - 5.00 2043 229,050 — — 229,050 — 2018 Series B 5.00 2043 185,950 — — 185,950 — 2018 Series C 2.13 2048 179,145 — — 179,145 — For issuance premiums 142,224 — (8,791) 133,433 — Total revenue bonds payable 1,652,609 — (30,876) 1,621,733 23,240 2009 Series C Certificates of Participation (COPs) 2.00 - 5.00 2022 3,069 — (711) 2,358 747 2009 Series C COPs issuance premiums 76 — (33) 43 — 2009 Series D COPs (Build America) 6.36 - 6.49 2041 24,458 — — 24,458 — State Revolving Fund Loans (CWSRF loans) 1.60 - 1.80 2050 88,032 1,756 (1,239) 88,549 2,458 Other post-employment benefits obligations 53,567 9,002 (4,386) 58,183 — Net pension liability 85,037 18,863 (17,665) 86,235 — Accrued vacation and sick leave 7,277 4,324 (2,687) 8,914 4,801 Accrued workers' compensation 5,914 1,932 (1,795) 6,051 1,112 Due to other City departments 955 1 (107) 849 110 Damage claims liabil ty 16,368 1,952 (2,429) 15,891 8,994 Pollution remediation obligation 7,500 300 — 7,800 — Total $ 1,944,862 38,130 (61,928) 1,921,064 41,462

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

35 (Continued)

(c) Wastewater Revenue Bonds 2013 Series A
In January 2013, the En terprise issued tax -exempt revenue bonds 2013 Series A in the amount of $193,400 for the purpose of refunding the remaining portion of the outstanding 2003 Series A bonds maturing on and after October 1, 2013. The bonds carried “ Aa3” and “AA -” ratings from Moody’s and S&P, respectively , at the time of issuance . The 2013 Series A refunding bonds include serial bonds with interest rates varying from 1.0% to 5.0% and have a final maturity in October 2025. The Series A bonds have a true interest co st of 1.2%. The 2013 Series A bonds also refunded the remaining portion of the outstanding state revolving fund loans. The refunding resulted in the recognition of a deferred accounting loss of $2,986 , gross debt service savings of $35,107 over the next 13 years, and an economic gain of $32,783 or 15.4% of the refunded principal. As of June 30, 2021 and 2020, the principal amount outstanding of the 2013 Series A bonds was $29,595 and $44,445, respectively.
(d) Wastewater Revenue Bonds 2013 Series B
In February 2013, the Enterprise issued revenue bonds 2013 Series B in the amount of $331,585 with interest rates ranging from 4.0% to 5.0%. Proceeds from the bonds were used for Wastewater capital projects, pay off all outstanding Wastewater commercial pa per notes, and pay the costs of issuing the bonds. The bonds were rated “Aa3” and “AA -” by Moody’s and S&P, respectively , at the time of issuance. Bonds mature through October 1, 2042. The true interest cost is 3.6%. As of June 30, 2021 and 2020, the principal amount outstanding of the 2013 Series B bonds was $331,585. (e) Wastewater Revenue Bonds 2016 Series A
In May 2016, the Enterprise issued tax -exempt revenue bonds 2016 Series A (Green Bonds) in the amount of $240,580 with interest rates ranging from 4.0% to 5.0%. Proceeds from the bonds w ere used for Wastewater capital projects, to pay off $53,439 of outstanding commercial paper notes, to fund capitalized interest, and pay the costs of issuing the bonds. The bonds carried ratings of “AA” and “Aa 3” fro m S&P and Moody’s, respectively , at the time of issuance . Bonds mature through October 1, 2046. The bonds have a true interest cost of 3.2%. As of June 30, 20 21 and 2020, the principal amount outstanding of the 2016 Series A bonds was $240,580. (f) Wastewater Revenue Bonds 2016 Series B
In May 2016, the Enterprise issued tax -exempt revenue bonds 2016 Series B in the amount of $67,820 with interest rates ranging from 4.0% to 5 .0%. Proceeds from the bonds w ere used for Wastewater capital projects, to pay off $20,560 of outstanding commercial paper notes, to fund capitalized interest, and pay the costs of issuing the bonds. The bonds carried ratings of “AA” and “Aa3” from S&P and Moody’s, respectively, at the time of issuance . Bonds mature through October 1, 2046. The bonds h ave a true interest cost of 3.2%. As of June 30, 20 21 and 2020, the principal amount outstanding of the 2016 Series B bonds was $67,820. (g) Wastewater Revenue Bonds 2018 Series A
In August 2018, the Enterprise issued tax-exempt revenue bonds 2018 Series A (SSIP) (Green Bonds) in the amount of $229,050 with interest rates ranging from 4.0% to 5.0%. Proceeds from the bonds were used for Wastewater capital projects in fur therance of the SFPUC’s Sewer System Improvement Program (“SSIP”), to pay off $25 ,000 of outstanding commercial paper notes, to fund capitalized interest, and to pay the costs of issuing the bonds. The bonds carried ratings of “AA” and “Aa3” from S&P and Moody’s, respectively , at the time of issuance . Bonds mature through October

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

36 (Continued)

1, 2043. The bonds have a true interest cost of 3.4%. As of June 30, 2021 and 2020, the principal amount outstanding of the 2018 Series A bonds was $229,050. (h) Wastewater Revenue Bonds 2018 Series B
In August 2018, the Enterprise issued tax-exempt revenue bonds 2018 Series B ( Non-SSIP) in the amount of $185,950 with 5.0% interest rate. Proceeds from the bonds were used for Wastewater capital projects, to fund capitalized interest, and pay the costs of issuing the bonds. The bonds carried ratings of “AA” and “Aa 3” from S&P and Moody’s, respectively , at the time of issuance .

Bonds mature through October 1, 2043. The bonds have a true interest cost of 3.5%. As of June 30, 2021 and 2020, the principal amount outstanding of the 2018 Series B bonds was $185,950. (i) Wastewater Revenue Bonds 2018 Series C
In August 2018, the Enterprise issued tax-exempt revenue bonds 2018 Series C (SSIP) (Green Bonds) in the amount of $179,145 with 2.1% interest rate. Proceeds from the bonds were used for Wastewater capital projects, to fund capitalized interest, and pay the costs of issuing the bonds. The bonds carried ratings of “AA” and “Aa 3” from S&P and Moody’s, respectively , at the time of issuance. Bonds mature through October 1, 2048. The Initial Mandatory Tender date of the 2018 Series C bonds is October 1, 2023. The bonds have a true interest cost of 3.5%. As of June 30, 2021 and 2020, the principal amount outstanding of the 2018 Series C bonds was $179,145. (j) Future Annual Debt Services of Revenue and Refunding Bonds The following table presents the future annual debt service relating to the revenue and refunding bonds outstanding as of June 30, 2021. The interest before subsidy amounts inc lude the interest for 2010 Series A and B, 2013 Series A and B, 2016 Series A and B , and 2018 Series A, B, and C bonds. The federal interest subsidy amounts represent 35% of the interest, excluding sequestration, for the 2010 Series B revenue bonds.

*The SFPUC received IRS notice , dated June 29, 2021, that the federal interest subsidy on the 20 10 Series B bonds is reduced by 5.7%, or a total reduction of $2,536, due to sequestration over the remaining life of the bonds assuming the sequestration rate w ill remain the same.

Interest Federal Interest
before interest net
Principal subsidy subsidy* of subsidy
Fiscal years ending June 30:
2022 $ 22,880 63,863 (3,527) 60,336
2023 34,345 62,496 (3,471) 59,025
2024 36,905 62,441 (3,356) 59,085
2025 36,935 62,291 (3,235) 59,056
2026 38,675 60,451 (3,105) 57,346
2027-2031 223,005 270,455 (13,298) 257,157
2032-2036 281,885 206,774 (8,781) 197,993 2037-2041 351,845 130,881 (3,182) 127,699 2042-2046 312,460 53,422 — 53,422 2047-2049 126,125 6,874 — 6,874 1,465,060 979,948 (41,955) 937,993
Less: Current portion (22,880)
Add: Unamortized bond premiums 124,862
Long-term portion as of June 30, 2021 $ 1,567,042

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

37 (Continued)

As defined in the Indenture, the principal and interest of the Enterprise’s refunding bonds are payable from its corresponding revenue as well as monies deposited in certain funds and accounts pledged thereto (see Note 5).

(k) Certificates of Participation Issued for the 525 Golden Gate Avenue Headquarters Building In October 2009, the City issued $167,670 in certificates of participation to fund the headquarters building of the SFPUC at 525 Golden Gate Avenue. The 2009 Series C were issue d for $38,120 and 2009 Series D for $129,550 as “Build America Bonds” on a taxable basis under the 2009 American Recovery and Reinvestment Act. The 2009 Series C certificates carry interest rates ranging from

2.0% to 5.0% and mature on November 1, 2022. Th e 2009 Series D certificates carry interest rates ranging from 6.4% to 6.5% and mature on November 1, 2041. After adjusting for the federal interest subsidy, the true interest cost averages 3.4% and 4.3% for Series C and Series D, respectively.

Under the terms of a memorandum of understanding (MOU) between the City and the SFPUC dated October 1, 2009, the City conveyed the real property to the Trustee, the Bank of New York Mellon Trust Company, N.A., which was replaced by U.S. B ank in March 2014 under a property lease in exchange for the proceeds of the sale of the certificates. The Trustee has leased the property back to the City for the City’s use under a project lease. The City is obligated under the project lease to pay base rental payments and other payments to the Trustee each year during the 32 -year term of the project lease. The Commission makes annual base rental payments to the City for the building equal to annual debt service on the certificates. There are no events of default stated in this MOU.

Each of the three Enterprises has an ownership interest in the building equal to their projected usage of space as follows: Water (73%), Wastewater (15%), and Power (12%). Similarly, each Enterprise is responsible for a portion of the annual base rental payment based on their ownership percentages less contributed equity. The percentage share of base rental payments for the Enterprises is as follows: Water (71.4%), Wastewater (18.9%), and Power (9.7%).

The future annual debt services relating to the certificates of participation 2009 Series C outstanding as of June 30, 2021 are as follows:

Principal Interest Total
Fiscal years ending June 30:
2022 $ 785 61 846
2023 826 21 847
1,611 82 1,693
Less: Current portion (785)
Add: Unamortized bond premiums 18
Long-term portion as of June 30, 2021 $ 844

Certificates of Participation 2009
Series C (Tax Exempt)

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

38 (Continued)

The future annual debt services relating to the certificates of participation 2009 Series D outstanding as of June 30, 2021 are as follows:

*The SFPUC received IRS notice dated June 29, 2021 that the federal interest subsidy on the 2009 Series D bonds is reduced by 5.7%, or a total reduction of $ 402, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same.

(l) Lake Merced Green Infrastructure Project CWSRF Loan In January 2016, then amended in May 2016, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Water State Revolving Fund (“CWSRF”) Loan to fund the Lake Merced Green Infrastruc ture Project of the Sewer System Improvement Program. The aggregate amount of the CWSRF loans is $7,435. The loan bears an interest rate of 1.6% which was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true inter est cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning one year after substantial completion of each project’s construction; substantial completion is expected by July 2020. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The SFPUC has received loan disbursements to date totaling $ 6,116 and a construction period interest of $1 66 transferred to principal . As of June 30, 20 21 and 20 20, t he principal amount outstanding of the loan was $6,282 and $6,117, respectively.
(m) Southeast Plant (SEP) 521/522 and Disinfection Upgrade Project CWSRF Loan In September 2017, then amended in December 2017 and May 2018, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the SEP 521/522 and Disinfection Upgrade Project of the Sewer System Improvement Program. The aggregate amount of the CWSRF loans is $40,00 7. The loan bears an interest rate of 1.8% which was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true interest cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning on e year after substantial completion of each project’s construction; substantial completion occurred in July 2019. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The SFPUC has received proceeds from loan Interest Federal Interest
before interest net of
Principal subsidy subsidy* subsidy
Fiscal years ending June 30:
2022 $ — 1,578 (521) 1,057 2023 — 1,578 (521) 1,057 2024 864 1,551 (512) 1,039
2025 900 1,494 (493) 1,001
2026 937 1,436 (474) 962
2027-2031 5,314 6,213 (2,050) 4,163 2032-2036 6,544 4,308 (1,422) 2,886 2037-2041 8,071 1,945 (642) 1,303 2042 1,828 59 (20) 39
Total 20,162 (6,655) 13,507
Long-term portion as of June 30, 2021 $ 24,458

Certificates of Participation 2009
Series D (Taxable)

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

39 (Continued)

disbursements to date totaling $39,741. As of June 30, 2021 and 2020, the principal amount outstanding of the loan was $38,512 and $38,193, respectively. (n) North Point Facility Outfall Rehabilitation Project CWSRF Loan In September 2017 , the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the North Point Facility Outfall Rehabilitation Project of the Sewer System Improvement Program. The aggregate amount of the CWSRF l oans is $20,199. The loan bears an interest rate of 1.8% which was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true interest cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning one year after substantial completion of each project’s construction; substantial completion occurred in February 2018. The CWSRF loans is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The S FPUC has received proceeds from loan disbursements to date totaling $17,706. As of June 30, 20 21 and 2020 the principal amount outstanding of the loan was $16,181 and $16,644, respectively.
(o) Southeast Plant (SEP) Primary/Secondary Clarifier Upgrade Project CWSRF Loan In September 2017 , the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the SEP Primary/Secondary Clarifier Upgrade Project of the Sewer System Improvement Program. The aggregate amount of the CWSRF loans is $34,446. The loan bears an interest rate of 0.8% which was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true interest cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning one year after substantial completion of each project’s construction; substantial completion occurred in June 2018. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The SFPUC has received proceeds from loan disbursements to date totaling $29,197. As of June 30, 20 21 and 2020, the principal amount outstanding of the loan was $26,829 and $27,595, respectively.
(p) Oceanside Plant (OSP) Digester Gas Utilization Upgrade Project In May 2020, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the OSP Digester Gas Utilization Upgrade Project of the Sewer System Improveme nt Program. The CWSRF loan is in the amount of $ 54,388, which includes $4,000 of principal forgiveness, or a grant . The loan bears an interest rate of 1. 4% which was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true interest cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning one year after substantial completion of each project’s construction .

The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds.

The SFPUC has received proceeds from loan disbursements to date totaling $0 and a receivable for reimbursement of $20,755. As of June 30, 2021 and 2020, the principal amount outstanding of the loan was $20,755 and $0, respectively.
(q) Southeast Plant (SEP) Biosolids Digester Facilities Project In May 2020, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the S EP Biosolids Digester Facilities Project of the Sewer System Improvement Program. The CWSRF loan is in the amount of $ 132,000, which includes $4,000 of principal forgiveness, or a grant . The loan bears an interest rate of 1. 4% which

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

40 (Continued)

was equal to one -half of the State of California’s most recent 30 -year General Obligation Bond true interest cost at the time the agreement was executed. The CWS RF loan will have a 30 -year term, with loan repayment beginning one year after substantia l completion of each project’s construction; substantial completion is expected in May 2026. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. As of June 30, 202 1 and 2020 , the principal amount outstanding of the loan was $0.
(r) Southeast Plant (SEP) New Headworks (Grit) Replacement Project In May 2021 , the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a CWSRF Loan to fund the SEP New Headworks (Grit) Replaceme nt Project of the Sewer System Improvement Program. The CWSRF loan is in the amount of $112,036.

The loan bears an interest rate of 1.1% which was equal to one -half of the State of California’s most recent 30-year General Obligation Bond true interest cost at the time the agreement was executed.

The CWSRF loan will have a 30 -year term, with loan repayment beginning one year after substantial completion of each project’s construction; substantial completion is expected in March 2024. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. As of June 30, 2021 and 2020, the principal amount outstanding of the loan was $0. (s) Future Annual Debt Services of State Revolving Fund Loans (CWSRF Loans) The future annual de bt services relating to the State Revolving Fund Loan to fund the Lake Merced Green Infrastructure Project , the North Point Facility Outfall Rehabilitation Project , t he SEP Primary/Secondary Clarifier Upgrade Project , the SEP 521/52 2 and Disinfection Upgra de Project and the OSP Digester Gas Utilization Upgrade Project outstanding as of June 30, 20 21 are as follows:

(t) WIFIA Loan Agreement-Biosolids Digester Facility Project In July 2018 , the SFPUC entered into a “Water Infrastructure Finance and Innovation Act (WIFIA)” Loan Agreement (“WIFIA Loan”) with the United States Environmental Protection Agency in the amount of $699,242. The WIFIA Loan was entered into pursuant to the WIFIA statut e authorized by Congress in 2014. The WIFIA Loan will fund 49% of the costs of the Wastewater Enterprise’s California Clean Water State Revolving Fund Loan Principal Interest Total Fiscal years ending June 30:
2022 $ 2,483 1,254 3,737
2023 3,043 1,553 4,596
2024 3,095 1,509 4,604
2025 3,148 1,464 4,612
2026 3,202 1,419 4,621
2027-2031 16,854 6,378 23,232
2032-2036 18,352 5,110 23,462
2037-2041 19,983 3,729 23,712
2042-2046 21,761 2,225 23,986
2047-2051 15,798 659 16,457
2052 840 12 852
108,559 25,312 133,871
Less: Current portion (2,483)
Long-term portion as of June 30, 2021 $ 106,076

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

41 (Continued)

Biosolids Digester Facility Project plus certain eligible expenses. Payment of the WIFIA Loan will be secured by a senior lien pledge of the Wastewat er Enterprise’s net revenues and is on a parity lien basis with the SFPUC’s outstanding Wastewater Revenue Bonds and Clean Water State Revolving Fund (“SRF”) Loans entered into with the California State Water Resources Control Board.

The original 2018 loan bore a fixed interest rate of 3.09% for a 35 -year term, with loan repayment expected to begin in fiscal year 2026, after substantial completion of project construction. In June 2020 the SFPUC re-executed the WIFIA Loan Agreement to have a fixed interest rate of 1.45% for a 35-year term. All other terms of WIFIA Loan Agreement are unchanged.

The SFPUC has not submitted any requests for loan disbursements to date and there is no outstanding loan principal as of June 30, 2021.
(u) WIFIA Loan Agreement-Southeast Treatment Plant Improvements In Ju ne 2020, the San Francisco Public Utilities Commission (“SFPUC”) entered into a “Water Infrastructure Finance and Innovation Act (WIFIA)” Loan Agreement (“WIFIA Loan”) with the United States Environmental Protection Agency in the amount of $ 513,862. The WIFIA Loan was entered into pursuant to the WIFIA statute authorized by Congress in 2014. The WIFIA Loan will fund 49% of the costs of the Wastewater Enterprise’s SEP New Headworks Replacement Project and additional costs of the revised Biosolids Digester Facility P roject plus certain eligible expenses. Payment of the WIFIA Loan will be secured by a senior lien pledge of the Wastewater Enterprise’s net revenues and is on a parity lien basis with the SFPUC’s outstanding Wastewater Revenue Bonds and Clean Water State Revolving Fund (“SRF”) Loans entered into with the California State Water Resources Control Board. The loan will bear a fixed interest rate of 1.45% for a 35 -year term, with loan repayment expected to begin in fiscal year 2025, after substantial completion of project construction. The SFPUC has not submitted any requests for loan disbursements to date and there is no outstanding loan principal as of June 30, 2021.
(v) Events of Default and Remedies
In accordance with GASB Statement No. 88, Certain Disclosures Re lated to Debt, Including Direct Borrowings and Direct Placements , significant events of default as specified in the Wastewater Enterprise Indenture (applicable to Wastewater Revenue Bonds, SRF Loans, and WIFIA Loan include 1) Non-payment 2) material breach of warranty, representation, or indenture covenants (not cured within applicable grace periods) , and 3) bankruptcy and insolvency events, which may result in the Trustee (upon written request by the majority of the owners (by aggregate amount of the bond obligations or of a credit prov ider), declaring the principal and the interest accrued ther eon, to be due and payable immediately. As of June 30, 2021, there were no such events described herein. (8) Revenue Pledge
The Enterprise has pledged future revenues to repay various revenue bonds and State Revolving Fund loans. Proceeds from the revenue bonds and State Revolving Fund provided financing for various capital construction projects, and to refund previously issued bonds. The bonds and State Revolving Fund loans are payable through fiscal year s 2049 and 205 2, respectively , and are solely from revenues of the Enterprise.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

42 (Continued)

The original amount of revenue bonds issued and S tate Revolving Fund loans, total principal and interest remaining, principal and interest paid during fiscal years 20 21 and 20 20, applicable net revenues, and funds available for debt service are as follows:

(9) Employee Benefits
(a) Pension Plan
The Enterprise participates in a cost -sharing multiple-employer defined benefit pension Plan (SFERS Plan). The SFERS Plan is administered by the San Francisco City and County Employees’ Retirement System (SFERS). Contributions are recognized in the period in which they are due pursuant to legal requirements. For purposes of measuring the net pension liability, deferred outflows/inflows of resources related to pensions, pension expense, information about the fiduciary net position of the SFERS Plan, and additions to/deductions from the SFERS Plan’s fiduciary net position have been determined on the same basis as they are reported by Cheiron, the consulting actuary for the SFERS Plan. Benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

GASB Statement No. 68 requires that the SFERS Plan reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:

SFERS Plan – The City is an employer of the SFERS Plan with a proportionate share of 9 4.39% as of June 30, 2020 (measurement date) , and 94.13% as of June 30, 2019 (measurement date ). The Enterprise’s allocation percentage was determined based on the Enterprise’s employer contributions divided by the City’s total employer contributions for fiscal year s 2020 and 2019. The Enterprise’s net pension liability, deferred outflows/inflows of resources related to pensions, amortization of deferred outflows/inflows, and pension expense is based on its allocated percentage. The Enterprise’s allocation of the City’s proportionate share was 2.03% as of June 30, 2020 and 2.05% as of June 30, 2019 (measurement dates). 2021 2020
Bonds issued with revenue pledge $ 1,667,095 1,667,095 Clean Water State Revolving Fund (CWSRF) loans with revenue pledge 113,681 91,213 Principal and interest remaining due at the end of the year 2,578,879 2,647,000 Principal and interest paid during the year 82,066 62,797 Net revenues for the year ended June 30 108,399 166,082 Funds available for debt service 306,177 381,804
Valuation Date (VD) June 30, 2019 updated to June 30, 2020 Measurement Date (MD) June 30, 2020
Measurement Period (MP) July 1, 2019 to June 30, 2020
Valuation Date (VD) June 30, 2018 updated to June 30, 2019 Measurement Date (MD) June 30, 2019
Measurement Period (MP) July 1, 2018 to June 30, 2019
Fiscal year 2021
Fiscal year 2020

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

43 (Continued)

Plan Description – The SFERS Plan provides basic service retirement, disability, and death benefits based on specified percentages of defined final average monthly salary and provides annual cost of living adjustments (COLA) after retirement. The SFERS Plan also provides pension continuation benefits to qualified survivors. The San Francisco City and County Charter and the Administrative Code are the authorities which establish and amend the benefit provisions and employer obligations of the SFERS Plan. The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for the SFERS Plan. That report may be obtained on the Retirement System’s website http://mysfers.org or by writing to the San Francisco City and County Employees’ Retirement System, 1145 Market Street, 5th Floor, San Francisco, CA 94103 or by calling (415) 487-7000.

Benefits – The Retirement System provides service retirement, disability , and death benefits based on specified percentages of defined final average monthly salary and annual COLA after retirement.

Benefits and refunds are recognized when due and payable in accordance with the terms of the SFERS Plan. The Retirement System pays benefits according to the category of employment and the type of benefit coverage provided by the City and County. The four main categories of SFERS Plan members are:
a) Miscellaneous Non -Safety Members – staff, operational, s upervisory, and all other eligible employees who are not in special membership categories. b) Sheriff’s Department and Miscellaneous Safety Members – Sheriffs assuming office on and after January 7, 2012, and undersheriffs, deputized personnel of the Sheriff’s Department, and miscellaneous safety employees hired on and after January 7, 2012. c) Firefighter Members – firefighters and other employees whose principal duties are in fire prevention and suppression work or who occupy positions designated by law as firefighter member positions.
d) Police Members – police officers and other employees whose principal duties are in active law enforcement or who occupy positions designated by law as police member positions.

The membership groups and the related service reti rement benefits are included in the Notes to the Basic Financial Statements of San Francisco Employees’ Retirement System.

All members are eligible to apply for a disability retirement benefit, regardless of age, when they have 10 or more years of credite d service and they sustain an injury or illness that prevents them from performing their duties. Safety members are eligible to apply for an industrial disability retirement benefit from their first day on the job if their disability is caused by an illnes s or injury that they receive while performing their duties.

All retired members receive a benefit adjustment each July 1, which is the Basic COLA. The majority of adjustments are determined by changes in C onsumer Price Index with increases capped at 2%.

The SFERS Plan provides for a Supplemental COLA in years when there are sufficient “excess” investment earnings in the SFERS Plan. The maximum benefit adjustment each July 1 is 3.5% including the Basic COLA. Effective July 1, 2012, voters approved changes in the criteria for payment of the Supplemental COLA benefit, so that Supplemental COLAs would only be paid when the SFERS Plan is also fully funded on a market value of assets basis. Certain provision of this voter-approved proposition were challenged in the Courts. A decision by the California Courts modified the interpretation of the proposition. Effective July 1, 2012, members who retired before November 6, 1996 will receive a Supplemental COLA only when the SFERS Plan is also fully funded on a market

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

44 (Continued)

value of asset s basis. However, the “full funding” requirement does not apply to members who retired on or after November 6, 1996 and were hired before January 7, 2012. For all members hired before January 7, 201 2, all Supplemental COLAs paid to them in retirement benefits will continue into the future even where an additional Supplemental COLA is not payable in any given year. For members hired on and after January 7, 2012, a Supplemental COLA will only be paid t o retirees when the SFERS Plan is fully funded on a market value of asset basis and in addition for these members, Supplemental COLAs will not be permanent adjustments to retirement benefits. That is, in years when a Supplemental COLA is not paid, all previously paid Supplemental COLAs will expire.

Funding & Contribution Policy

SFERS Plans – Contributions are made by both the City and the participating employees. Employee contributions are mandatory as required by the Charter. Employee contribution rates varied from

7.5% to 13.0% as a percentage of gross covered salary in fiscal year s 2021 and 2020. Most employee groups agreed through collective bargaining for employees to contribute the full amount of the employee contr ibutions on a pretax basis. The Enterprise is required to contribute at an actuarially determined rate. Based on the July 1, 201 9 actuarial report, the required employer contribution rate for fiscal year 20 21 was 22.40% to 26.90%. Based on the July 1, 201 8 actuarial report, the required employer contribution rate for fiscal year 2020 was 20.69% to 25.19%.

Employer contributions and employee contributions made by the employer to the SFERS Plan are recognized when due and the employer has made a formal commitment to provide the contributions. The City’s proportionate share of employer contributions recognized by the Retirement System in fiscal year s ended June 30, 20 20 and 2019 (measurement periods) were $701,307 and $607,408, respectively. The Enterprise’s allocation of employer contributions for fiscal year 20 20 and 2019 were $14,352 and $12,816, respectively.

Pension Liabilities, Pension Expenses, Deferred Outflows , and Inflows of Resources Related to Pensions
Fiscal Year 2021
The City reported net pension liabilities for its proportionate share of the pension liability of the SFERS Plan of $5,107,270 as of June 30, 2021. The City’s net pension liability for the SFERS Plan is measured as the proportionate share of the net pension liability . The net pension liability of the SFERS Plan is measured as of June 30, 2020 (measurement date), and the total pension liability for the SFERS Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 201 9 rolled forward to June 30, 20 20 using standard update procedures. The City’s proportion of the net pension liability for the SFERS Plan was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined . The Enterprise’s allocation of the City’s proportionate share of the net pension liability for the SFERS Plan as of June 30, 202 1 was $103,746.

For the year ended June 30, 202 1, the City’s recognized pension expense was $ 962,576 (which includes Retirement Benefit Plan pension expense of $2 5,243) including amortization o ff deferred outflow/inflow related pension items. The Enterprise’s allocation of pension expense including amortization of deferred outflow/inflow related pension items was $1 9,053. Pension expen se increased from the prior year, largely due to the amortization of deferrals.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

45 (Continued)

As of June 30, 202 1, the Enterprise’s reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Fiscal Year 2020
The City reported net pension liabilities for its proportionate share of the pension liability of the Plan of $4,213,808 as of June 30, 20 20. The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 201 9 (measurement date), and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018 rolled forward to June 30, 201 9 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long -term share of cont ributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension liability for the Plan as of June 30, 2020 was $86,235.

For the year ended June 30, 20 20, the City’s recognized pension expense was $88 3,395 including amortization of deferred outflow/inflow related pension items. The Enterprise’s allocation of pension expense including amortization of deferred outflow/ inflow related pension items was $ 12,748.

Pension expense increased from the prior year, largely due to the amortization of deferrals.

As of June 30, 20 20, the Enterprise’s reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to measurement date $ 16,083 — Differences between expected and actual experience 3,524 325 Changes in assumptions 5,696 1,797 Net difference between projected and actual earnings on pension plan investments 2,172 —
Change in employer's proportion 2,744 26 Total $ 30,219 2,148
Fiscal Year 2021 Schedule of Deferred Outflows and Inflows of Resources Fiscal years
Deferred
Outflows/(Inflows)
of Resources
2022 $ (787)
2023 3,009
2024 5,528
2025 4,238
Total $ 11,988

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

46 (Continued)

Actuarial Assumptions
Fiscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability as of June 30, 20 20 (measurement period) is provided below, including any assumptions that differ from those used in the July 1, 2019 actuarial valuation. Refer to the July 1, 201 9 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.

Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to measurement date $ 14,352 — Differences between expected and actual experience 639 949 Changes in assumptions 12,264 —
Net difference between projected and actual earnings on pension plan investments — 15,891
Change in employer's proportion 3,167 52 Total $ 30,422 16,892
Fiscal Year 2020 Schedule of Deferred Outflows and Inflows of Resources Fiscal years
Deferred
Outflows/(Inflows)
of Resources
2021 $ 4,181
2022 (5,055)
2023 (1,240)
2024 1,292
Total $ (822)

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

47 (Continued)

For healthy annuitants, the sex distinct 2009 CalPERS healthy annuitant mortality table, adjusted

1.014 for females and 0.909 for males. For active members, the s ex distinct 2009 C alPERS employee mortality tables , adjusted 0.918 for female s and 0.948 for males. Rates are projected generationally from the 2009 base year using a modified version of the MP-2015 projection scale.

The actuarial assumptions used at the June 30, 2020 measurement date was based upon the result of a de mograpic experience study for the period July 1, 2009 through June 30, 2014 and an economic experience as of July 1, 2019.

Fiscal Year 2020
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability as of June 30, 201 9 (measurement period) is provided below, including any assumptions that differ from those used in the July 1, 2018 actuarial valuation. Refer to the July 1, 2018 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.

Key Actuarial Assumptions
Valuation Date June 30, 2019 updated to June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method Entry-Age Normal Cost
Expected Rate of Return 7.40% net of pension plan investment, including inflation Municipal Bond Yield 3.50% as of June 30, 2019

2.21% as of June 30, 2020
Bond Buyer 20-Bond GO Index, June 27, 2019 and June 25, 2020 Inflation 2.75%
Projected Salary Increases 3.50% plus merit component based on employee classification and years of service Discount Rate 7.40% as of June 30, 2019

7.40% as of June 30, 2020
Administrative Expenses 0.60% of payroll as of June 30, 2019

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

48 (Continued)

Discount Rate
Fiscal Year 2021
SFERS Plan – The beginning and end of year measurements are based on different assumptions and contribution methods that may result in different discount rates. The discount rate was 7.40% as of the June 30, 2020 (measurement date) and June 30, 2019 (measurement date).

The discount rate used to measure the total pension liability as of June 30, 20 20 was 7.40%. The projection of cash flows used to determine the discount rate assumed that SFERS plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2019 actuarial valuation. That policy includes contributions equal to the employer portion of the Entry Age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.

The amortization payment is based on closed periods that vary in length depending on the source.

Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 years and changes to inactive member benefits, including Supplemental COLAs, are am ortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19 -year period commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015 assumption changes is phased in over a period of 5 years . For the July 1, 2016 valuation, the increase in the unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and July 1, 2014 are amortized over 17 -years and 5-years, respectively. All amortization schedules are established as a level percentage of payroll so payments increase

3.50% each year. The unfunded actuarial liability is bas ed on an actuarial value of assets that Valuation Date June 30, 2018 updated to June 30, 2019
Measurement Date June 30, 2019
Actuarial Cost Method Entry-Age Normal Cost
Expected Rate of Return 7.40% net of pension plan investment, including inflation Municipal Bond Yield 3.87% as of June 30, 2018

3.50% as of June 30, 2019
Bond Buyer 20-Bond GO Index, June 28, 2018 and June 27, 2019 Inflation 2.75%
Salary Increases 3.50% plus merit component based on employee classification and years of service Discount Rate 7.50% as of June 30, 2018

7.40% as of June 30, 2019
Administrative Expenses 0.60% of payroll as of June 30, 2018

0.60% of payroll as of June 30, 2019
Basic COLA
Old Miscellaneous and
All New Plans
Old Police & Fire,
pre 7/1/75
Old Police & Fire,
Charters A8.595
and A8.596
Old Police & Fire,
Charters A8.559
and A8.585
June 30, 2018 2.00% 2.50% 3.10% 4.20%
June 30, 2019 2.00% 2.50% 3.10% 4.20%
Key Actuarial Assumptions

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

49 (Continued)

smooths investment gains and losses over five years and a measurement of the actuarial liability that excludes the value of any future Supplemental COLAs.

While the contributions and measure of actuarial liability in the funding valuation do not anticipate any future Supplemental COLAs, the projected contributions for the determination of the discount rate include the anticipated future amortization payments on future Supplemental COLA’s for current members when they are expected to be granted. For members who worked after November 6, 1996 and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual investment earnings duri ng the year exceed the expected investment earnings on the actuarial value of assets. For members who did not work after November 6, 1996 and before Proposition C passed, the market value of assets must also exceed the actuarial liability at the beginning of the year for a Supplemental COLA to be granted. When a Supplemental COLA is granted, the amount depends on the amount of excess earnings and the basic COLA amount for each membership group. The large majority of members receive a 1.50% Supplemental COLA when granted.

Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2020 for the probability and amount of Supplement al COLA for each future year . There were no excess earning s during the fiscal year ending June 30, 2020; consequently, no Supplemental COLA will be paid effective July 1, 2020. The table below shows the net assumed Supplemental COLA for members with a 2.00% basic COLA for sample years.

The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.

Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

50 (Continued)

building-block method in which best -estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long -term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long -term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.

Fiscal Year 2020
The beginning and end of year measurements are based on different assumptions and contribution methods that may result in different discount rates. The discount rate was 7. 40% as of the June 30, 2019 (measurement date) and 7.50% as of the June 30, 2018 (measurement date).

The discount rate used to measure the total pension liability as of June 30, 201 9 was 7.40%. The projection of cash flows used to determine the discount rate a ssumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 201 8 actuarial valuation. That policy incl udes contributions equal to the employer portion of the Entry Age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.

The amortization payment is based on closed periods that vary in length depending on the source.

Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 y ears and changes to inactive member benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19 -year period commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015 assumption changes is phased in over a period of 5 years . For the July 1, 2016 valuation, the increase in the unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and July 1, 2014 are amortized over 17 -years and 5-years, respectively. All amortization schedules are established as a level percentage of pay roll so payments increase

3.50% each year. The unfunded actuarial liability is based on an actuarial value of assets that smooths investment gains and losses over five years and a measurement of the actuarial liability that excludes the value of any future Supplemental COLAs.

Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 31.0 % 4.9 %
Private Equity 18.0 7.9
Real Assets 17.0 5.7
Hedge Funds/Absolute Returns 15.0 3.0
Private Credit 10.0 4.8
Treasuries 6.0 -0.5
Liquid Credit 3.0 2.7
Total 100.0
Long-Term Expected Real Rates of Return

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

51 (Continued)

While the contributions and measure of actuarial liability in the funding valuation do not anticipate any future Supplemental COLAs, the projected contributions for the determination of the discount rate include the anticipated future amortization payments on future Supplemental COLA’s for current members when they are expected to be granted. For members who worked after November 6, 1996 and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual inv estment earnings during the year exceed the expected investment earnings on the actuarial value of assets. For members who did not work after November 6, 1996 and before Proposition C passed, the market value of assets must also exceed the actuarial liabil ity at the beginning of the year for a Supplemental COLA to be granted. When a Supplemental COLA is granted, the amount depends on the amount of excess earnings and the basic COLA amount for each membership group. The large majority of members receive a 1. 50% Supplemental COLA when granted.

Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, the following assumptions were developed for the probability and amount of Supplemental CO LA for each future year. The City has assumed that a full Supplemental COLA will be paid to all Post 97 Retirees effective July 1, 2019. The table below shows the net assumed Supplemental COLA for members with a 2.00% basic COLA for sample years.

The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.

Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.

The long -term expected rate of return on pension plan investments was 7. 40%. It was set by the Retirement Board after consideration of both expected future returns and historical returns experienced by the Retirement System. Expected future returns were determined by us ing a building-block method in which best -estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long -term expected rate of return by weighting the expected future real r ates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long -term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.

Assumed Supplemental COLA for Members with a 2.00% Basic COLA Fiscal years
2021 0.75 % 0.27 %
2023 0.75 0.34
2025 0.75 0.36
2027 0.75 0.37
2030+ 0.75 0.38
96 - Prop C
Before 11/6/96
or After Prop C

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

52 (Continued)

Fiscal Year 2021

Fiscal Year 2020

(b) Other Post-Employment Benefits
The Enterprise participates in the City’s single employer defined benefit other post employment benefits plan (the Plan). The Plan is maintained by the City and is administered through the City’s Health Service System . The plan provides postemployment medical, dental and vision insurance benefits to eligible employees, retired employees, surviving spouses , and domestic partners . Health benefit provisions are established and may be amended through negotiations between the City and the resp ective bargaining units. The City does not issue a separate report on its other post - employment benefit plan.

GASB Statement No. 75 requires that reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used.

Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 31.0 % 5.3 %
Private Equity 18.0 8.3
Real Assets 17.0 5.4
Hedge Funds/Absolute Returns 15.0 3.9
Private Credit 10.0 5.2
Treasuries 6.0 0.9
Liquid Credit 3.0 3.6
Total 100.0
Long-Term Expected Real Rates of Return
Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPL
@ 7.40%
1% Increase Share
of NPL @ 8.40%
Wastewater 183,436$ 103,746 37,907
Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPL
@ 7.40%
1% Increase Share
of NPL @ 8.40%
Wastewater 162,775$ 86,235 22,995

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

53 (Continued)

The Enterprise’s proportionate share percentage of the Plan was determined based on its percentage of citywide “pay -as-you-go” contributions for the year ended June 30, 20 20. The Enterprise’s net OPEB liability, deferred outflows/inflows of resources related to OPEB, amo rtization of deferred outflows/inflows and OPEB expense to each department is based on the Enterprise’s allocated percentage. The Enterprise’s proportionate share of the City’s OPEB elements as of June 30, 2020 and 2019 measurement dates were 1.33% and 1.49%.

Normal Retirement Miscellaneous Age 50 with 20 years of credited service1 Age 60 with 10 years of credited service
Safety Age 50 with 5 years of credited service Disabled Retirement2 Any age with 10 years of credited service Terminated Vested 5 years of credited service at separation 1 Age 53 with 20 years of credited service, age 60 with 10 years of credited service, or age 6 5 for Miscellaneous members hired on or after January 7, 2012. 2 No service requirement for Safety members retiring under the industrial disability benefit or for surviving spouses / domestic partners of those killed in the line of duty.

Retiree healthcare benefits are administered by the San Francisco Health Service System and include the following:

Medical: PPO – City Health Plan (self-insured) and UHC Medicare Advantage (fully insured) HMO – Kaiser (fully-insured) and Blue Shield (flex-funded) Dental: Delta Dental, DeltaCare USA and UnitedHealthcare Dental Vision: Vision benefits are provided under the medical insurance plans and are administered by Vision Service Plan.

Projections of the sharing of benefit related costs are based on an established pattern of practice.

Valuation Date (VD) June 30, 2020
Measurement Date (MD) June 30, 2020
Measurement Period (MP) July 1, 2019 to June 30, 2020
Valuation Date (VD) June 30, 2018 updated to June 30, 2019 Measurement Date (MD) June 30, 2019
Measurement Period (MP) July 1, 2018 to June 30, 2019
San Francisco Health Service System Retiree Plan - Single Employer Fiscal year 2021
Fiscal year 2020

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

54 (Continued)

Contributions
Benefits provided under the Plan are currently paid through “pay -as-you-go” funding. Additionally, under the City Charter, active officers and employees of the City who commenced employment on or after January 10, 2009, shall contribute to the Retiree Health Care Trust Fund (Trust Fund) a percentage of compensation not to exceed 2% of pre -tax compensation. The City shall contribute 1% of compensation for officers and employees who commenced employment on or after January 10, 2009 until the City’s GASB Actuary has determined that the City’s por tion of the Trust Fund is fully funded. At that time, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 2% of pre-tax compensation.

Starting July 1, 2016, active officers and employees of the City wh o commenced employment on or before January 9, 2009, shall contribute 0.25% of pre -tax compensation into the Trust Fund.

Beginning on July 1 st of each subsequent year, the active officers and employees of the City who commenced employment on or before Janu ary 9, 2009, shall contribute an additional 0.25% of pre-tax compensation up to a maximum of 1%. Starting July 1, 2016, the City shall contribute

0.25% of compensation into the Trust Fund for each officer and employee who commenced employment on or before January 9, 2009. Beginning on July 1 st of each subsequent year, the City shall contribute an additional 0.25% of compensation, up to a maximum of 1% for each officer and employee who commenced employment on or before January 9, 2009. When the City’s GASB Actuary has determined that the City’s portion of the Trust Fund is fully funded, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 1% of pre-tax compensation.

Additional or existing contribution requ irements may be established or modified by amendment to the City’s Charter.

For the fiscal years ending June 30, 2021 and 2020, the City’s funding was based on “pay-as-you- go” plus a contribution of $39,555 and $ 39,518 to the Retiree Healthcare Trust Fund , respectively. The “pay-as-you-go” portion paid by the City was $206,439 for a total contribution of $245,994 for the fiscal year ending June 30, 20 21, and $ 196,445 for a total contribution of $235,963 for the fiscal year ending June 30, 20 20. The E nterprise’s proportionate share of the City’s contributions for fiscal year 2021 was $3,263, and for fiscal year 2020 was $3,506.

OPEB Liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB Fiscal Year 2021
As of June 30, 202 1, the City reported net OPEB liabilities related to the Plan of $3,823,334. The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2021 was $50,711.

For the year ended June 30, 202 1, the City’s recognized OPEB expense was $3 20,684.

Amortization of the City’s deferred outflows and inflows is included as a component of OPEB expense. The Enterprise’s proportionate share of the City’s OPEB expense was a credit of $6,174 to expense.

As of June 30, 202 1, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

55 (Continued)

Fiscal Year 2020
As of June 30, 20 20, the City reported net OPEB liabilities related to the Plan of $3 ,915,814. The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2020 was $58,183.

For the year ended June 30, 20 20, the City’s recognized OPEB expense was $3 30,673.

Amortization of the City’s deferred outflows and inflows is included as a component of OPEB expense. The Enterprise’s proportionate share of the City’s OPEB expense was $1,943.

As of June 30, 20 20, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

Wastewater
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 3,263$ -$ Differences between expected and actual experience 1,839 7,265 Changes in assumptions 2,567 -
Net difference between projected and actual earnings
on plan investments 33 -
Change in proportion 7,407 -
Total 15,109$ 7,265$
Year ended June 30:
2022 829$
2023 849
2024 846
2025 859
2026 788
Thereafter 410
Total 4,581 $

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

56 (Continued)

Amounts reported as defe rred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in OPEB expense as follows:

Wastewater
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 3,506$ -$ Differences between expected and actual experience 2,472 4,094 Changes in assumptions 1,179 -
Net difference between projected and actual earnings
on plan investments - 91
Change in proportion 2,908 -
Total 10,065$ 4,185$
Year ended June 30:
2021 376$
2022 376
2023 399
2024 394
2025 409
Thereafter 420
Total 2,374 $

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

57 (Continued)

Actuarial Assumptions
Fiscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2020 (measurement date) is provided below:

The mortality rates in the base tables are projected generationally from the base year using the MP-2019 projection scale.

Key Actuarial Assumptions
Valuation Date June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method The Entry Age Actuarial Cost Method is used to measure the Plan's Total OPEB Liability Healthcare Cost Trend Rates Pre-Medicare trend starts at 4.00% in 2022, 7.00% in 2023, trending down to ultimate rate of 4.04% in 2075 Medicare trend starts at 1.00% in 2022, 7.50% in 2023, trending down to ultimate rate of 4.04% in 2075 10-County average trend starts at 4.5% in 2022, 5.50% in 2023, trending down to ultimate rate of 4.04% in 2075 Vision and expenses trend remains a flat 3.0% for all years Expected Rate of Return on Plan Assets 7.00%
Salary Increase Rate Wage Inflation Component: 3.25%
Additional Merit Component (dependent on years of service):

Police: 0.50% - 7.50%
Fire: 0.50% - 14.00%
Muni Drivers: 0.00% - 16.00%
Craft: 0.50% - 3.75%
Misc.: 0.30% - 5.50%
Inflation Rate Wage Inflation: 3.25% compounded annually Consumer Price Inflation: 2.50% compounded annually
Mortality Tables
Non-Annuitants
Published Table Male Female
Miscellaneous PubG-2010 Employee 0.834 0.866
Safety PubS-2010 Employee 1.011 0.979
Healthy Retirees
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubS-2010 Employee 0.947 1.044
Disabled Retirees
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.045 1.003
Safety PubS-2010 Employee 0.916 0.995
Beneficiaries
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubG-2010 Employee 1.031 0.977
Base mortality tables are developed by multiplying a published table by an adjustment factor developed in SFERS experience study for the period ending June 30, 2019.

Adjustment Factor
Adjustment Factor
Adjustment Factor
Adjustment Factor

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

58 (Continued)

Fiscal Year 2020
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2019 (measurement date) is provided below:

The mortality rates in the base tables are projected generationally from the base year using the modified version of the MP -2015 projection scale. The scale was modified using the Society of Actuaries’ model implementation tool with rates converging to the ultimate rate in 2017 (instead of 2029) and an ultimate rate of improvement of 0.85% ( instead of 1.00%) up to age 85 decreasing to 0.70% (instead of 0.85%) at age 95.

Key Actuarial Assumptions
Valuation Date June 30, 2018 updated to June 30, 2019
Measurement Date June 30, 2019
Actuarial Cost Method The Entry Age Actuarial Cost Method is used to measure the Plan's Total OPEB Liability Healthcare Cost Trend Rates Pre-Medicare trend starts at 6.35% in 2021 and trends down to ultimate rate of 3.93% in 2076 Medicare trend starts at 7.00% in 2021 and trends down to ultimate rate of 3.93% in 2076 10-County average trend starts at 5.82% in 2021 and trends down to ultimate rate of 3.93% in 2076 Vision and expenses trend remains a flat 3.50% for all years Expected Rate of Return on Plan Assets 7.40%
Discount Rate 7.40%
Salary Increase Rate Wage Inflation Component: 3.50%
Additional Merit Component (dependent on years of service):

Police: 1.50% - 8.00%
Fire: 1.50% - 15.00%
Muni Drivers: 0.00% - 15.00%
Craft: 0.00% - 3.50%
Misc: 0.00% - 5.25%
Inflation Rate Wage Inflation: 3.50% compounded annually Consumer Price Inflation: 2.75% compounded annually
Mortality Tables
Non-Annuitant - CalPERS employee mortality tables without scale BB projection Gender
Adjustment
Factor Base Year
Female 0.918 2009
Male 0.948 2009
Healthy Annuitants - CalPERS healthy annuitant mortality table without scale BB projection Gender
Adjustment
Factor Base Year
Female 1.014 2009
Male 0.909 2009
Miscellaneous Disabled Annuitants - RP-2014 Disabled Retiree Tables without MP-2014 projection Gender
Adjustment
Factor Base Year
Female 1.066 2006
Male 0.942 2006
Safety Disabled Annuitants - CalPERS industrial disability mortality table without scale BB projection Gender
Adjustment
Factor Base Year
Female 0.983 2009
Male 0.909 2009
Base mortality tables are developed by multiplying a published table by an adjustment factor developed in SFERS experience study for the period ending June 30, 2014.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

59 (Continued)

Sensitivity of Liabilities to Changes in the Healthcare Cost Trend Rate and Discount Rate The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the healthcare cost trend rate, as well as what the Enterprise’s allocation of the City’s net OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1% lower or 1% higher than the current rate:

Discount Rate
Fiscal Year 2021
The discount rate used to measure the Total OPEB Liability as of June 30, 20 20 was 7.0%. Based on the assumption that plan member contributions will continue to be made at the rates specified in the Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal to the benefit payments projected for each future period. As such, the long -term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

The long -term expected rate of return on OPEB plan investments was 7. 0% based on expected future returns and histor ical returns experienced by the Trust Fund. Expected future returns were determined based on 10 -year and 20 -year capital market assumptions for the Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:

Fiscal Year 2021
Employer -1.00% Healthcare Trend 1.00%
Wastewater $ 43,846 $ 50,711 $ 59,657 Fiscal Year 2020
Employer -1.00% Healthcare Trend 1.00%
Wastewater $ 50,356 $ 58,183 $ 67,900 Asset Class
Equities
U.S. Large Cap 28.0% 8.4%
U.S. Small Cap 3.0% 9.8%
Developed Market Equity (non-U.S.) 15.0% 9.6%
Emerging Market Equity 13.0% 11.7%
Credit
Bank Loans 3.0% 4.9%
High Yield Bonds 3.0% 4.9%
Emerging Market Bonds 3.0% 4.8%
Rate Securities
Investment Grade Bonds 9.0% 2.2%
Long-term Government Bonds 4.0% 3.1%
Short-term Treasury Inflation Protected Securities 4.0% 1.9% Private Markets
Private Equity 5.0% 12.5%
Core Private Real Estate 5.0% 6.4%
Risk Mitigating Strategies
Global Macro 5.0% 4.1%
Total 100.0%
Long-term
Expected Real
Rate of Return
Target
Allocation

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

60 (Continued)

The asset allocation targets summarized above have a 20 -year return estimate of 6.90%, which was weighted against a 10 -year model estimating a 6.93% return, resulting in the ultimate long - term expected rate of return of 7.00%.

Fiscal Year 2020
The discount rate used to measure the Total OPEB Liability as of June 30, 201 9 was 7.4%. Based on the assumption that plan member contributions will continue to be made at the rates specified in the Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal to the benefit payments projected for each future period. As such, the long -term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

The long-term expected rate of return on OPEB plan investments was 7.4% based on expected future returns and historical returns experienced by the Trust Fund. Expected future returns were determined based on 10 -year and 20 -year capital market assumptions for t he Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:

The asset allocation targets summarized above have a 20-year return estimate of 8.3%, which was weighted against a 10 -year model estimating a 7.5% return, resulting in the ultimate long -term expected rate of return of 7.4%.

Employer
1% Decrease Share
of NOL @ 6.00%
Discount Rate @

7.00%
1% Increase Share
of NOL @ 8.00%
Wastewater 58,848$ 50,711$ 44,067$ Asset Class
Target
Allocation
Equities
U.S. Equities 41.0% 8.1%
Developed Market Equity (non-U.S.) 20.0% 8.5%
Emerging Market Equity 16.0% 10.4%
Credit
High Yield Bonds 3.0% 6.5%
Bank Loans 3.0% 6.1%
Emerging Market Bonds 3.0% 5.2%
Rate Securities
Investment Grade Bonds 9.0% 3.9%
Treasury Inflation Protected Securities 5.0% 3.6%
Total 100.0%
Long-term
Expected Real
Rate of Return

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

61 (Continued)

The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using t he discount rate, as well as what the Enterprise’s proportionate share of the City’s net OPEB liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:

The City issues a publicly available financial report that includes the complete note disclosures and required supplementary information related to the City’s postemployment health care obligations. The report may be obtained by writing to the City and Cou nty of San Francisco, Office of the Controller, 1 Dr. Carlton B. Goodlett Place, Room 316, San Francisco, California 94102, or by calling (415) 554-7500.
(10) Related Parties
Various common costs incurred by the Commission are allocated among the Enterprise, He tch Hetchy Water and Power and CleanPowerSF , and the Water Enterprise. The allocations are based on the Commission management’s best estimate and may change from year to year depending on the activities incurred by each Enterprise and the information avail able. The administrative costs of $29,457 or

30.0%, which included COVID -19 Project expenses , and $27,897 or 3 0.2% were allocated to the Enterprise for the years ended June 30, 2021 and 2020, respectively.

The Enterprise purchases electricity from Hetch Hetchy Power at market rates. This amount, totaling $10,122 and $10,760 for the years ended June 30, 2021 and 2020, respectively, has been included in services provided by other departments in the accompanying financial statements.

The Enterprise purchases water from Water Enterprise at retail rates. This amount, totaling $1,308 and $1,474 for the years ended June 30, 2021 and 2020, respectively, has been included in services provided by other departments in the accompanying financial statements.

The Enterprise provides sewer services to other City departments at non -residential rates established by the Commission, and through the Customer Services Bureau, bills and collects sewer service charges on behalf of the Enterprise.

The City’s Department of Public Works provides certain engineering and other services to the Enterprise and charges amounts designed to recover its costs. These s ervices are primarily related to street cleaning, engineering, building repair, and sewer repair. These amounts totaling approximately $15,088 and $12,750 for the years ended June 30, 2021 and 2020, respectively, have been included in services provided by other departments in the accompanying financial statements.

A variety of other City departments provide services such as purchasing, legal, data processing, telecommunications, and human resources to the Enterprise an d charge amounts designed to recover those departments’ costs. These charges totaling approximately $11,795 and $12,324 for the years Employer
1% Decrease Share
of NOL @ 6.40%
Discount Rate @

7.40%
1% Increase Share
of NOL @ 8.40%
Wastewater 67,184$ 58,183$ 50,829$

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

62 (Continued)

ended June 30, 2021 and 20 20, respectively, have been included in services provided by other departments in the accompanying financial statements.

As of June 30, 2021 and 2020, the Enterprise has payables in the amount of $ 739 and $848, respectively, which is associated with the SFPUC Headquarters Living Machine system. As of June 30, 2021 and 2020, the Enterprise has payable of $0 and $1, respectively to the City Attorney’s Office for legal services provided.

SFPUC’s 75-year lease agreement with the San Francisco Recreation and Parks Department, for the use of parking spaces for its fleet of vehicles at the Civic Center Garage, commenced on February 1, 2011. Total payment under this agreement is $6,274, which was fully made as of fiscal year 2015. The expenses and prepayments among the three SFPUC Enterprises are based on 525 Golden Gate occupancy. As of June 30 , 2021, the Enterprise’s allocable shares of expenses and prepayment were $21 and $1,167, respectively, and as of June 30, 2020 were $22 and $1,188, respectively.

SFPUC’s 30-year lease agreement with the San Francisco Port Commission, for the use of approximately 4,833 square feet of land located within Seawall Lot 345 and within the public right-of-way on Terry A.

Francois Boulevard and on Illinois Street, commenced on September 1, 2018. SFPUC intends to use the premises for the reconstruction of the Mariposa Pump Station and Force Main Improvements. Total payment under this agreement is $ 502, which was fully made as of fiscal year 201 9. As of June 30, 2021, the Enterprise’s expenses and prepayment were $17 and $455, respectively, and as of June 30, 2020 were $17 and $472, respectively.
(11) Risk Management
The Enterprise’s Risk Management program includes both self -insured (i.e., self -retention) and insured exposures at risk. Risk assessments and purchasing of insurance coverage are collaboratively coordinated by SFPUC Risk Management and the City’s Office of Risk Management. Wit h certain exceptions, the City and the Enterprise’s general approach is to first evaluate the exposure at risk for self-insurance. Based on this analysis, internal mitigation strategies and financing through a self - retention mechanism is generally more economical as the SFPUC in coordination with the City Attorney’s Office, administers, adjusts, settles, defends, and pays claims from budgeted resources (i.e., pay -as-you- go fund). When economically more viable or when required by debt financing covenants, the Enterprise obtains commercial insurance. At least annually, the Cit y actuarially determines general liability and workers’ compensation risk exposures. The Enterprise does not maintain commercial earthquake coverage, with certain minor exceptions, such as a sub -limit for fire-sprinkler leakage due to earthquake under the SFPUC Property Insurance program. In the past three years, there was no settlements that exceeded insurance coverage.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

63 (Continued)

(a) General Liability
Through coordination with the Controller ’s Office and the City Attorney’s Office, the general liability risk exposure is actuarially determined and is addressed through pay -as-you-go funding as part of the budgetary process. Associated costs and estimates are recorded as expenses as required under GAAP f or financial statement purposes for both the Enterprise and the City and County of San Francisco’s Annual Comprehensive Financial Report. The claim expense allocations are determined based on actuarially determined anticipated claim payments and the projec ted timing of disbursement.

The changes for the general liability (damage claims) for the years ended June 30, 2021 and 2020 were as follows:

(b) Workers’ Compensation
The City actuarially determines and allocates workers’ compensation costs to the Enterprise according to a formula based on the following: (i) the dollar amount of claims; (ii) yearly projections of payments based on historical experience; and (iii) the size of the Enterprise’s payroll. The administration of workers’ compensation claim s and payouts are handled by the Workers’ Compensation Division of the City’s Department of Human Resources. Statewide workers’ compensation reforms have resulted in budgetary savings in recent years. The City continues to develop and implement improved pr ograms, such as return -to-work programs, to lower or mitigate the growth of workers’ compensation costs. Programs include accident prevention, investigation, and duty modification for injured employees with medical restrictions so return to work can occur as soon as possible.

Risk Types
(a) General Liability Self-Insured
(b) Workers’ Compensation Self-Insured Through City-wide Pool (c) Property Purchased Insurance and Self-Insured
(d) Public Officials Liability Purchased Insurance
(e) Employment Practices Liability Purchased Insurance
(f) Cyber Liability Purchased Insurance
(g) Crime Purchased Insurance
(h) Electronic Data Processing Purchased Insurance and Self-Insured (i) Surety Bonds Purchased and Contractual Risk Transfer (j) Errors and Omissions Purchased and Contractual Risk Transfer (k) Builders’ Risk Contractual Risk Transfer
Coverage Approach
Beginning of Claims and changes Claims End of
Fiscal years year in estimates paid year
2021 15,891 $ 6,428 (5,606) 16,713 2020 16,368 1,952 (2,429) 15,891

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

64 (Continued)

The changes in the liabilities for workers’ compensation for the years ended June 30, 20 21 and 2020 were as follows:

(c) Property
The Enterprise’s property risk management approach varies depending on whether the facility is currently under construction, the property is part of revenue-generating operations, the property is of high value, or is mission -critical in nature. During the course of construction, the Enterprise requires each contractor to provide its own insurance, w hile ensuring the full scope of work be covered with satisfactory levels to limit the Enterprise’s risk exposure. Once construction is complete, the Enterprise performs an assessment to determine whether liability/loss coverage will be obtained through the commercial property policy or self -insurance. The majority of property scheduled in the insurance program is for either: (1) revenue generating facilities, (2) debt -financed facilities, (3) mandated coverage to meet statutory requirements for bonding of v arious public officials, or (4) high-value, mission-critical property or equipment.
(d) Public Officials Liability
All Enterprise public officials with financial oversight responsibilities are provided coverage through a commercial Public Officials Liability Policy.
(e) Employment Practices Liability
A Policy is retained to protect against employment-related claims and liabilities. (f) Cyber Liability
A Policy is retained to protect against cyber-related claims and liabilities. (g) Crime
The Enterprise also retains a Commercial Crime Policy, in lieu of bonding its employees, to provide coverage against liabilities or losses due to third-party crime or employee fraud. (h) Electronic Data Processing
The Electronic Data Processing policy protects selected high -value electronic property in case of damage or loss.
(i) Surety Bonds
Bonds are required in most phases of the public utilities construction contracting process for such phases as bid, performance, and payment or maintenance. Additionally, bonds may be required in other contracts where goods or services are provided to ensure compliance with applicable terms and conditions such as warranty.

Beginning of Claims and changes Claims End of
Fiscal years year in estimates paid year
2021 6,051$ 2,616 (2,085) 6,582 2020 5,914 1,932 (1,795) 6,051

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

65 (Continued)

(j) Errors and Omissions
Errors and omissions , also known as Professional Liability, are commonly transferred through contract to t he contracted professional, or retained through self -insurance on a case -by-case basis depending on the size, complexity, or scope of construction or professional service contracts.

Examples of such contracts are inclusive of services provided by engineers , architects, design professionals, and other licensed or certified professional service providers. (k) Builders’ Risk
Builders’ risk policies of insurance are required to be provided by the contractor on all construc tion projects for the full value of construction.

(12) Commitments and Litigation
(a) Commitments
As of June 30, 2021 and 2020, the Enterprise has outstanding commitments with third parties of $633,255 and $453,061, respectively, for various capital projects and other purchase agreements for materials and services.
(b) Grants
Grants that the Enterprise received are subject to audit and final acceptance by the granting agency.

Current and prior year costs of such grants are subject to adjustment upon audit. (c) Litigation
The Enterprise is a defendant in various legal actions and claims that arise during the normal course of business. The final disposition of these legal actions and claims is not determinable. However, in the opinion of management, the outcome of any litigation of these matters will not have a material effect on the financial position or changes in net position of the Enterprise. (d) Environmental Issue
As of June 30 , 20 21 and 20 20, the Enterprise recorded $ 7,800 in pollution remediation liability.

There is no change in the pollution remediation liability in fiscal year 2021 based on cleanup cost estimates for the toxic sediments at Yosemite Creek.
(13) Subsequent Events
(a) Wastewater Revenue Bonds, Series 2021 AB Issuance
In November 2021, the SFPUC issued its San Francisco Wastewater Revenue Bonds, 202 1 Sub- Series A ( SSIP) (Green Bonds), and Sub-Series B ( non-SSIP) together with an aggregate principal of $297,880 to refund approximately $340,000 aggregate principal amount of commercial paper notes issued pursuant to the Wastewater Enterprise’s commercial paper program to finance or refinance a porti on of the design, acquisition and construction of various capital projects in furtherance of the SFPUC’s SSIP and Wastewater Capital Improvement Program.

SAN FRANCISCO WASTEWATER ENTERPRISE
Notes to Financial Statements
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

66 (b) Wastewater Revenue Notes, Series 2021 AB Issuance In November 2021, the SFPUC issued its San Francisco Wastewater Revenue Notes, 202 1 Sub- Series A ( SSIP-Biosolids) (Green Notes), and Sub-Series B (SSIP-SEP Improvements) (Green Notes) together with an aggregate principal of $347,465 to finance a portion of the design, acquisition and construction of the Biosolids Digester Facility Project and Southeast Water Pollution Control Plant improvements.
(c) SFPUC Claim to CA State for Arrearages Relief
The California State Water Board is administering funds to community water and wastewater systems for the California Water and Wastewater Arrearage Payment Program (Pro gram) during fiscal year 2022, sourced by the American Rescue Plan Act. The Program was created to provide relief for unpaid bills related to the COVID -19 pandemic. Program guidelines for Wastewater arrearage relief are expected no later than February 2022, after all water arrearage relief has been distributed.

We have audited, in accordance with the 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 San Francisco Wastewater Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco, California (the City), which comprise the statement of net position as of June 30, 2021, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 27, 2022.

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 a nd 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.

Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Enterprise’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, r egulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express 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.
68 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 Enterprise’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 Enterprise’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

San Francisco, California
January 27, 2022

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 3
Financial Statements:

Statements of Net Position 34
Statements of Revenues, Expenses, and Changes in Net Position 35 Statements of Cash Flows 36
Notes to Financial Statements 38
Independent Auditors’ Report 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 90

Independent Auditors’ Report
The Honorable Mayor and Board of Supervisors
City and County of San Francisco, California:

Report on the Financial Statements
We have audited the accompanying financial statements of the business-type activities of each fund of Hetch Hetchy Water and Power and CleanPowerSF (Hetch Hetchy), enterprise funds of the City and County of San Francisco, California (the City), as of and for the years ended June 30, 2021 and 2020, and the related notes to the financial statements, which collectively comprise Hetch Hetchy’s basic financial statements as listed in the tables of contents.

Auditors’ Responsibility
Our responsibility is to express opinions on these financial statements based on our audit s. 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.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of each fund of Hetch Hetchy, as of June 30, 2021 and 2020, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with U.S. generally accepted accounting principles. 2 Emphasis of Matter
As discussed in Note 1, the financial statements of Hetch Hetchy are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only that portion of the City that is attributable to the transactions of Hetch Hetchy. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2021 and 2020, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter.

Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages 3 – 33 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 27, 2022 on our consideration of Hetch Hetchy’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and othe r matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Hetch Hetchy’s 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 Hetch Hetchy’s internal control over financial reporting and compliance.

San Francisco, California
January 27, 2022

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

3 (Continued)

This section presents management’s analysis of San Francisco Hetch Hetchy Water and Power and CleanPowerSF Enterprise’s (Hetch Hetchy or the Enterprise) financial condition and activities as of and for fiscal years ended June 30, 2021 and 2020. Management’s Discussion and Analysis (MDA) is intended to serve as an introduction to the Enterprise’s financial statements. This information should be read in conjunction with the audited financial statements that follow this section. All dollar amounts, unless otherwise noted, are expressed in thousands of dollars.

In May 2016, San Francisco Public Utilities Commission (SFPUC or the Commission) launched CleanPowerSF, a Community Choice Aggregation (CCA) program into operation, pooling the electricity demands of their residents and businesses for the purpose of buying electricity on behalf of those customers. CleanPowerSF provides San Francisco with new clean energy alternatives, with its objectives to reduce greenhouse gas emissions, and to provide the Ci ty and County of San Francisco’s (the City) energy consumers with renewable electricity supplies at competitive rates. The SFPUC intends CleanPowerSF to be financially independent, with ability to set rates and charges with adequate revenues, and to issue debt to support its operations and future projects. CleanPowerSF is discretely presented as a fund of the Enterprise starting fiscal year 2017.

Organization and Business

SFPUC is a department of the City that is responsible for the maintenance, operation, and development of three utility enterprises: Water, Wastewater, and Hetch Hetchy. The Enterprise was established as a result of the Raker Act of 1913, which granted water and power resource rights-of-way on the Tuolumne River in Yosemite National Park and the Stanislaus National Forest to the City. The Enterprise operates the Hetch Hetchy project, which provides both electricity generation and upcountry water service; and is engaged in the collection and conveyance of approximately 85% of the regional system’s water supply and in the generation and transmission of electricity.

In normal rain years, 85% of San Francisco’s drinking water starts out as snow falling on 459 square miles of watershed land in Yosemite National Park and the City may supplement water supply from an additional 193 square miles of watershed in Yosemite National Park and the Stanislaus National Forest during extremely dry years. As the snow melts, it collects in the SFPUC's storage reservoirs. As water flows by gravity through over 150 miles of pipelines and tunnels, it tu rns the turbines in three hydroelectric powerhouses, generating approximately 1.1 billion kilowatt hours of electricity per year. The electricity travels over 160 miles of transmission and distribution lines from the upcountry powerhouses to the San Francisco Bay Area.

Approximately 81% of the electricity generated by Hetchy Power is used to provide electric service to the City’s municipal customers (including the San Francisco Municipal Transportation Agency, Recreation and Parks Department, the Port of San Francisco, San Francisco International Airport and its tenants, Zuckerberg San Francisco General Hospital and Trauma Center, City streetlights, Moscone Convention Center, and the

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

4 (Continued)

Water and Wastewater Enterprises). The remaining 19% of electricity generated is sold to CleanPowerSF and the wholesale electric market.

Hetch Hetchy

Hetch Hetchy provides reliable, high-quality water and electric energy to the City and other customers, protects watershed resources in cooperation with Federal agencies, operates and maintains facilities to a high standard of safety and reliability, and maximizes revenue opportunities within approved levels of risk.

Hetch Hetchy, a stand-alone enterprise is comprised of three funds: 1) Hetch Hetchy Water (Hetchy Water) upcountry operations and water system; 2) Hetch Hetchy Power (Hetchy Power), also referred to as the Power Enterprise, which is wholly contained within the Hetch Hetchy fund; and 3) CleanPowerSF, which is an enterprise fund to aggregate the buying power of customers within San Francisco to purchase renewable energy sources or clean power, is reported as a separate fund of Hetch Hetchy. A number of the facilities are joint assets and used for both water and power generation.

Hetchy Water

For efficiency and to streamline the coordination of upcountry water and power operations, Hetchy Water operates upcountry and joint-asset facilities, managing resources in an environmentally responsible manner to a high standard of safety and reliability while me eting regulatory requirements. It is responsible for operating the Hetch Hetchy Reservoir, the main source of water for the Hetch Hetchy system. Hetchy Water operates, maintains, and improves water and powe r facilities, smaller dams and reservoirs, water transmission systems, power generati on facilities, and power transmission assets, including transmission lines to the Newark substation. Hetchy Water delivers high-quality water from upcountry downhill to the Bay Area while optimizing the resulting generation of clean hydropower as water is transported through the system. It maintains land and properties consistent with public health and neighborhood concerns.

Hetchy Power

The core business of Hetchy Power, as a municipal department, is to provide adequate and reliable supplies of electric power to meet the electricity needs of City and County of San Francisco’s customers, and to offer, when available, power for the municipal loads and agricultural pumping demands consistent with prescribed contractual obligations and federal law.

Hetchy Power’s portfolio consists of hydroelectric generation, onsite solar at SFPUC and other City facilities, generation using bio-methane produced at SFPUC wastewater treatment facilities, and third-party purchases. Consistent with its commitment to the development of cleaner and greener power, and to address environmental concerns and community objectives, Hetchy Power continues to evaluate and expand its existing resource base to include addi tional renewables, distributed generation, demand management, and energy efficiency programs. As part of its mission and core functions, Hetchy Power provides reliable energy services at reasonable cost to customers, with attention to environmental effects and community concerns.

Hetch Hetchy Joint Water and Power

A portion of Hetch Hetchy’s operating budget, capital pr ogram, and assets, provides benefit to both Hetchy Power and Hetchy Water. This is commonly referred to as joint costs and joint assets. Both operating and capital costs that jointly benefit both funds are allocated 55% to Hetchy Power and 45% to Hetchy Water, as has historically been done by the SFPUC.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

5 (Continued)

CleanPowerSF

The core business of CleanPowerSF is to provide greener electricity generation to residential and commercial consumers in San Francisco. Through CleanPowerSF, SFPUC seeks to achieve several complementary goals, including affordable and competitive electricity generation rates, a diverse electricity resource portfolio that is comprised of renewable and other clean sources of supply, and high-quality customer service.

Overview of the Financial Statements

Hetch Hetchy’s financial statements include the following:

Statements of Net Position present information on Hetch Hetchy’s assets, deferred outflows, liabilities, and deferred inflows as of year-end, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of Hetch Hetchy is improving or worsening.

While the Statements of Net Position provide information about the natu re and amount of resources and obligations as of year-end, the Statements of Revenues, Expenses, and Changes in Net Position present the results of Hetch Hetchy’s operations over the course of the fiscal year and information as to how the net position changed during the year. These statements can be used as an indicator of the extent to which Hetch Hetchy has successfully recovered its costs throug h user fees and other charges. All changes in net position are reported during the period in which the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in these statements from some items that will result in cash flow s in future fiscal periods, such as delayed collection of operating revenues and the expenses of employee earned but unused vacation leave.

The Statements of Cash Flows present changes in cash and cash equi valents resulting from operational, capital financing, non-capital financing, and investing activities. These statements summarize the annual flow of cash receipts and cash payments, without consid eration of the timing of the event giving rise to the obligation or receipt and exclude non-cash accounting measures of depreciation or amortization of assets.

The Notes to Financial Statements provide information that is essential to a full understanding of the financial statements that is not presented on the face of the financial statements.

COVID-19

On February 25, 2020, the City’s Mayor issued a proclamation declaring a local emergency to exist in connection with the imminent spread within the City of the novel coronavirus (“COVID-19”). On March 16, 2020, the City’s Health Officer issued a stay safe at home order, Health Officer Order No. C19-07 (the “Stay Safe At Home Order”), requiring most people and City employees to remain in their homes subject to certain exceptions including obtaining essential goods (such as food and necessary su pplies), and requiring the closure of nonessential businesses. In addition, Se ction 2 of the second supplement to the emergency proclamation authorizes the SFPUC to suspend (a) the discontinuation or shutoff of power service for residents and businesses in the City for non-payment of power bills, (b) the return of delinquent CleanPowerSF Customers to Pacific Gas & Electric Company (PG&E) generation service for failure to pay CleanPowerSF charges and (c) the imposition of late payment penalties or fees for delinquent power bills through July 11, 2020. The proclamation was extended on December 8, 2020 through June 30, 2021 and then again on April 27, 2021 through March 31, 2022 for Hetchy Power. For CleanPowerSF, the suspension was extended to September 30, 2021. This proclamation did not have a material effect on the operations of the Hetch Hetchy Enterprise.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

6 (Continued)

Financial Analysis

Financial Highlights for Fiscal Year 2021

Hetch Hetchy

 Total assets of Hetch Hetchy exceeded total liabilities by $767,191.

 Net position increased by $16,429 or 2.1% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $63,326 or 10.4% to $669,537.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, decreased by $30,113 or 7.1% to $391,171.

 Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $19,845 or 5.1% to $408,871.

Hetchy Water

 Total assets of Hetchy Water exceeded total liabilities by $216,214.

 Net position increased by $13,630 or 6.5% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $16,699 or 10.4% to $177,481.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $12,137 or 34.7% to $47,090.

 Operating expenses, excluding other non-operating expenses, increased by $5,644 or 12.6% to $50,517.

Hetchy Power

 Total assets of Hetchy Power exceeded total liabilities by $462,136.

 Net position increased by $6,857 or 1.5% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $46,627 or 10.5% to $492,056.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, decreased by $4,488 or 3.2% to $136,383.

 Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, decreased by $2,489 or 1.7% to $145,638.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

7 (Continued)

CleanPowerSF

 Total assets of CleanPowerSF exceeded total liabilities by $88,841.

 Net position decreased by $4,058 or 4.5% during the fiscal year.

 CleanPowerSF had no capital assets, net of accumulated depreciation and amortization as of June 30, 2021.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, decreased by $37,762 or 15.4% to $207,698.

 Operating expenses, excluding interest expense increased by $16,690 or 8.5% to $212,716.

Financial Highlights for Fiscal Year 2020

Hetch Hetchy

 Total assets of Hetch Hetchy exceeded total liabilities by $758,800, excluding interfund payable and receivable of $1,800 related to working capital loan between Hetchy Power and CleanPowerSF.

 Net position increased by $80,891 or 11.8% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $55,580 or 10.1% to $606,211.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $75,898 or 22% to $421,284.

 Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $78,749 or 25.4% to $389,026.

Hetchy Water

 Total assets of Hetchy Water exceeded total liabilities by $206,283.

 Net position increased by $9,862 or 4.9% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $11,679 or 7.8% to $160,782.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $948 or 2.8% to $34,953.

 Operating expenses, excluding other non-operating expenses, decreased by $5,432 or 10.8% to $44,873.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

8 (Continued)

Hetchy Power

 Total assets of Hetchy Power exceeded total liabilities by $459,800.

 Net position increased by $19,892 or 4.5% during the fiscal year.

 Capital assets, net of accumulated depreciation and amortization, increased by $43,901 or 10.9% to $445,429.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, decreased by $2,690 or 1.9% to $140,871.

 Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $25,439 or 20.7% to $148,127.

CleanPowerSF

 Total assets of CleanPowerSF exceeded total liabilities by $92,717.

 Net position increased by $51,137 or 127.8% during the fiscal year.

 CleanPowerSF had no capital assets, net of accumulated depreciation and amortization as of June 30, 2020.

 Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $77,640 or 46.3% to $245,460.

 Operating expenses, excluding interest expense increased by $58,742 or 42.8% to $196,026.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

9 (Continued)

Financial Position

The following tables summarize Hetch Hetchy’s changes in net position:

*Eliminated interfund payable and receivable of $1,800 and $3,731 working capital loan between Hetchy Power and CleanPowerSF fo r fiscal years 2020 and 2019, respectively.

2021-2020 2020-2019
2021 2020 2019 Change Change
Total assets:

Current and other assets $ 468,768 441,635 392,967 27,133 48,668 Capital assets, net of accumulated depreciation
and amortization 669,537 606,211 550,631 63,326 55,580 Total assets 1,138,305 1,047,846 943,598 90,459 104,248 Deferred outflows of resources:

Pensions 18,133 18,238 14,665 (105) 3,573 Other post-employment benefits 8,719 5,452 3,092 3,267 2,360 Total deferred outflows of resources 26,852 23,690 17,757 3,162 5,933 Liabilities:

Current liabilities:

Bonds 1,928 2,115 2,528 (187) (413) Certificates of participation 405 384 366 21 18 Commercial paper 114,671 63,535 50,724 51,136 12,811 Other liabilities 82,677 63,178 52,128 19,499 11,050 Subtotal current liabilities 199,681 129,212 105,746 70,469 23,466 Long-term liabilities:

Bonds 44,384 47,693 50,018 (3,309) (2,325) Certificates of participation 13,026 13,444 13,846 (418) (402) Other liabilities 114,023 98,697 92,755 15,326 5,942 Subtotal long-term liabilities 171,433 159,834 156,619 11,599 3,215 Total liabilities:

Bonds 46,312 49,808 52,546 (3,496) (2,738) Certificates of participation 13,431 13,828 14,212 (397) (384) Commercial paper 114,671 63,535 50,724 51,136 12,811 Other liabilities 196,700 161,875 144,883 34,825 16,992 Total liabilities 371,114 289,046 262,365 82,068 26,681 Deferred inflows of resources:

Related to pensions 3,288 10,843 8,811 (7,555) 2,032 Other post-employment benefits 6,546 3,867 3,290 2,679 577 Total deferred inflows of resources 9,834 14,710 12,101 (4,876) 2,609 Net position:

Net investment in capital assets 500,547 482,986 450,637 17,561 32,349 Restricted for debt service 99 142 1,145 (43) (1,003) Restricted for capital projects — 6,513 8,401 (6,513) (1,888) Unrestricted 283,563 278,139 226,706 5,424 51,433 Total net position $ 784,209 767,780 686,889 16,429 80,891 Table 1A - Consolidated Hetch Hetchy
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019
** *

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

10 (Continued)

2021-2020 2020-2019
2021 2020 2019 Change Change
Total assets:

Current and other assets $ 98,151 92,711 94,432 5,440 (1,721) Capital assets, net of accumulated depreciation
and amortization 177,481 160,782 149,103 16,699 11,679 Total assets 275,632 253,493 243,535 22,139 9,958 Deferred outflows of resources:

Pensions 7,799 7,950 6,447 (151) 1,503 Other post-employment benefits 3,725 2,332 1,343 1,393 989 Total deferred outflows of resources 11,524 10,282 7,790 1,242 2,492 Liabilities:

Current liabilities 15,857 6,769 6,726 9,088 43 Long-term liabilities 43,561 40,441 38,123 3,120 2,318 Total liabilities 59,418 47,210 44,849 12,208 2,361 Deferred inflows of resources:

Related to pensions 988 4,335 3,874 (3,347) 461 Other post-employment benefits 2,085 1,195 1,429 890 (234) Total deferred inflows of resources 3,073 5,530 5,303 (2,457) 227 Net position:

Net investment in capital assets 177,481 160,782 149,103 16,699 11,679 Restricted for capital projects — 6,513 8,401 (6,513) (1,888) Unrestricted 47,184 43,740 43,669 3,444 71 Total net position $ 224,665 211,035 201,173 13,630 9,862 Table 1B - Hetchy Water
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

11 (Continued)

*Included $1,800 and $3,731 working capital loan to CleanPowerSF for fiscal years 2020 and 2019, respectively.

2021-2020 2020-2019
2021 2020 2019 Change Change
Total assets:

Current and other assets $ 249,275 228,845 * 239,222 * 20,430 (10,377) Capital assets, net of accumulated depreciation
and amortization 492,056 445,429 401,528 46,627 43,901 Total assets 741,331 674,274 640,750 67,057 33,524 Deferred outflows of resources:

Pensions 9,531 9,716 7,879 (185) 1,837
Other post-employment benefits 4,552 2,850 1,641 1,702 1,209 Total deferred outflows of resources 14,083 12,566 9,520 1,517 3,046 Liabilities:

Current liabilities:

Bonds 1,928 2,115 2,528 (187) (413)
Certificates of participation 405 384 366 21 18 Commercial paper 114,671 63,535 50,724 51,136 12,811 Other liabilities 49,431 33,218 28,346 16,213 4,872 Subtotal current liabilities 166,435 99,252 81,964 67,183 17,288 Long-term liabilities:

Bonds 44,384 47,693 50,018 (3,309) (2,325)
Certificates of participation 13,026 13,444 13,846 (418) (402) Other liabilities 55,350 54,085 52,247 1,265 1,838 Subtotal long-term liabilities 112,760 115,222 116,111 (2,462) (889) Total liabilities:

Bonds 46,312 49,808 52,546 (3,496) (2,738)
Certificates of participation 13,431 13,828 14,212 (397) (384) Commercial paper 114,671 63,535 50,724 51,136 12,811 Other liabilities 104,781 87,303 80,593 17,478 6,710 Total liabilities 279,195 214,474 198,075 64,721 16,399 Deferred inflows of resources:

Related to pensions 1,207 5,298 4,734 (4,091) 564 Other post-employment benefits 2,548 1,461 1,746 1,087 (285) Total deferred inflows of resources 3,755 6,759 6,480 (3,004) 279 Net position:

Net investment in capital assets 323,066 322,204 301,534 862 20,670 Restricted for debt service 99 142 1,145 (43) (1,003) Unrestricted 149,299 143,261 143,036 6,038 225 Total net position $ 472,464 465,607 445,715 6,857 19,892 Table 1C - Hetchy Power
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

12 (Continued)

*Included $1,800 and $3,731 working capital loan from Hetchy Power for fiscal years 2020 and 2019, respectively.

Net Position, Fiscal Year 2021

Hetch Hetchy

Hetch Hetchy’s net position of $784,209 increased by $16,429 or 2.1% from prior year resulting from an increase of $93,621 in total assets and deferred outflows of resources, offset by a net increase of $77,192 in total liabilities and deferred inflows of resources (see Table 1A). Current and other assets were $468,768, a $27,133 or 6.1% increase from prior year, driven by higher charges for services receivables from Hetchy Power. In April 2021, Hetchy Power implemented a new electric utility billing system causing billings from April to June to be delayed.

Capital assets, net of accumulated depreciation and amortization, increased by $63,326 or 10.4% to $669,537 primarily from construction and capital improvement activities, and additions of facilities, improvements, machinery, and equipment for the Bay Corridor Project and Holm Powerhouse Rehabilitation & Kirkwood Powerhouse Oil Containment Upgrades. Defe rred outflows of resources increased by $3,162 due to an increase of $3,267 in other post-employment benefits (OPEB) based on actuarial reports offset by a decrease of $105 in pensions.

Total liabilities increased by $82,068 or 28.4% to $371,114. The increases included $47,243 in outstanding debt and $34,825 in other liabilities. Deferred inflows of resources decreased by $4,876 due to a decrease of $7,555 in relation to pensions offset by an increase of $2,679 in OPEB based on actuarial reports.

Hetchy Water

Hetchy Water’s net position of $224,665 increased by $13,630 or 6.5% resulting from an increase of $23,381 in total assets and deferred outflows of resources, offset by a net increase of $9,751 in total 2021-2020 2020-2019
2021 2020 2019 Change Change
Total assets:

Current and other assets $ 121,342 121,879 63,044 (537) 58,835 Total assets 121,342 121,879 63,044 (537) 58,835
Deferred outflows of resources:

Pensions 803 572 339 231 233
Other post-employment benef ts 442 270 108 172 162
Total deferred outflows of resources 1,245 842 447 403 395 Liabilities:

Current liabil ties 17,389 24,991 * 17,056 (7,602) 7,935 Long-term liabil ties 15,112 4,171 6,116 * 10,941 (1,945) Total liabil ties 32,501 29,162 23,172 3,339 5,990 Deferred inflows of resources:

Related to pensions 1,093 1,210 203 (117) 1,007
Other post-employment benef ts 1,913 1,211 115 702 1,096 Total deferred inflows of resources 3,006 2,421 318 585 2,103 Net position:

Unrestricted 87,080 91,138 40,001 (4,058) 51,137
Total net position $ 87,080 91,138 40,001 (4,058) 51,137 Table 1D - CleanPowerSF
Comparative Condensed Net Position
June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

13 (Continued)

liabilities and deferred inflows of resources (see Table 1B). The increase of $5,440 in current and other assets was attributed to increases of $7,423 in cash a n d i n v e s t m e n t w i t h C i t y T r e a s u r y m a i n l y d u e t o a $16,000 transfer from the Water Enterprise to fund upcountry projects, offset by higher project spending, $413 increase in charges for services receivables due to higher consumption from Lawrence Livermore National Laboratory, and $4 increase in inventory due to more purchases than issuances during the fiscal year. The increases were offset by decreases of $1,996 in due from other governments mainly due to prior year reimbursements received for disaster emergency recoveries related to the 2018 Moccasin Storm and $186 in interest receivables due to lower annualized interest rate. Prepaid charges, advances, and other receivables decreased by $114 due to $448 Rim Fire insurance recovery collections and $4 in amortization of the advance paid to the Recreation and Parks Depa rtment for the Civic Center Garage, offset by an increase of $338 in vendor prepayment to Turlock Irrigation District for Federal Energy Regulatory Commission (FERC) relicensing studies and California Department of Water Resources for annual dam fees.

Other decreases include $104 due from the City Attorney’s Office for legal services.

Capital assets, net of accumulated depreciation and amortization, increased by $16,699 or 10.4% to $177,481 primarily from construction and capital improvement activities for the Mountain Tunnel Improvement Project and Repair & Replacement Life Extension Program, and additions of facilities, improvements, machinery, and equipment. Deferred outflows of resources increased by $1,242 due to an increase of $1,393 in OPEB based on actuarial reports offset by a decrease of $151 in pensions.

Hetchy Water’s total liabilities increased by $12,208 or 25.9% to $59,418, as explained by increases of $5,778 in restricted payables to vendors and contractors mainly due to higher year-end expense accruals for capital projects, $5,168 in net pension liability based on actuarial report, $3,304 in unrestricted payables mainly for license and permit fees to National Park Service, $626 in employee related benefits including workers’ compensation, vacation, sick leave and accrued payroll mainly due to an extra day in current year- end payroll accrual when compared to prior year and a 3% cost of living adjustment increase in December 2020, and $4 increase in rental deposits. The increases were offset by decreases of $1,906 in OPEB obligations based on actuarial assumptions, $493 in grant advance due to recognition of Rim Fire grant revenue, $240 in payable due to the City Attorney’s Office for unbilled legal services, and $33 in general liability based on actuarial estimates.

Deferred inflows of resources decreased by $2,457 due to a decrease of $3,347 in relation to pensions offset by an increase of $890 in OPEB based on actuarial reports.

Hetchy Power

Hetchy Power’s net position of $472,464 increased by $6,857 or 1.5% resulting from an increase of $68,574 in total assets and deferred outflows of resources, offset by a net increase of $61,717 in total liabilities and deferred inflows of resources (see Table 1C). Increase of $20,430 in current and other assets was attributed to an increase of $16,057 in charges for services receivables, of which $15,673 was attributed to billing delays as a result of transition ing to new billing system implemented in April 2021. In addition, there was an increase of $1,051 in year-end accrual for California Independent System Operator (CAISO) Congestion Revenue Right (CRR) credits, offset by an increase of $667 in allowance for doubtful accounts due to increased past due balances as a result of the Mayor’s emergency proclamation that Hetchy Power temporarily suspend collection procedures and utility shutoffs for past due accounts to help customers with financial hardship due to COVID-19. Re stricted interest and other receivables increased by $11,632 mainly due to vendor prepayment to PG&E for the Bay Corridor Project.

Prepaid charges, advances, and other receivables increased by $405 mainly due to $496 increase in vendor prepayments to PG&E for electric system reliability compliance product offset by decreases of $61 in

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

14 (Continued)

receivables for the Distributed Antenna System (DAS) program due to more payments received, $16 in custom work receivables for Sunnydale Housing Projects, and $14 in amortization of the advance paid to the Recreation and Parks Department for the Civic Center Garage. Inventory increased by $211 due to more purchases than issuances during the fiscal year. The in creases were offset by $3,280 decrease in cash and investment with/outside City Treasury due primarily to increase in capital spending. Due from other City departments decreased by $2,763, attributed to the final repayments of $1,800 from CleanPowerSF for working capital loan, $506 for the Sustainable Energy Account, $331 from City Attorney’s Office for legal services, $109 from Wastewater Enterprise for the Living Machine System, and $105 from the Recreation and Parks Department for Energy Efficiency Projects, offset by increases of $46 in interest receivable from Treasure Island Development Authority (TIDA) in connection of an upgraded submarine power cable for the Treasure Island to increase service capacity and $42 from the Department of Public Works for Hunters Point Shipyard Development and Transbay Folsom Street Improvement custom work projects. Other decreases include $1,377 in grants receivable due to reimbursement received for disaster emergency recoveries related to the Rim Fire and 2018 Moccasin Storm, and $455 in interest receivables due to lower annualized interest rate.

Capital assets, net of accumulated depreciation and amortization, increased by $46,627 or 10.5% to $492,056 primarily due to additions of facilities, improvements, machinery, and equipment for the Bay Corridor Project and Holm Powerhouse Rehabilitation & Kirkwood Powerhouse Oil Containment Upgrades.

Deferred outflows of resources increased by $1,517 due to an increase of $1,702 in OPEB based on actuarial reports offset by a decrease of $185 in pensions.

Hetchy Power’s total liabilities of $279,195 increased by $64,721 or 30.2%. As of June 30, 2021, outstanding debts increased by $47,243 and was attributable to $51,136 in commercial paper issuance for Hetchy Power facilities, offset by $2,402 in bonds and certificates of participation principal repayments, $1,272 in return of unspent bond proceeds for 2015 NCREBs, and $219 in amortization of premium and discount. Other liabilities of $104,781, such as paya bles to vendors, employees, contractors, and other government agencies for goods and services under contractual agreements, increased by $17,478 or

20.0%, mainly due to increases of $8,724 in unrestricted payables mainly for wheeling charges to APX Inc., $6,934 restricted payables to vendors and contractors due to higher year-end expense accruals for capital projects, $6,317 in net pension liability based on actuarial report, and $876 in employee related benefits including workers’ compensation, vacation, sick leave and accrued payroll mainly due to an extra day in current year-end payroll accrual when compared to prior year and a 3% cost of living adjustment increase in December 2020. Offsetting decreases include $2,330 in OPEB obligations based on actuarial assumptions, $1,649 in unearned revenue, $1,114 in general liability based on actuarial estimates, $231 in due to City Attorney’s Office for unbilled legal services, and $49 in interest payable as a result of decreased outstanding debts and lower interest rates for commercial paper. Unearned revenue decreased by $1,649 due to $1,208 in remittance of utility tax collected, $1,193 in power revenue from commercial deposits, $681 in residential allowance refund for the Alice Griffith Housing Project, and $609 in recognition of Rim Fire grants revenue received in advance, offset by increases of $1,707 in deposits from custom work projects, $200 in prepayments from DAS program, $117 in overpayments received from customers, and $18 in deposits received from retail customers and security deposits for cottage rental.

Deferred inflows of resources decreased by $3,004 due to a decrease of $4,091 in relation to pensions offset by an increase of $1,087 in OPEB based on actuarial reports.

CleanPowerSF

CleanPowerSF’s net position of $87,080 decreased by $4,058 or 4.5%, resulting from a net decrease of $134 in total assets and deferred outflows of resources and a net increase of $3,924 in total liabilities and

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

15 (Continued)

deferred inflows of resources (see Table 1D). Total assets decreased by $537 due to a $6,447 decrease in charges for services receivables attributed to an increase of $3,675 in allowance for doubtful accounts due to higher past due balances in customer power utility accounts after the Mayor’s proclamation to extend the moratorium on utility shutoffs and bill collections to help customers experiencing financial hardship as a result of COVID-19. Other decreases include $2,772 in receivables mainly due to one-time customer assistance bill credits related to COVID-19 relief, $576 in prepaid charges, adva nces, and other receivables mainly due to lower vendor prepayments for purchased electricity and $160 in in terest receivables due to lower annualized interest rate. The decreases were offset by an increase of $6,646 in cash and investment with City Treasury mainly from cash collateral received for power purchase agreement.

Deferred outflows of resources increased by $403 due to increases of $231 in pensions and $172 in OPEB based on actuarial reports.

Total liabilities of $32,501 increased by $3,339 or 11.4%, which was mainly explained by $9,000 in cash collateral received for power purchase agreement (see Note 13(a)), $1,203 in net pension liability based on actuarial report, $712 in OPEB obligations based on actuarial assumptions, and an increase of $200 in employee related benefits including vacation, sick leav e and accrued payroll mainly due to an extra day in current year-end payroll accrual when compared to prior year, and a 3% cost of living adjustment increase in December 2020. Other increases in unearned revenues, refunds, and other, include $90 from net energy metering credits to retail and commercial customers, $86 from customer prepayments, and $4 from utility and electric energy surcharge tax payable. These increases were offset by decreases of $6,047 in payables to vendors and contractors mainly from lower power purchases, $1,809 due to other City departments ($1,800 final working capital loan repayment to Hetchy Power and $9 to City Attorney’s Office for unbilled legal services), and $100 in general liability based on actuarial estimates.

Deferred inflows of resources increased by $585 due to an increase of $702 in OPEB based on actuarial reports offset by a decrease of $117 in relation to pensions.

Net Position, Fiscal Year 2020

Hetch Hetchy

Hetch Hetchy’s total net position increased from prior year by $80,891 or 11.8% (see Table 1A). The increase in net position was the result of an increase of $110,181 in total assets and deferred outflows of resources, offset by an increase of $29,290 in total liabilities and deferred inflows of resources.

Current and other assets were $441,635, a $48,668 or 12.4% increase from prior year with elimination of a $1,800 working capital loan from Hetchy Power to CleanPowerSF. The increase was primarily due to an increase of $49,328 in cash and investment with/outside City Treasury as a result of higher collection from CleanPowerSF electricity sales. Due from other City departments increased by $3,623, of which $3,981 was a receivable from the Treasure Island Development Authority (TIDA) in connection of an upgraded submarine power cable for the Treasure Island to increase service capacity and $435 from the City Attorney’s Office for legal services; offset by repayments of $506 for the Sustainable Energy Account, $108 from the Wastewater Enterprise for the Living Machine System, $105 from the Recreation and Parks Department for Energy Efficiency Projects, and $74 from the Department of Public Works for Hunters Point Shipyard Development Project and Transbay Folsom Street Improvement custom work projects. Other increases included $707 in grants receivables from State and Federal related to disaster emergency recoveries for the 2018 Moccasin Storm Project, Early Intake Switchyard Project and Rim Fire Project; and $181 in inventory due to more purchases than issuances during the fiscal year. These increases were offset by decreases of $2,964 in charges for services receivable due to $1,797 increase in allowance for uncollectible attributable to higher

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

16 (Continued)

past due balances as a result of the Mayor’s emergency declaration that Hetch Hetchy temporarily suspended collection procedures for past due accounts to help customers with financial hardship due to COVID-19, $1,127 in lower year-end accrual for California Independent System Operator (CAISO) Congestion Revenue Right (CRR) credits, and $40 decrease in bi llings due to lower consumption. Prepaid charges, advances, and other receivables decreased by $1,117 due to payment of $2,209 billing credits from Western Area Power Administration, $45 in lower vendor prepayments, and $17 in amortization of the advance paid to the Recreation and Parks Department for the Civic Center Garage; offset by increases of $615 in receivables for the Distributed Antenna System (DAS) program due to higher billings, $448 in Rim Fire insurance recoveries, $80 in rental receivables, and $11 in custom work receivables for the Sunnydale Housing Projects. Interest receivables decreased by $1,090 due to lower annualized interest rate.

Capital assets, net of accumulated depreciation and amortization, increased by $55,580 or 10.1% to $606,211 primarily from construction and capital improvement activities, and additions of facilities, improvements, machinery, and equipment. Deferred outflows of resources increased by $5,933 due to increases of $3,573 in pensions and $2,360 in other post-employment benefits (OPEB) based on actuarial reports.

Total liabilities increased by $26,681 or 10.2%, to $289,046. A working capital loan of $1,800 due to Hetchy Power from CleanPowerSF was eliminated upon consolidation. As of June 30, 2020, outstanding debts increased by $9,689 attributed to $12,811 in commercial paper issuance for Hetchy Power facilities, offset by decreases of $2,894 in bonds and certificates of participation principal repayments and $228 in amortization of premium and discount. Other liabilit ies of $161,875, such as payables to vendors, contractors, and other government agencies for goods and services under contractual agreements, increased by $16,992 or 11.7%, mainly due to increases of $8,235 in restricted and unrestricted payables to vendors and contractors, of which $5,696 from CleanPowerSF due to higher power purchases and $3,239 from Hetchy Power due to higher capital spending, offset by a decrease of $700 from Hetchy Water due to reduced capital spending. Net pension liabilit y increased by $3,151 based on actuarial report, and $3,058 increase in OPEB obligations based on actuar ial assumptions. Other increases included $1,318 in employee related benefits including workers’ compensation, vacation, sick leave and accrued payroll mainly due to more days in current year-end payroll accrua l when compared to prior year, coupled with a 3% increase of cost of living adjustment (COLA), $602 in general liability based on actuarial estimates, $499 in due to other City departments, including $480 to the City Attorney’s Office for unbilled legal services and $19 to the Port of San Francisco for Pier 70 Shoreside Power Project. Unearned revenue increased by $163 d u e t o $ 3 6 0 i n d e p o s i t s f r o m c u s t o m w o r k p r o j e c t s , $ 3 0 6 i n n e t e n e r g y m e t e r i n g c r e d i t s f r o m CleanPowerSF, $11 in prepayments from the DAS program, and $3 from prepaid rent; offset by decreases of $440 in customer deposits from retail and commercial cu stomers, and $77 in sales ta x, utility, and electric energy surcharge tax payables. These increases were offset by a decrease of $34 in interest payable due to lower bond and loan outstanding.

Deferred inflows of resources increased by $2,609 due to a $2,032 increase in pensions and a $577 increase in OPEB based on actuarial reports.

Hetchy Water

Hetchy Water’s net position of $211,035 increased by $9,862 or 4.9% resulting from an increase of $12,450 in total assets and deferred outflows of resources, offset by an increase of $2,588 in total liabilities and deferred inflows of resources (see Table 1B). Decrease of $1,721 in current and other assets was attributed to decreases of $1,166 in cash and in vestment with City Treasury mainly due to reduced project spending, $336 in State grant receivable mainly from reimbursement related to disaster emergency recoveries for the Lower Cherry Aqueduct Project, $308 in interest receivables due to lower annualized

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

17 (Continued)

interest rate, $50 decrease in charges for services receivables mainly due to lower consumption from Lawrence Livermore National Laboratory, and $11 decrease in inventory due to more issuance than purchase during the fiscal year. The decrease was offset by increases of $104 in due from the City Attorney’s Office for legal services, and $46 in prepaid charges, advances, and other receivables, of which $448 in pending Rim Fire insurance recoveries and $36 in rental receivables; offset by decreases of $434 in vendor prepayment mainly for Don Pedro Reservoir operating license and $4 in amortization of the advance paid to the Recreation and Parks Department for the Civic Center Garage.

Capital assets, net of accumulated depreciation and amortization, increased by $11,679 or 7.8% to $160,782 primarily due to additions of facilities, improvements, machinery, and equipment. Deferred outflows of resources increased by $2,492 due to increases of $1,503 in pensions and $989 in OPEB based on actuarial reports.

Hetchy Water’s total liabilities increased by $2,361 or 5.3% to $47,210, as explained by increases of $1,087 in net pension liability based on actuarial re port, $946 in OPEB obligations based on actuarial assumptions, $450 in employee related benefits including workers’ compensation, vacation, sick leave and accrued payroll mainly due to more days in current ye ar-end payroll accrual when compared to prior year, coupled with a 3% increase of COLA, $334 in general liability based on actuarial estimates, $240 in payable due to the City Attorney’s Office for unbilled legal services, and $4 in unearned revenue mainly due to $7 increase in rental deposits, offset by a decrease of $3 in sales tax payables. The increases were offset by a decrease of $700 in restricted and unrestricted payables to vendors and contractors due to lower capital spending.

Deferred inflows of resources increased by $227 due to an increase of $461 related to pensions, offset by a decrease of $234 in OPEB based on actuarial reports.

Hetchy Power

Hetchy Power’s net position of $465,607 increased by $19,892 or 4.5% resulting from an increase of $36,570 in total assets and deferred outflows of resources, offset by an increase of $16,678 in total liabilities and deferred inflows of resources (see Table 1C). Current and other assets decreased by $10,377 or 4.3%, of which $8,184 decrease in cash and investment with/outside City Treasury due primarily to increase in operating and capital spending. Charges for services receivable decreased by $2,837 due to decreases of $1,138 in billings, $1,127 in lower year-end accrual for CAISO CRR credits as related to prior year, and $572 increase in allowance for uncollectible due to higher past due balances as a result of the Mayor’s emergency declaration that Hetch Hetchy temporarily suspended collection procedures for past due accounts to help customers with financial hardship due to COVID-19. Prepaid charges, advances, and other receivables decreased by $1,379 due to payment of $2,209 billing credits from Western Area Power Administration, and $13 in amortization of the advance paid to the Recreation and Parks Department for the Civic Center Garage, offset by increases of $615 in receivables for the DAS program due to higher billings, $173 in vendor prepayment for license and permit fees, $44 in rental receivables, and $11 in custom work receivables for the Sunnydale Housing Projects. Interest receivables decreased by $800 due to lower annualized interest rate. These decreases were offset by an increase of $1,588 in due from other City departments, of which $3,981 was a receivable from the TIDA in connection of an upgraded submarine power cable for the Treasure Island to increase service capacity and $331 from the City Attorney’s Office for legal services; offset by repayments of $2,000 from CleanPowerSF for working capital loan net of accrued interest of $69, $506 for the Sustainable Energy Acco unt, $108 from the Wastewater Enterprise for the Living Machine System, $105 from the Recreation and Parks Department for Energy Efficiency Projects, and $74 from the Department of Public Works for Hunters Point Shipyard Development, and Transbay Folsom Street Improvement custom work projects. State and Federal grants receivables increased by $1,043 due to

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

18 (Continued)

disaster emergency recoveries for the 2018 Moccasin Storm Project, Early Intake Switchyard Project and Rim Fire Project, and $192 increase in inventory due to more purchase than issuance during the fiscal year.

Capital assets, net of accumulated depreciation and amortization, increased by $43,901 or 10.9% to $445,429 primarily from construction and capital improvement activities. Deferred outflows of resources increased by $3,046 due to increases of $1,837 in pensions and $1,209 in OPEB based on actuarial reports.

Hetchy Power’s total liabilities of $214,474 increased by $16,399 or 8.3%. As of June 30, 2020, outstanding debts increased by $9,689 and was attributable to $12,811 in commercial paper issuance for Hetchy Power facilities, offset by decreases of $2,894 in bonds and certificates of participation principal repayments and $228 in amortization of premium and discount. Other liabilities of $87,303, such as payables to vendors, contractors, and other government agencies for g oods and services under contractual agreements, increased by $6,710 or 8.3%, mainly attributable to increases of $3,239 in restricted and unrestricted payables to vendors and contractors due to higher capital spending, $1,329 in net pension liability based on actuarial report, $1,157 in OPEB obligations based on actuarial assumptions, $747 in employee related benefits including workers’ compensation, vacation, sick leave and accrued payroll mainly due to more days in current year-end payroll accrua l when compared to prior year, coupled with a 3% increase of COLA, $250 increase in due to other City departments, including $231 to the City Attorney’s Office for unbilled legal services and $19 to the Port of San Francisco for Pier 70 Shoreside Power Project, and $169 in general liability based on actuarial estima tes. These increases were offset by a decrease of $147 in unearned revenue, of which $446 in customer deposits from retail and commercial customers and $74 in sales tax, utility, and electric energy surcharge tax payables, offset by increases of $360 in deposits from custom work projects, $11 in prepayments for the DAS program, and $2 from prepaid rent. Interest payable decreased by $34 due to lower bond and loan outstanding.

Deferred inflows of resources increased by $279 due to a $564 increase in pensions, offset by a decrease of $285 in OPEB based on actuarial reports.

CleanPowerSF

CleanPowerSF’s net position of $91,138 increased by $51,137 or 127.8%, resulting from an increase of $59,230 in total assets and deferred outflows of resources, offset by an increase of $8,093 in total liabilities and deferred inflows of resources (see Table 1D). Increase in total assets was $58,835 due to $58,678 in cash and investment with City Treasury from higher electricity sales, $216 in prepaid charges, advances, and other receivables mainly due to higher vendor prepayments for purchased electricity, and $18 increase in interest receivable due to higher average cash balance. Charges for services receivables decreased by $77 due to increase of $1,225 in allowance for uncollectible attributable to higher past due balances as a result of the Mayor’s emergency declaration that Hetch Hetchy temporarily suspended collection procedures for past due accounts to help customers with financial hardship due to COVID-19, offset by $1,148 increase in billings from higher consumption.

Deferred outflows of resources increased by $395 due to increases of $233 in pensions and $162 in OPEB based on actuarial reports.

Total liabilities of $29,162 increased by $5,990 or 25.9%, which was explained by $5,696 in payables to vendors and contractors for goods and services under contractual agreements as a result of higher power purchases, $955 in OPEB obligations based on actuar ial assumptions, $735 in net pension liability based on actuarial report, $306 in unearned revenue, of which $306 from net energy metering credits to retail and commercial customers, and $13 from utility and electric energy surcharge tax payables, offset by a decrease

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

19 (Continued)

of $13 from customers’ prepayments. Employee related benefits including vacation, sick leave and accrued payroll increased by $121 mainly due to more days in current year-end payroll accrual when compared to prior year, coupled with a 3% increase of COLA. General liability increased by $99 based on actuarial estimates. The increases were offset by a decrease of $1,922 in due to other City departments, including $2,000 working capital loan repayment to Hetchy Power, net of $69 accrued interest, and $9 to City Attorney’s Office for unbilled legal services.

Deferred inflows of resources increased by $2,103 due to a $1,096 increase in OPEB and a $1,007 increase in pensions based on actuarial reports.

Results of Operations
The following tables summarize Hetch Hetchy’s revenues, expenses, and changes in net position:

2021-2020 2020-2019
2021 2020 2019 Change Change
Revenues:

Charges for services $ 390,924 420,937 345,109 (30,013) 75,828 Rents and concessions 247 347 277 (100) 70 Interest and investment (loss) income (157) 9,449 10,288 (9,606) (839) Other non-operating revenues 21,552 28,868 13,920 (7,316) 14,948 Total revenues 412,566 459,601 369,594 (47,035) 90,007 Expenses:

Operating expenses 408,871 389,026 310,277 19,845 78,749 Interest expenses 1,988 2,809 3,066 (821) (257) Amortization of premium, discount, and issuance costs (219) (228) (237) 9 9 Non-operating expenses 965 1,071 1,365 (106) (294) Total expenses 411,605 392,678 314,471 18,927 78,207 Change in net position before transfers 961 66,923 55,123 (65,962) 11,800 Transfers from the City and County of San Francisco 16,000 14,000 24,522 2,000 (10,522) Transfers to the City and County of San Francisco (532) (32) (32) (500) — Net transfers 15,468 13,968 24,490 1,500 (10,522) Change in net position 16,429 80,891 79,613 (64,462) 1,278 Net position at beginning of year 767,780 686,889 607,276 80,891 79,613 Net position at end of year $ 784,209 767,780 686,889 16,429 80,891 Table 2A - Consolidated Hetch Hetchy
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

20 (Continued)

2021-2020 2020-2019
2021 2020 2019 Change Change
Revenues:

Charges for services $ 46,979 34,797 33,880 12,182 917 Rents and concessions 111 156 125 (45) 31 Interest and investment (loss) income (232) 1,932 2,670 (2,164) (738) Other non-operating revenues 1,352 3,861 3,013 (2,509) 848 Total revenues 48,210 40,746 39,688 7,464 1,058 Expenses:

Operating expenses 50,517 44,873 50,305 5,644 (5,432) Non-operating expenses 63 11 — 52 11 Total expenses 50,580 44,884 50,305 5,696 (5,421) Change in net position before transfers (2,370) (4,138) (10,617) 1,768 6,479 Transfers from the City and County of San Francisco 16,000 14,000 20,000 2,000 (6,000) Change in net position 13,630 9,862 9,383 3,768 479 Net position at beginning of year 211,035 201,173 191,790 9,862 9,383 Net
position at end of year $ 224,665 211,035 201,173 13,630 9,862 Table 2B - Hetchy Water
Years ended June 30, 2021, 2020, and 2019
Comparative Condensed Revenues, Expenses, and Changes in Net Position 2021-2020 2020-2019
2021 2020 2019 Change Change
Revenues:

Charges for services $ 136,247 140,680 143,409 (4,433) (2,729) Rents and concessions 136 191 152 (55) 39 Interest and investment income 24 5,746 6,883 (5,722) (1,137) Other non-operating revenues 19,273 25,006 10,907 (5,733) 14,099 Total revenues 155,680 171,623 161,351 (15,943) 10,272 Expenses:

Operating expenses 145,638 148,127 122,688 (2,489) 25,439 Interest expenses 1,970 2,740 2,936 (770) (196) Amortization of premium, discount, and issuance costs (219) (228) (237) 9 9 Non-operating expenses 902 1,060 1,365 (158) (305) Total expenses 148,291 151,699 126,752 (3,408) 24,947 Change in net position before transfers 7,389 19,924 34,599 (12,535) (14,675) Transfers from the City and County of San Francisco — — 4,522 — (4,522) Transfers to the C ty and County of San Francisco (532) (32) (32) (500) — Net transfers (532) (32) 4,490 (500) (4,522) Change in net position 6,857 19,892 39,089 (13,035) (19,197) Net position at beginning of year 465,607 445,715 406,626 19,892 39,089 Net position at end of year $ 472,464 465,607 445,715 6,857 19,892 Years ended June 30, 2021, 2020, and 2019
Table 2C - Hetchy Power
Comparative Condensed Revenues, Expenses, and Changes in Net Position

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

21 (Continued)

Result of Operations, Fiscal Year 2021

Hetch Hetchy

Hetch Hetchy’s total revenues were $412,566, a decrease of $47,035 or 10.2% over prior year (see Table 2A). Charges for services decreased by $30,013 or 7.1% from prior year’s revenues mainly due to lower billings from CleanPowerSF and Hetchy Power. Total expenses increased by $18,927 or 4.8% primarily due to increase in California Independent System Operator (CAISO) charges for CleanPowerSF market energy purchases (See Table 2A).

Hetchy Water

Hetchy Water’s total revenues were $48,210, an increase of $7,464 or 18.3% from prior year’s revenues (see Table 2B). Increase was due to $12,182 from charges for services, offset by decreases of $2,509 from other non-operating revenues, $2,164 in interest and investment income, and $45 from rents and concessions.

Charges for services were $46,979, an increase of $12,182 or 35.0% mainly due to increased water assessment fees from the Water Enterprise to fund upcountry water-related costs and higher consumption from Lawrence Livermore National Laboratory. Rents were $111, a decrease of $45 or 28.8% mainly from lower cottage rental revenue. Other non-operating revenues were $1,352, a decrease of $2,509 or 65.0% mainly due to decreases of $1,510 in Federal and State grants revenue resulting from lower collections from State grants related to 2018 Moccasin Storm, $995 from prior year Rim Fire recoveries, and $4 in net gain from sale of fixed assets. Interest and investment loss was $232 mainly du e to unrealized loss attributed to decrease in market value in cash and investments with City Treasury and lower interest rates.

Total operating expenses, excluding other non-operating expenses, were $50,517, an increase of $5,644 or

12.6%. The increase was attributed to $3,567 in pe rsonnel services resulting from cost of living adjustments, higher retirement contribution rates, an d increased personnel and fr inge benefit costs. Other increases include $773 in contractual services ma inly from increased engineering and management consulting services, $733 in depreciation and amortization related to additional building, structure and equipment placed in service, $664 in services provided by other departments mainly due to higher bureau support costs and legal service charges from City Attorney’s Office, and $162 in other operating expenses 2021-2020 2020-2019
2021 2020 2019 Change Change
Revenues:

Charges for services $ 207,698 245,460 167,820 (37,762) 77,640 Interest and investment income 51 1,771 735 (1,720) 1,036 Other non-operating revenues 927 1 — 926 1 Total revenues 208,676 247,232 168,555 (38,556) 78,677 Expenses:

Operating expenses 212,716 196,026 137,284 16,690 58,742 Interest expenses 18 69 130 (51) (61) Total expenses 212,734 196,095 137,414 16,639 58,681 Change in net position (4,058) 51,137 31,141 (55,195) 19,996 Net pos tion at beginning of year 91,138 40,001 8,860 51,137 31,141 Net pos tion at end of year $ 87,080 91,138 40,001 (4,058) 51,137 Table 2D - CleanPowerSF
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

22 (Continued)

mainly due to higher capital spending. These increases were offset by decreases of $190 in general and administrative expenses mainly due to lower judgements and claims expenses and $65 decrease in materials and supplies mainly for water and sewage treatment supplies.

Other non-operating expenses were $63, an increase of $52 due to payments to community-based organization programs. A transfer in of $16,000 was re ceived from the Water Enterprise to fund upcountry projects.

As a result of the above activities, net position for the year ended June 30, 2021 increased by $13,630 or

6.5% compared to prior year.

Hetchy Power

Hetchy Power’s total revenues were $155,680, a decrease of $15,943 or 9.3% from prior year’s revenues (see Table 2C). Decreases included $5,733 from othe r non-operating revenues, $5,722 from interest and investment income, $4,433 from charges for services, and $55 from rents and concessions.

Charges for services were $136,247, a decrease of $4,433 or 3.2% was attributed to a decrease of $8,362 in sales to City departments, wholesale, and Treasu re Island customers due to COVID-19 related impacts and $667 increase in allowance for doubtful accounts. Receivables aging over 120 days increased significantly due to the suspension of collection efforts and moratorium on utility shutoffs in response to the COVID-19 emergency proclamation issued by the Mayor. The decrease was offset by increases of $2,537 in sales to retail customers mainly due to new affordable redevelopment housing accounts and $2,059 in resale of capacity to CleanPowerSF due to excess capaci ty of electric system reliability compliance product.

Rents were $136, a decrease of $55 or 28.8% mainly due to lower cottage rental revenue. Interest and investment income were $24, a decrease of $5,722 or 99.6% mainly due to decreases of $4,691 in interest earned from lower interest rates and cash balance, unrealized loss, and $1,031 from interest accrued for Treasure Island submarine power cable in prior year.

Other non-operating revenues were $19,273, a decrease of $5,733, or 22.9%, mainly due to decreases of $5,739 from Low Carbon Fuel Standard (LCFS) credit sa les revenue, attributed to less carbon fuel credit generated by San Francisco Municipal Transportation Agency, $2,574 in license fee from Transbay Cable Project due to final payment received in prior year, $1,139 in Cap and Trade revenue due to decrease of 23,000 or 16% allowance sold, and $654 decrease in fees collected from DAS program. Other decreases include $402 in State and Federal grants revenue result ing from lower collections from State grants related to 2018 Moccasin Storm and Federal grants related to Hazard Mitigation grant, $70 in Federal interest subsidy due to lower debt outstanding, $37 in damage claims revenue, and $5 in net gain from sale of fixed assets. These decreases were offset by increases of $2,921 in collection for Power System Impact Mitigation Project, $797 in settlement revenue related to litigation, $736 in commercial deposits from Alice Griffith Housing Project recognized as revenue, $259 in overhead charges, and $174 in miscellaneous revenue mainly from generation interconnection study and refunds from vendor.

Total operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, decreased by $2,489 or 1.7%, to $145,638. The decrease was primarily due to $6,138 in purchased electricity and transmission, distribution, and other power costs due to lower electricity sales, $289 in services provided by other departments mainly due to lower bureau support costs, $270 in material and supplies due to lower equipment maintenance, and $96 decrease in depreciation and amortization for machinery and equipment. The decreases were offset by increases of $1,704 in general and administrative expenses mainly due to higher litigation expenses, $1,572 in other operating expenses mainly due to higher capital spending, $984 in contractual services mainly from new in-

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

23 (Continued)

city inventory warehouse rental at Pier 23 in San Francisco, and $44 in personnel services resulting from cost of living adjustments, higher retirement cont ribution rates, higher pension obligations based on actuarial reports, and increased personnel and fringe benefit costs.

Interest expenses were $1,970, a decrease of $770 or 28.1% due to decrease in outstanding debt and lower interest rates for commercial paper. Amortization of premium and discount slightly decreased by $9 or

3.9% to $219.

Other non-operating expenses were $902, a decrease of $158 or 14.9% mainly due to decrease in payments for GoSolarSF Incentive Program. Transfer out of $532 includes $500 to General Fund for repayment of Educational Revenue Augmentation Funds an d $32 to the Office of the City’s Administrator for the Surety Bond Program.

As a result of the above activities, net position for the year ended June 30, 2021 increased by $6,857 or

1.5% compared to prior year.

CleanPowerSF

CleanPowerSF’s total revenues were $208,676, a $38,556 or 15.6% decrease over prior year (see Table 2D). Charges for services decreased by $37,762 or 15.4% mainly due to a decrease of $32,077 in electricity sales to retail and commercial customers resulting from consumption decrease of 92,503 MWh or 3%, a one-time customer assistance bill credit of $2,817 rela ted to COVID-19 utility bill relief, an increase of $2,451 in allowance for doubtful accounts, and $417 lower capacity sales to other entities. Receivables aging over 120 days increased significantly due to the suspension of collection efforts and moratorium on utility shutoffs in response to the COVID-19 emergency proclamation issued by the Mayor. Interest and investment income decreased by $1,720 or 97.1% due to unrealized loss and lower interest rates on pooled cash and investments. Other non-operating revenue increased by $926 due to liquidated damage compensation from vendor for the delay of Renewable Energy Project.

Total operating expenses, excluding interest expenses were $212,716, an increase of $16,690 or 8.5% from prior year. The increase was due to $16,219 in purchased electricity and transmission, distribution and other power costs as a result of higher prices in the CAISO market and increase in resource adequacy capacity purchases related to new compliance requiremen ts from the California Public Utilities Commission.

Other increases include $1,200 in services provided by other departments due to increased labor support from Hetchy Power and legal service charges from City Attorney’s Office, and $305 increase in other operating expenses mainly from the Neighborhood Steward Program and the new Local Renewable Energy Program. These increases were offset by decreases of $529 in professional and contractual services mainly from lower management consulting services, $279 in personnel services mainly due to lower pension obligations and OPEB based on actuarial reports, $195 in general and administrative expenses mainly due to lower judgements and claims based on actuarial estimates, and $31 in material and supplies due to reduced furnishings expenses. Interest expenses were $18, a decrease of $51 or 73.9% due to lower principal outstanding from Hetchy Power working capital loan.

As a result of the above activities, net position for the year ended June 30, 2021 decreased by $4,058 or

4.5% compared to prior year.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

24 (Continued)

Result of Operations, Fiscal Year 2020

Hetch Hetchy

Hetch Hetchy’s total revenues were $459,601, an increase of $90,007 or 24.4% over prior year (see Table 2A). Charges for services were $420,937, an increase of $75,828 or 22%, due to increases of $77,640 from CleanPowerSF electricity sales and $917 from Hetchy Water due to increased water assessment fees from the Water Enterprise to fund upcountry water-related costs, offset by a decrease of $2,729 from Hetchy Power mainly due to lower electricity sales to retail and Treasure Island customers and lower Congestion Revenue Right (CRR) credit payments from CAISO. Other non-operating revenues increased by $14,948 or 107.4% mainly due to increases of $6,920 from Low Carbon Fuel Standard (LCFS) credit sales revenue and $4,825 from the Power System Impact Mitigation Project. Hetch Hetchy’s total expenses were $392,678, an increase of $78,207 or 24.9% over prior year.

Hetchy Water

Hetchy Water’s total revenues were $40,746, an increase of $1,058 or 2.7% from prior year’s revenues (see Table 2B). Increases included $917 from charges for services, $848 from other non-operating revenues, and $31 from rents and concessions. These increases were offset by a decrease of $738 in interest and investment income.

Charges for services were $34,797, an increase of $917 or 2.7% due to increased water assessment fees from the Water Enterprise to fund upcountry water-related costs. Rents were $156, an increase of $31 or

24.8% mainly from cottage rental revenue. Other non-operating revenues were $3,861, an increase of $848 or 28.1% mainly due to payment of $995 from Rim Fi re insurance recoveries, offset by decreases of $125 collections from State grants related to 2018 Moccasin Storm Project and Lower Cherry Aqueduct Project, $18 in overhead charges and $4 decrease in net gain from sale of fixed assets and scrap. Interest and investment income were $1,932, a decrease of $738 or 27.6% mainly due to lower unrealized gains attributed to decrease in market value in cash and investments with City Treasury.

Total operating expenses, excluding other non-operatin g expenses were $44,873, a decrease of $5,432 or

10.8%. The decrease was attributed to $8,831 in other operating expenses mainly due to reduced capital spending and $104 in depreciation and amortization related to building, structure and equipment. These decreases were offset by increases of $2,597 in personnel services resulting from cost of living adjustments, higher retirement contribution rates, higher pension obligations based on actuarial reports and increased personnel and fringe benefit costs, $437 in contractual services mainly from increased engineering services, $231 in services provided by other departments mainly due to higher light, heat, and power charges, $204 in water and sewage treatment supplies for water facilities, and $34 in general and administrative expenses mainly due to higher judgements and claims based on actuarial estimates.

Other non-operating expenses increased by $11 due to payments to community-based organization programs. Transfer in of $14,000 was received from the Water Enterprise to fund upcountry projects.

As a result of the above activities, net position for the year ended June 30, 2020 increased by $9,862 or

4.9% compared to prior year.

Hetchy Power

Hetchy Power’s total revenues were $171,623, an increase of $10,272 or 6.4% from prior year’s revenues (see Table 2C). Increases included $14,099 from other non-operating revenues and $39 from rents and

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

25 (Continued)

concessions. The increases were offset by decreases of $2,729 from charges for services and $1,137 from interest and investment income.

Charges for services were $140,680, a decrease of $2,729 or 1.9% was attributed to decreases of $4,213 in sale of electricity to retail, wholesale and Treasure Island customers due to COVID-19 and CAISO CRR credits, and $709 in resale of capacity related to electric system reliability compliance product, offset by an increase of $2,193 in sales to other City departments mainly due to average rate increase. Rents were $191, an increase of $39 or 25.7% mainly from cottage rental revenue. Interest and investment income were $5,746, a decrease of $1,137 or 16.5% mainly due to $1,073 in interest earned resulting from lower interest rates and $1,023 in unrealized gains attributed to decrease in market value in cash and investments with City Treasury, offset by an increase of $959 in interest accrued in connection of an upgraded submarine power cable for the Treasure Island. Other non-operating revenues were $25,006, an increase of $14,099 or 129.3% mainly due to $6,920 from LCFS credit sales revenue, $4,825 from the Power System Impact Mitigation Project, $1,610 in fees collected from the DAS program, $1,479 in State and Federal grants related to disaster emergency recoveries for the 2018 Moccasin Storm Project, Early Intake Switchyard Project and Rim Fire Project, $3 41 in Cap and Trade revenues, $92 reimbursement for the Central Subway Project, $52 in annual license fee received from the Transbay Cable Project, $42 in damage claims, and $12 in overhead charges. These increases were offset by decreases of $705 in Rim Fire insurance recoveries from prior year, $330 in miscellaneous revenue from completion of Hunters Point Projects, $195 in settlement received from prior year, $41 in Federal interest subsidy due to lower debt outstanding, and $3 in net gain from sale of fixed assets, scrap, and waste.

Total operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $25,439 or 20.7% to $148,127. The increase was attributed to $16,130 in other operating expenses mainly due to lower capitalization of project expense, $3,129 in personnel services resulting from cost of living adjustments, higher retirement contribution rates, higher pension obligations based on actuarial report s and increased personnel and fringe benefit costs, $1,656 in contractual services mainly for equipment maintenance and property rent, $1,588 in materials and supplies mainly explained by prior year recognition of material and supplies to inventory for the in-city warehouse, $1,394 in purchased electricity and transmission, distribution and other power costs mainly due to wheeling charge rate increase, $1,239 in depreciation and amortization related to additional building, structure and equipment placed in service, and $710 in general and administrative expenses mainly due to judgements and claims based on actuarial estimates. These increases were offset by a decrease of $407 in services of other departments mainly due to legal services provided by City Attorney. Interest expenses were $2,740, a decrease of $196 or 6.7% mainly due to higher capitalized interest. Amortization of premium and discount slightly decreased by $9 or 3.8% to $228.

Other non-operating expenses were $1,060, a decrease of $305 or 22.3% due to $354 in loss from sale of fixed assets in prior year, offset by an increase of $49 in payments for GoSolarSF Incentive Program and community-based organization programs. Transfer out of $32 to the Office of the City’s Administrator for the Surety Bond Program.

As a result of the above activities, net position for the year ended June 30, 2020 increased by $19,892 or

4.5% compared to prior year.

CleanPowerSF

CleanPowerSF’s total revenues were $247,232, a $78,677 or 46.7% increase over prior year (see Table 2D). Charges for services increased by $77,640 or 46.3% mainly due to $74,099 increased electricity sales to retail and commercial customers, and $3,541 from capacity sales to Hetchy Power and other entities.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

26 (Continued)

Consumption increased to 1,010,934 MWh or 51% and number of customer accounts have grown from 376,787 to 383,895 as of June 2020. Interest and investment income increased by $1,036 or 141% due to $638 in interest earned resulting from higher average cash balance and $398 in unrealized gains attributed to increase in market value in cash and investme nts with City Treasury. Other non-operating revenue increased by $1 due to termination fees from customers.

Total operating expenses, excluding interest expenses were $196,026, an increase of $58,742 or 42.8% from prior year. The increase was due to $51,932 in purchased electricity and transmission, distribution and other power costs as a result of higher electricity sales, $3,308 in personnel services resulting from cost of living adjustments, higher retirement contribution rates, higher pension obligations based on actuarial reports and increased personnel and fr inge benefit costs, $2,771 in professional and contractual services mainly from services provided by Calpine Energy Solution for customer billings, $1,142 in general and administrative mainly from increased taxes, license, and permits fees, $63 in other operating expenses mainly from the Neighborhood Steward Program Project and $6 in materials and supplies. These increases were offset by a decrease of $480 in services provided by other departments mainly explained by lower mail services and support provided by Hetchy Power for administrative services. Interest expenses were $69, a decrease of $61 or 46.9% due to lower outstanding balance for the working capital loan from Hetchy Power.

As a result of the above activities, net position for the year ended June 30, 2020 increased by $51,137 or 127.8% compared to prior year.

Capital Assets

The following tables summarize Hetch Hetchy’s changes in capital assets.

2021-2020 2020-2019
2021 2020 2019 Change Change
Hetch Hetchy
Facilities, improvements, machinery, and equipment $ 432,916 386,560 359,986 46,356 26,574 Intangible assets 24,932 25,393 25,854 (461) (461) Land and rights-of-way 5,181 5,181 5,181 — — Construction work in progress 206,508 189,077 159,610 17,431 29,467 Total 669,537 606,211 550,631 63,326 55,580
Hetchy Water
Facilities, improvements, machinery, and equipment 128,335 122,433 97,250 5,902 25,183 Intangible assets 10,581 10,789 10,996 (208) (207) Land and rights-of-way 3,232 3,232 3,232 — — Construction work in progress 35,333 24,328 37,625 11,005 (13,297) Total 177,481 160,782 149,103 16,699 11,679
Hetchy Power
Facilities, improvements, machinery, and equipment 304,581 264,127 262,736 40,454 1,391 Intangible assets 14,351 14,604 14,858 (253) (254) Land and rights-of-way 1,949 1,949 1,949 — — Construction work in progress 171,175 164,749 121,985 6,426 42,764 Total $ 492,056 445,429 401,528 46,627 43,901
Table 3A - Capital Assets, Net of Accumulated Depreciation and Amortization As of June 30, 2021, 2020, and 2019

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

27 (Continued)

Capital Assets, Fiscal Year 2021

Hetch Hetchy

Hetch Hetchy has capital assets of $669,537, net of accumulated depreciation and amortization, invested in both water and power utility capital assets as of June 30, 2021 (see Table 3A). This amount represents an increase of $63,326 or 10.4%, resulting from increases of $46,356 in facilities, improvements, machinery and equipment and $17,431 in construction work in prog ress, offset by a decrease of $461 in amortization of intangible assets. The investment in capital assets includes land, buildings, improvements, hydropower facilities, dams, transmission lines, machinery, and equipment.

Major additions to construction work in progress, depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service, including transfers of completed projects from construction work in progress, during the year ended June 30, 2021 include the following:

Hetchy Water

Hetchy Water has capital assets of $177,481, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2021 (see Table 3A). This amount represents an increase of $16,699 or 10.4%, primarily due to increases of $11,005 in construction work in progress and Hetchy Hetchy
Water Power 2021 Total
Bay Corridor Project $ — 31,556 31,556 Mountain Tunnel Improvement Project 7,744 9,465 17,209 Transmission Line Clearance Mitigation & Upgrade — 6,176 6,176 Repair & Replacement Life Extension Program 5,188 — 5,188 Moccasin Penstock Rehabilitation and Powerhouse Rewind — 4,374 4,374 Van Ness - Bus Rapid Transit — 2,742 2,742 Moccasin Reservoir Security Fence 2,723 — 2,723 San Joaquin Pipeline Valve & Safe Entry Improvement 2,115 — 2,115 Treasure Island Capital Improvements — 2,025 2,025 Other project additions individually below $2,000 4,816 13,721 18,537 Additions to Construction Work in Progress $ 22,586 70,059 92,645 Holm Powerhouse Rehabilitation & Kirkwood Powerhouse Oil Containment Upgrades $— 21,920 21,920
Electrical Underground Duct Bank 23rd & Illinois South Street — 18,133 18,133 Moccasin Reservoir Security Fence 3,549 — 3,549 Switch Yard Asset — 3,533 3,533
San Joaquin Pipeline Rehabilitation 3,243 — 3,243 San Francisco Academy Solar Carport — 2,657 2,657 Other project additions individually below $2,000 4,911 9,585 14,496 Facilities, Improvements, Intangible Assets, Machinery, and Equipment Placed in Service $ 11,703 55,828 67,531 Table 3B - Hetch Hetchy
Major Additions to Construction Work in Progress and
Facilities, Improvements, Intangible Assets, Machinery, and Equipment Placed in Service Year ended June 30, 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

28 (Continued)

$5,902 in facilities, improvements, machinery, and equipment, offset by a decrease of $208 in amortization of intangible assets.

For the year ended June 30, 2021, Hetchy Water’s major additions to construction work in progress totaled $22,586. Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service totaled $11,703 (see Table 3B).

Hetchy Power

Hetchy Power has capital assets of $492,056, net of accumulated depreciation and amortization, invested in utility capital assets as of June 30, 2021 (see Table 3A). This amount represents an increase of $46,627 or 10.5%, primarily due to increases of $40,454 in facilities, improvements, machinery, and equipment and $6,426 in construction work in progress, offset by a decrease of $253 in amortization of intangible assets.

For the year ended June 30, 2021, Hetchy Power’s major additions to construction work in progress totaled $70,059. Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service totaled $55,828 (see Table 3B).

CleanPowerSF

CleanPowerSF had no capital assets as of June 30, 2021 and 2020.

See Note 4 for additional information about capital assets.

Capital Assets, Fiscal Year 2020

Hetch Hetchy

Hetch Hetchy has capital assets of $606,211, net of accumulated depreciation and amortization, invested in both water and power utility capital assets as of June 30, 2020 (see Table 3A). This amount represents an increase of $55,580 or 10.1%, resulting from increases of $29,467 in construction work in progress and $26,574 in facilities, improvements, machinery, and equipment, offset by a decrease of $461 in amortization of intangible assets. The investment in capital assets includes land, buildings, improvements, hydropower facilities, dams, transmission lines, machinery, and equipment.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

29 (Continued)

Hetchy Water

Hetchy Water has capital assets of $160,782, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2020 (see Table 3A). This amount represents an increase of $11,679 or 7.8%, primarily due to an increase of $25,183 in facilities, improvements, machinery, and equipment, offset by decreases of $13,297 in construction work in progress, and $207 in amortization of intangible assets.

For the year ended June 30, 2020, Hetchy Water’s major additions to construction work in progress totaled $17,669. Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service totaled $30,249 (see Table 3C).

Hetchy Power

Hetchy Power has capital assets of $445,429, net of accumulated depreciation and amortization, invested in utility capital assets as of June 30, 2020 (see Table 3A). This amount represents an increase of $43,901 or 10.9%, primarily due to increases of $42,764 in construction work in progress and $1,391 in facilities, improvements, machinery, and equipment; offset by a decrease of $254 in amortization of intangible assets.

Hetchy Hetchy
Water Power 2020 Total
Bay Corridor Project $ —      16,789 16,789
2018 Moccasin Storm 8,966 —      8,966
Power Asset Acquisition Analysis —      8,580 8,580
Van Ness - Bus Rapid Transit —      8,557 8,557
Other Powerhouse Projects —      7,687 7,687
Mountain Tunnel Improvement Project 2,477 3,027 5,504 Warnerville Substation Rehabilitation —      5,067 5,067 Other project additions individually below $5,000 6,226 20,418 26,644 Additions to Construction Work in Progress $ 17,669 70,125 87,794 San Joaquin Pipeline Replacement $ 7,315 —      7,315 Moccasin Creek Downstream Channel Improvements 5,055 —      5,055 Lower Cherry Aqueduct Rehabilitation 4,442 —      4,442 Kirkwood Penstock —      3,668 3,668
Moccasin Spillway Facilities 3,141 —      3,141
Guardrail & Pavement 1,376 1,681 3,057
Intervening Facilities —      2,335 2,335
Early Intake Switchyard Slope Hazard Mitigation —      2,219 2,219 Other project additions individually below $2,000 8,920 6,957 15,877 Facilities, Improvements, Intangible Assets, Machinery, and Equipment Placed in Service $ 30,249 16,860 47,109 Table 3C - Hetch Hetchy
Major Additions to Construction Work in Progress and
Facilities, Improvements, Intangible Assets, Machinery, and Equipment Placed in Service Year ended June 30, 2020

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

30 (Continued)

For the year ended June 30, 2020, Hetchy Power’s major additions to construction work in progress totaled $70,125. Major depreciable facilities, improvements, intangible assets, machinery, and equipment placed in service totaled $16,860 (see Table 3C).

CleanPowerSF

CleanPowerSF had no capital assets as of June 30, 2020 and 2019.

See Note 4 for additional information about capital assets.

Debt Administration

Hetch Hetchy

As of June 30, 2021, Hetch Hetchy has outstanding Certificates of Participation, Clean Renewable Energy Bonds (CREBs), Qualified Energy Conservation Bonds (QECBs), New Clean Renewable Energy Bonds (NCREBs), 2015 Series AB revenue bonds, and commercial paper. The aforementioned debts are obligations of the Power Enterprise. See Hetchy Power section below for more details.

Hetchy Water

Hetchy Water did not have debt outstanding as of June 30, 2021 and 2020. Debt, including bond issuances, associated with the funding of water-related, upcoun try infrastructure capital improvements is issued through the Water Enterprise, and is reflected in the Water Enterprise’s financial statements.

Hetchy Power

As of June 30, 2021 and 2020, Hetchy Power had outstanding debt of $174,414 and $127,171, respectively, as shown in Table 4. More detailed information about the Hetchy Power’s debt activity is presented in Notes 6, 7 and 8 to the financial statements.

CleanPowerSF

CleanPowerSF did not have any debt outstanding as of June 30, 2021 and 2020.

2021 -2020 2020 -2019
2021 2020 2019 Change Change
Clean Renewable Energy Bonds 2008 $ 823 1,231 1,639 (408) (408) Certificates of Participation 2009 Series C 838 1,235 1,619 (397) (384) Certificates of Participation 2009 Series D (BABs) 12,593 12,593 12,593 — — Qualified Energy Conservation Bonds 2011 3,687 4,229 4,765 (542) (536) New Clean Renewable Energy Bonds 2012 — 130 713 (130) (583) New Clean Renewable Energy Bonds 2015 1,779 3,190 3,422 (1,411) (232) 2015 Series A Revenue Bonds 35,297 35,444 35,585 (147) (141) 2015 Series B Revenue Bonds 4,726 5,584 6,422 (858) (838) Commercial Paper 114,671 63,535 50,724 51,136 12,811 Total $ 174,414 127,171 117,482 47,243 9,689 Outstanding Debt, Net of Unamortized Costs
As of June 30, 2021, 2020, and 2019
Table 4 - Hetchy Power

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

31 (Continued)

The increase of $47,243 was mainly due to an increase of $51,136 in commercial paper issuance, offset by $2,402 in principal repayments, $1,272 in return of unspent bond proceeds for 2015 NCREBs, and $219 in amortization of premium and discount.

Credit Ratings and Bond Insurance – The Power Enterprise’s 2015 Series AB Power Revenue Bonds have been rated “AA-” by Fitch Inc and “AA” by Standard and Poor’s (S&P) as of June 30, 2021 and 2020, respectively.

In December 2020, Moody's Investors Service, ("Mood y's") assigned a first-time A2 Issuer Rating to CleanPowerSF, with a stable outlook. Hetch Hetchy Water and Power contains the Power Enterprise as a separate enterprise fund, with CleanPowerSF a compon ent unit of the Power Enterprise. CleanPowerSF is tracked and audited as a standalone fund, with fina ncial statements, including revenues and expenses, separate and discrete from the Power Enterprise. As su ch, CleanPowerSF is deemed to be a separate credit from the Power Enterprise, with its own credit rating.

Debt Service Coverage – Pursuant to the Indenture, the Power Enterprise is required to collect sufficient net revenues each fiscal year, together with any Available Funds (except Bond Reserve Funds) which include unappropriated fund balances and reserves, and cash and book value of investments held by the Treasurer for the Hetchy Power, that the SFPUC reasonably expects would be available, to pay principal and interest becoming due and payable on all outstanding bonds as provided in the Indenture, less any refundable credits, at least equal to 1.25 times annual debt service for said fiscal year. The Series 2015 AB power revenue bonds represent the first series of senior lien revenue bonds of Hetchy Power. Pursuant to Power’s Master Trust Indenture, senior lien debt service coverage excludes debt service on subordinate obligations, such as Hetchy Power’s existing CREBS, NCREBs, and QECBs. Because interest on the Series 2015 AB power revenue bonds was capitalized, Hetchy Power was not obligated to make debt service payments on the Series 2015 AB power revenue bonds until fiscal year 2018. Therefore, Hetchy Power did not calculate and report the Indenture-based debt service coverage ratio prior to fiscal year 2018. During fiscal year 2021, the Power Enterprise’s net revenues, together with fund balances available to pay debt service and not budgeted to be expended, were sufficient to meet the rate covenant requirements under the Power Enterprise’s Indenture (see Note 8).

Debt Authorization – Pursuant to Charter Section 9.107(6), the Power Enterprise can incur indebtedness upon three-fourths vote of the Board of Supervisors, for the purpose of the reconstruction or replacement of existing water facilities and electric power facilities, or combinations thereof, under the jurisdiction of the Public Utilities Commission. Pursuant to Charter Section 9.107(8), the Power Enterprise can issue revenue bonds, without voter approval, upon an affirmative vote of the Board of Supervisors, for the purpose of the acquisition, construction, installation, equipping, improvement, or rehabilitation of equipment or facilities for renewable energy and energy conservation. Pursuant to Proposition A, approved by the San Francisco voters on June 5, 2018, City Charter Section 8B.124 is amended to authorize the Power Enterprise to enter into indebtedness, including revenue bonds, notes, commercial paper or other forms of indebtedness, when authorized by ordinance approved by a two-thirds vote of the Board of Supervisors to reconstruct, replace, expand, repair, improve or construct new power facilities under the jurisdiction of SFPUC or for any other purpose of the Power Enterprise, and in compliance with City Charter Section 8B.124. Proposition A expressly prohibits the SFPUC from issuing bonds to finance the construction of power plants that generate electricity using fossil fuels or nuclear energy. As of June 30, 2021 and 2020, $39,555 of Hetchy Power revenue bonds were issued against existing authorization of $535,699 and $392,728, respectively.

Cost of Debt Capital – The Power Enterprise’s outstanding long-term senior lien debt consists of the 2015 Series AB Power Revenue Bonds issued in May 2015, wh ich are the first series of bonds issued under the Master Indenture and are senior in lien to all the other Enterprise’s outstanding debt obligations. Coupon

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

32 (Continued)

interest rates range from 3.0% to 5.0%. The Power Enterprise has previously issued and incurred debt service on Tax Credit Bonds and certificates of participation, which constitute subordinate obligations.

Interest rates on the Tax Credit Bonds, which include QECBs and NCREBs, ranging from 1.2% to 1.5% (net of the federal tax subsidy). Certificates of participation carried interest rates ranging from 2.0% to 6.5%. The Power Enterprise’s short-term debt issued under its commercial paper program has interest rates ranging from 0.1% to 0.2% and 0.2% to 4.0% during fiscal years 2021 and 2020, respectively.

Rates and Charges

Hetchy Water

Hetchy Water charges for services relates to the storage and delivery of water. Assessment fees from the Water Enterprise, which cover the water-related upcountry costs, were $44,149 and $34,585 for the years ended June 30, 2021 and 2020, respectively. In fiscal year 2022, the assessment fees will be $45,815, an increase of $1,666 or 3.8% as reflected in the fiscal year 2022 adopted budget.

Hetchy Power

Municipal Rates

Hetchy Power charges for services relates to power generation and electricity delivery to contractual and municipal customers. For municipal power services, cu stomers are typically charged a General Use rate or Enterprise rate. Enterprise rates are charged based on projected PG&E equivalent rates by customer class.

General fund department customers are mostly charged a General Use rate, a rate that is currently below cost of service. These General Use rates, however, are moving closer towards cost of service and increasing by $0.01 per kWh on an annual basis beginning July 1, 2020. The General Use rates have been adopted every two years.

On May 10, 2020, the Commission adopted two years of General Use rates effective July 1, 2020 through June 30, 2022. The adopted General Use rate for fiscal years 2021 and 2022 are $0.08877/kWh and $0.09877/kWh, respectively. The Power Enterprise continues to develop rates under the cost of service analysis model and has started work on the next powe r rate study which is projected to be completed in 2022.

Retail Rates

The Commission approved a new schedule of retail electric rates, fees, and charges for residential, commercial, and industrial customers where Hetch Hetc hy has been designated as the power provider for retail customers to be applied to meter readings on or after July 1, 2016. Total bundled service charges for residential service rates and low-income residential service rates are calculated using the total rates, monthly, based on monthly meter reading, plus any applicable taxes.

To date, Hetchy Power has prepared service standards, developed system plans and specifications, acquired materials and equipment, and initiated construction of primary distribution facilities.

Pursuant to City and County of San Francisco Charter Section 8B.125, an independent rate study is performed at least once every five years. The rate study is undertaken to examine future revenue requirements and cost-of-service of the Power Enterprise. In fall 2015, SFPUC engaged a consultant to perform a cost-of-service study. The informed rate se tting from this study resulted in recommendation and approval by the Commission in the spring 2016 for rates to be effective July 1, 2016. Work is underway on

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2021 and 2020
(Dollars in thousands, unless otherwise stated)

33 the next power rate study which is projected to be completed in 2022 and provide power rates effective for fiscal year 2023. The SFPUC Rates Schedules and Fees is available at https://sfpuc.org/accounts- services/water-power-and-sewer-rates.

CleanPowerSF

CleanPowerSF began offering services in May 2016, gi ving residential and commercial electricity consumers in San Francisco a choice of having their electricity supplied from clean renewable sources, such as solar and wind, at competitive rates. CleanPowerSF offers two products: a “Green” product comprised of at least 48% renewable energy and a “SuperGreen” product comprised of 100% renewable energy. Most customers take service under the “Green” product rates and remaining customers have opted to upgrade to “ S u p e r G r e e n ” p r o d u c t r a t e s . O n M a y 2 5 , 2 0 2 1 , C o m m i s s i o n a p p r o v e d a C l e a n P o w e r S F r a t e a d j u s t m e n t formula. Through Resolution 21-0085 CleanPowerSF rate s will be formulaically adjusted, when PG&E rates change to the lesser of no more than 5% higher than PG&E generation rates or rates that recover program costs. The CleanPowerSF Rates Schedules are av ailable at http://clean powersf.org/residential for residential customers and http://cleanpowersf.org/commercial for commercial customers.

CleanPowerSF revenues are adequate to support its own operations; the SFPUC intends that these rates be sufficient to pay for impending projects, and be financially independent from Hetch Hetchy in the future.

CleanPowerSF is subject to Section 8B.125 of the City Charter, which requires an independent rate study be performed at least once every five years, and the Commission sets rates and charges for the program.

CleanPowerSF rates will be included in the next powe r rate study which is projected to be completed in 2022.

Request for Information

This report is designed to provide our citizens, customers, investors, and creditors with an overview of Hetch Hetchy’s finances and to demonstrate Hetch Hetchy’s respective accountability for the money it receives.

Questions regarding any of the information provided in this report or requests for additional information should be addressed to San Francisco Public Utilities Commission, Chief Financial Officer, 525 Golden Gate Avenue, 13th Floor, San Francisco, CA 94102.

This report is available at https://sfpuc.org/about-us/reports/audited-financial-statements-reports.

34 *Included interfund loan receivable and loan payable of $1,800 for fiscal year ended 2020 between Hetchy Power and CleanPowerSF.

See accompanying notes to financial statements.

Hetchy Hetchy 2021 Hetchy Hetchy 2020
Water Power Total Water Power Total
Assets
Current assets:

Cash and investments with City Treasury $ 89,373 190,719 90,838 370,930 79,172 191,687 84,192 — 355,051 Cash and investments outside City Treasury 1 611 — 612 1 1 — — 2 Receivables:

Charges for services (net of allowance for doubtful accounts from 442 19,024 28,265 47,731 29 2,967 34,712 — 37,708 Due from other City departments, current portion — 7,413 — 7,413 104 2,874 — (1,800) 1,178 Due from other governments 579 267 — 846 2,575 1,644 — — 4,219 Interest 21 125 55 201 183 580 215 — 978
Restricted interest and other receivables — 11,800 — 11,800 24 168 — — 192 Total current receivables 1,042 38,629 28,320 67,991 2,915 8,233 34,927 (1,800) 44,275 Prepaid charges, advances, and other receivables, current portion 402 2,666 2,184 5,252 512 2,247 2,760 — 5,519 Inventory 191 1,820 — 2,011 187 1,609 — — 1,796 Restricted cash and investments outside City Treasury, current portion — 153 — 153 — 151 — — 151 Total current assets 91,009 234,598 121,342 446,949 82,787 203,928 121,879 (1,800) 406,794 Non-current assets:

Restricted cash and investments with City Treasury 6,990 5,241 — 12,231 9,768 8,060 — — 17,828 Restricted cash and investments outside City Treasury, less current portion — 3,690 — 3,690 — 3,795 — — 3,795 Capital assets, not being depreciated and amortized 38,571 174,555 — 213,126 27,566 168,129 — — 195,695 Capital assets, net of accumulated depreciation and amortization 138,910 317,501 — 456,411 133,216 277,300 — — 410,516 Prepaid charges, advances, and other receivables, less current portion 152 753 — 905 156 767 — — 923 Due from other City departments, less current portion — 4,993 — 4,993 — 12,295 — — 12,295 Total non-current assets 184,623 506,733 — 691,356 170,706 470,346 — — 641,052 Total assets 275,632 741,331 121,342 1,138,305 253,493 674,274 121,879 (1,800) 1,047,846 Deferred outflows of resources:

Pensions 7,799 9,531 803 18,133 7,950 9,716 572 — 18,238 Other post-employment benefits 3,725 4,552 442 8,719 2,332 2,850 270 — 5,452 Total deferred outflows of resources 11,524 14,083 1,245 26,852 10,282 12,566 842 — 23,690 Liabilities
Current liabilities:

Accounts payable 4,262 22,909 15,859 43,030 958 14,185 21,906 — 37,049 Accrued payroll 1,042 2,596 291 3,929 888 2,298 200 — 3,386 Accrued vacation and sick leave, current portion 1,059 1,777 205 3,041 911 1,596 175 — 2,682 Accrued workers’ compensation, current portion 197 378 — 575 201 384 — — 585 Damage claims liability, current portion 218 409 6 633 274 705 53 — 1,032 Due to other City departments, current portion — 369 — 369 240 231 1,809 (1,800) 480 Unearned revenues, refunds, and other, current portion 22 5,141 1,028 6,191 18 4,852 848 — 5,718 Bond and loan interest payable — 459 — 459 — 508 — — 508 Bonds, current portion — 1,928 — 1,928 — 2,115 — — 2,115 Certificates of participation, current portion — 405 — 405 — 384 — — 384 Commercial paper — 114,671 — 114,671 — 63,535 — — 63,535 Current liabilities payable from restricted assets 9,057 15,393 — 24,450 3,279 8,459 — — 11,738 Total current liabilities 15,857 166,435 17,389 199,681 6,769 99,252 24,991 (1,800) 129,212 Long-term liabilities:

Other post-employment benefits obligations 14,444 17,653 2,909 35,006 16,350 19,983 2,197 — 38,530 Net pension liability 26,645 32,566 3,008 62,219 21,477 26,249 1,805 — 49,531 Accrued vacation and sick leave, less current portion 1,126 1,840 195 3,161 735 1,361 116 — 2,212 Accrued workers’ compensation, less current portion 923 1,740 — 2,663 986 1,816 — — 2,802 Damage claims liability, less current portion 307 699 — 1,006 284 1,517 53 — 1,854 Due to other City departments, less current portion — — — — — 369 — — 369 Bonds, less current portion — 44,384 — 44,384 — 47,693 — — 47,693 Unearned revenues, refunds, and other, less current portion 116 852 9,000 9,968 609 2,790 — — 3,399 Certificates of participation, less current portion — 13,026 — 13,026 — 13,444 — — 13,444 Total long-term liabilities 43,561 112,760 15,112 171,433 40,441 115,222 4,171 — 159,834 Total liabilities 59,418 279,195 32,501 371,114 47,210 214,474 29,162 (1,800) 289,046 Deferred inflows of resources:

Related to pensions 988 1,207 1,093 3,288 4,335 5,298 1,210 — 10,843 Other post-employment benefits 2,085 2,548 1,913 6,546 1,195 1,461 1,211 — 3,867 Total deferred inflows of resources 3,073 3,755 3,006 9,834 5,530 6,759 2,421 — 14,710 Net position:

Net investment in capital assets 177,481 323,066 — 500,547 160,782 322,204 — — 482,986 Restricted for debt service — 99 — 99 — 142 — — 142 Restricted for capital projects — — — — 6,513 — — — 6,513 Unrestricted 47,184 149,299 87,080 283,563 43,740 143,261 91,138 — 278,139 Total net position $ 224,665 472,464 87,080 784,209 211,035 465,607 91,138 — 767,780 Hetchy Power of $1,258 and CleanPowerSF of $5,485 as of June 30, 2021; and Hetchy Power of $591 and CleanPowerSF of $1,810 as of June 30, 2020)

CleanPowerSF Sfpuc CommissionMarch 8, 2022

CleanPowerSF Sfpuc Commission
March 8, 2022