FY 2022-23 Audited Financial Statements — CleanPowerSF Sfpuc Commission, March 12, 2024 (part 1 of 2)

Audited Financial Statements
Fiscal Year 2022-23
March 12, 2024
Nancy L. Hom
Chief Financial Officer and
Assistant General Manager, Business Services
1 Fiscal Year 2022-23
Audited Financial Statements
2 Issued: MGO LLP , December 26, 2023
Audited Financial Statements & Annual
Comprehensive Financial Reports | SFPUC
(sfpuc.org)
Summary of Audit Results, (3) Reports
Water, Wastewater and Hetch Hetchy Water & Power
& CleanPowerSF
 Unmodified opinion
 No material misstatements in the financial
statements
 No internal control deficiencies observed

FY 2022-23 Annual Comprehensive Financial
Report and Popular Annual Financial Report
3 Annual Comprehensive Financial Report
Issued: MGO LLP, January 26, 2024
Audited Financial Statements & Annual Comprehensive
Financial Reports | SFPUC (sfpuc.org)
• Recipient of the prestigious Government Finance Officers Association (GFOA) Certificate of Achievement for
Excellence in Financial Reporting annually since 2009
Popular Annual Financial Report
Issued: January 2024
Popular Annual Financial Reports| SFPUC
(sfpuc.org)
• Recipient of the GFOA’s Award for Outstanding
Achievement in Popular Annual Financial Reporting
annually since 2010

THANK YOU
Next Presenter:

Annie Louie, Assurance Partner

MGO, LLP
4 San Francisco
Public Utilities Commission
Presented by Macias Gini & O’Connell LLP
FY 2022/23 AUDIT RESULTS
March 12, 2024
Scope of Audits

1. Enterprise Financial Statements
• Water
• Wastewater
• Hetch Hetchy Water and Power and CleanPowerSF

2. Annual Comprehensive Financial Reports

Auditor Responsibility
Our responsibility under U.S. Generally Accepted Auditing Standards and Government Auditing Standards.

To express our opinion
about whether the financial
statements prepared by
management with your
oversight are fairly
presented, in all material
respects, in conformity with
U.S. generally accepted
accounting principles. This
does not relieve you or
management of your
responsibilities.

To perform an audit in
accordance with
generally accepted
auditing standards
issued by the AICPA and
Government Auditing
Standards, and to design
the audit to obtain
reasonable, rather than
absolute, assurance
about whether the
financial statements are
free of material
misstatement.

To obtain an
understanding of the
SFPUC and its
environment, including
internal controls over
financial reporting and
compliance, as a basis
for designing our audit
procedures, but not for
the purpose of
expressing an opinion
on its effectiveness.

To communicate
findings that, in our
judgment, are relevant
to your responsibilities
in overseeing the
financial reporting
process. However, we
are not required to
design procedures for
the purpose of
identifying other
matters to
communicate to you.

AUDIT

OPINION
AICPA

STANDARDS

INTERNAL

CONTROLS FINDINGS
Management Responsibilities
• Fairly presenting the financial statements, including disclosures in conformity with U.S. GAAP • Adjusting the financial statements to correct material misstatements and affirming in the representation letter that the effects of any uncorrected misstatements aggregated by the auditor are immaterial, both individually and in the aggregate, to the financial statements taken as a whole
Management responsibilities
– Financial statements
• 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 Management responsibilities –
ICFR
• To provide the auditor with:

1. access to all information of which management is aware is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters;

2. additional information that the auditor may request from management for the purpose of the audit; and

3. unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence • Identifying and ensuring that the entity complies with laws and regulations applicable to its activities, and for informing the auditor of any known material violations of such laws and regulations
• Providing the auditor with a letter confirming certain representations made during the audit, that includes but is not limited to management’s:

1. disclosure of all significant deficiencies, including material weaknesses, in the design or operation of internal controls that could adversely affect the entity’s financial reporting

2. acknowledgement of their responsibility for the design, implementation, and maintenance of internal controls to prevent and detect fraud
Management
responsibilities – Other
• Oversight of the financial reporting process and internal control over financial reporting (ICFR) • Oversight of the establishment and maintenance by management of programs and controls designed to prevent, deter, and detect fraud Audit Committee
responsibilities
• Setting the proper tone and creating and maintaining a culture of honesty and high ethical standards • Ensuring that the entity’s operations are conducted in accordance with the provisions of laws and regulations, including compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in the entity’s financial statements.

Management and the Audit
Committee responsibilities
Audit Results and Required Communications
Unmodified opinionAuditor’s Report
No matters to reportDeficiencies in internal controls
Note 2 to basic financial statements (ACFR)
Implementation of New GASB Statements:
• Statement No. 91, Conduit Debt Obligations
• Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements
• Statement No. 96, Subscription-Based Information Technology Arrangements (SBITA) • Statement No. 99, Omnibus 2022 – para. 11-25 related to leases, public-private and public- public partnerships, and SBITAs
No exceptions noted.

Significant accounting policies and practices
Required Communications (continued)
Significant accounting estimates
Money market funds are carried at cost, which approximates fair value. All other investments are stated at fair value based on quoted market prices.

Fair value of investments
Bad debt allowance for accounts receivable is based on historical experience.Allowance for doubtful accounts Pollution remediation liabilities are measured according to the aggregate current values of the outlays expected to be incurred. Remediation projects with costs that exceed $100,000 and extends beyond the current fiscal year are recorded.

Pollution remediation liabilities
Lease receivable/liability is recorded at the present value of future minimum lease payments to be received/made during the lease term.

Leases
Assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of one year are capitalized. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets.

Depreciation of capital assets
Subscription liability is recorded at the present value of future minimum subscription payments as of the date of commencement.

Subscription-based IT arrangements
Employer and employee contribution requirements, the net pension/OPEB liabilities and related deferred outflows and inflows of resources are based on actuarial calculations performed by the City’s independent actuaries. SFPUC’s proportionate share is based on employer contributions.

Pension and OPEB liabilities
Liabilities are based on actuarial evaluations using historical loss and other data, as well as City Attorney’s judgment about the ultimate outcome of the claims.

Workers’ compensation and general liability claims
Required Communications (continued)
Pension and OPEB benefits
Impact of the implementation of GASB 97 on subscription-based IT arrangements Significant financial statement disclosures
No matters to reportFinancial presentation and disclosure omissions No material corrected misstatements.

One uncorrected misstatements to adjust damage claim liabilities:

Corrected and uncorrected audit misstatements
No matters to reportDifficulties encountered in performing the audit No matters to reportDisagreements with management
No matters to reportRepresentations Requested from Management No matters to reportManagement consultations with other independent accountants
Required Supplementary Information (RSI) – unaudited
Supplementary Information – audited in relation to the basic financial statements Other Information in Documents Containing Audited
Financial Statements
Water Wastewater HH Water HH Power CPSF
Judgements – Claims Expenses 2,604,082 $ 597,521 (420,324) 1,520,661 (9,679) Estimated Claims Payable - Current 5,604,861 $ 275,655 200,457 (2,302,442) 893 Estimated Claims Payable - Noncurrent (8,208,943)$ (873,176) 219,867 781,781 8,786 Accounting Updates
Effective for fiscal year 2024
Statement No. 99, Omnibus 2022 – para. 4-10 related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 Statement No. 100, Accounting Changes and Error Corrections Effective for fiscal year 2025
Statement No. 101, Compensated Absences
Statement No. 102, Certain Risk Disclosures
www.mgocpa.com
Questions?
This presentation to the San Francisco Public Utilities Commission is intended solely for the information and use of the San Francisco Public Utilities Commission and management and is not intended to be and should not be used by anyone other than these specified parties. This presentation is not intended for general use, circulation, or publication, and should not be published, circulated, reproduced, or used for any purpose without our prior written permission in each specific instance.

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.

525 Golden Gate Avenue, 13th Floor
San Francisco, CA 94102
T 415.554.3155
F 415.554.3161
TTY 415.554.3488

Date: March 12, 2024

To: Tim Paulson, President
Anthony Rivera, Vice President
Newsha K. Ajami, Commissioner
Sophie Maxwell, Commissioner
Kate H. Stacy, Commissioner

Through: Dennis J. Herrera, General Manager

From: Nancy L. Hom, Chief Financial Officer and AGM, Business Services

RE: SFPUC Fiscal Year 2022-23 Annual Audited Financial Statements

Financial Services is pleased to present the FY 2022-23 Audited Financial Statements for the Water Enterprise, Wastewater Enterprise, and Hetch Hetchy Water & Power & CleanPowerSF, issued by KPMG, LLP on December 26, 2023.

The reports can be found on our public-facing website:
https://sfpuc.org/about-us/reports/audited-financial-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.

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

SFPUC continues to demonstrate strength in maintaining financial integrity and internal controls through effective fiscal oversight and ‘clean’ audits. If you have any questions, please contact me at (415) 487-5229.

cc: R onald P. Flynn, Deputy General Manager
Vivian Chen, Deputy Chief Financial Officer
Laura Busch, Deputy Chief Financial Officer

att: FY 2022-23 Annual Audited Financial Statements: Water, Wastewater, and Hetch Hetchy Water & Power & CleanPowerSF

SAN FRANCISCO WATER ENTERPRISE
Table of Contents

Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 4
Basic Financial Statements:

Statements of Net Position 18
Statements of Revenues, Expenses, and Changes in Net Position 20 Statements of Cash Flows 21
Notes to Financial Statements 23
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 84

www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA94596
1 Independent Auditor’s Report

Honorable Mayor and the Board of Supervisors
City and County of San Francisco, California
Opinion
We have audited the financial statements of the San Francisco Water Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco (City), as of and for the year ended June 30, 2023, and the related notes to the financial statements, as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Enterprise as of June 30, 2023 , and the changes in financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States ( Government Auditing Standards).

Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Enterprise, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matters
As discussed in Note 1, the financial statements present only the Enterprise and do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2023 and 2022, the changes in its financial position, or, where applicable, its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

As discussed in Note 2 to the financial statements, effective July 1, 2021, the Enterprise adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription- Based Information Technology Arrangements. Our opinion is not modified with respect to this matter.

Other Matter
The financial statements of the Enterprise as of and for the year ended June 30, 2022, were audited by another auditor, who expressed an unmodified opinion on those statements on January 27, 2023.

Responsibilities of Management for the Financial Statements The Enterprise’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.
2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit 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 Enterprise’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, as listed in the table of contents, be presented to supplement the financial statements. Such information is the responsibility of management and, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, 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 financial statements, and other knowledge we obtained during our audit of the 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 December 26, 2023 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 3 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.

Walnut Creek, California
December 26, 2023

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

4 (Continued)
This section presents management’s analysis of the San Francisco Water Enterprise’s (the Enterprise) financial condition and activities as of and for fiscal year s ended June 30, 2023 and 2022. 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.

Wholesale customers include cities, water districts, one private utility, and one non- profit university. Service to these customers is pr ovided pursuant to the 25 -year Amended and Restated Water Supply Agreement (WSA), commenced on July 1, 2009, which esta blished 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 nature 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 succes sfully recovered its costs through 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 flows in future fiscal periods, such as delayed collection of operating revenues and the expenses of employee earned but unused vacation leave.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

5 (Continued)
The Statements of Cash Flow s 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 timin g 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.

Financial Analysis
Financial Highlights for Fiscal Year 2023
• Total assets exceeded total liabilities by $565,858.
• Net position increased by $58,646 or 9.3% during the fiscal year. • Capital assets, net of accumulated depreciation and amortization increased by $30,720 or 0.5% to $5,648,314.
• Current and other assets decreased by $99,623 or 12.5% mainly due to bond principal and interest payments, capital project expenses, and payments for salaries. • Operating revenues increased by $117,974 or 20.6% to $691,091. • Operating expenses increased by $58,489 or 14.6% to $460,253.

Financial Highlights for Fiscal Year 20 22
• Total assets exceeded total liabilities by $727,284.
• Net position decreased by $17,937 or 2.8% during the fiscal year. • Capital assets, net of accumulated depreciation and amortization increased by $29,795 or 0.5% to $5,617,594.
• Current and other assets increased by $8,816 or 1.1% mainly due to net pension asset. • Operating revenues decreased by $9,319 or 1.6% to $573,117. • Operating expenses decreased by $47,018 or 10.5% to $401,764.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

6 (Continued)
Financial Position
The following table summarizes the Enterprise’s changes in net position.

Restated
2022* 2021
Total assets:

Current and other assets $ 695,715 795,338 786,522 (99,623) 8,816 Capital assets, net of accumulated depreciation and amortization 5,648,314 5,617,594 5,587,799 30,720 29, 795 Total assets 6,344,029 6,412,932 6,374,321 ( 68,903) 38,611 Deferred outflows of resources:

Unamortized loss on refunding of debt 124,635 139,481 154,991 (14,846) (15,510) Pensions 70,101 52,852 64,797 17,249 (11, 945)
Other post-employment benefits 28,616 32,445 37,762 (3,829) (5,317) Total deferred outflows of resources 223,352 224,778 257,550 (1, 426) (32,772) Liabilities:

Current liabilities:

Revenue bonds 135,095 125,285 108,500 9, 810 16,785 Certificates of participation 3,267 3,138 2,970 129 168 Commercial paper — 206,297 105,862 (206, 297) 100,435 State revolving fund loans — 3,283 1,667 (3,283) 1,616 Other liabilities 148,547 182,349 154,257 (33, 802) 28,092 Subtotal current liabilities 286,909 520,352 373,256 (233, 443) 147,096 Long-term liabilities:

Revenue bonds 4,575,751 4,735,650 4,886,275 ( 159,899) (150,625) Certificates of participation 89,232 92,499 95,692 (3, 267) (3,193) Commercial paper 371,459 — — 371,459 —
State revolving fund loans 163,627 118,478 105,740 45,149 12, 738 Other liabilities 291,193 218,669 445,234 72, 524 (226,565) Subtotal long-term liabilities 5,491,262 5,165,296 5,532,941 325,966 (367,645) Total liabilities:

Revenue bonds 4,710,846 4,860,935 4,994,775 ( 150,089) (133,840) Certificates of participation 92,499 95,637 98,662 (3, 138) (3,025) Commercial paper 371,459 206,297 105,862 165, 162 100,435 State revolving fund loans 163,627 121,761 107,407 41,866 14, 354 Other liabilities 439,740 401,018 599,491 38, 722 (198,473) Total liabilities 5,778,171 5,685,648 5,906,197 92,523 (220,549)

Deferred inflows of resources:

Related to pensions 28,504 248,704 4,885 (220,200) 243,819 Leases 41,558 44,583 48,110 (3,025) (3,527)
Other post-employment benefits 27,075 25,348 21,315 1,727 4, 033 Total deferred inflows of resources 97,137 318,635 74,310 (221,498) 244,325 Net position:

Net investment in capital assets 545,542 584,646 517,302 (39, 104) 67,344 Restricted for debt service 14,625 14,671 45,586 (4 6) (30,915) Restricted for capital projects 15,959 — 22,319 15, 959 (22,319) Restricted for other purposes — 100,407 — (100,407) 100,407 Unrestricted 115,947 (66,297) 66,157 182, 244 (132,454) Total net position $ 692,073 633,427 651,364 58,646 (17,937) * Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Table 1
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021
2023
2023-2022
Change
2022-2021
Change

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

7 (Continued)
Net Position, Fiscal Year 2023
For the period ended June 30, 2023, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $692,073. Total net position increased from prior year by $58,646 or 9.3% (see Table 1). The increase in net position was the result of a decrease of $ 128,975 in liabilities and deferred inflows of resources offset by a d ecrease of $ 70,329 in assets and deferred outflows of resources.

Current and other assets are primarily comprised of restricted and unrestricted balances of cash, receivables for water deliveries and services, interest and lease receivables, interfund receivables due from other governmental agencies, prepaids, and inventory.

During the fiscal year 20 23, current and other assets decreased by $99,623 or 12.5%. The decreases included $100,407 in restricted net pension asset based on actuarial estimates , $45,106 in restricted and unrestricted cash and investments mainly due to debt principal and interest payments, capital projects spending, payments for salaries and goods and services , $6,625 in prepaid expenses of multiple software licensing and membership fees, $2,535 in lease receivable due to lease payments received , $882 in subscription asset from the implement ation of G overnmental Accounting Standards Board (GASB) Statement No. 96 – Subscription-Based Information Technology Arrangements (SBITAs), $632 in restricted interest and other receivables mainly due to capacity fees , and $63 mainly for custom work projects due from the Department of Public Works (DPW). These decreases were offset by increases of $28,594 for a reimbursement receivable from the State Water Resources Control Board (SWRCB) State Revolving Funds Loan relating to the Mountain Tunnel Impro vement and SF Westside Recycled Water p rojects, $11,007 in notes receivable from the sale of the Balboa Reservoir, $10,052 in Wholesale Balancing Account receivable (see Note 11 for details), $2,249 in interest receivable mainly due to higher interest rates, $2,205 in charges for services receivable mainly due to a 15.9% rate increase for wholesale customers beginning July 1, 2022, $1,389 in inventory due to more purchases than issuances during the fiscal year , and $1,131 in lease asset due to additional leases in the current year.

Capital assets, net of accumulated depreciation and amortization, increased by $ 30,720 or 0.5% mainly due to Mountain Tunnel Improvement and SF Westside Recycled Water projects . The largest portion of the Enterprise’s net position of $545,542 or 78.8% represents net investment in capital assets (see Capital Assets section of the MDA for more information) , which decreased by $39,104 or 6.7% from prior year’s $584,646. The change was explained by an increase of $ 62,664 in liabilities related to capital assets mainly from State Revolving Funds Loan relating to the Mountain Tunnel Improvement and SF Westside Recycled Water projects , offset by a $ 23,560 increase in capital assets mainly from increased buildings, structures and improvements.

Deferred outflows of resources decreased by $1,426 due to decreases of $14,846 from amortization for unamortized loss on refunding and $3,829 in OPEB obligations based on actuarial estimates, offset by an increase of $17,249 from pensions based on actuarial estimates.

Total liabilities increased by $92,523, which was due to increases of $165,162 in commercial paper from additional principal issuances, $115, 343 in pensions based on actuarial reports, $41,866 in State Revolving Funds Loan payable due to additional loans related to the Mountain Tunnel Improvement and SF Westside Recycled Water project s, $15,329 in restricted and unrestricted payables due to higher year end expense accruals for capital projects as compared to prior year , $4,486 in OPEB obligations based on actuarial estimates, $2,440 payable to San Francisco Municipal Transportation Agency for a settlement payable relating to the Van Ness Corridor T ransit Improvement project, $1,168 in accrued payroll, vacation and sick leave due to cost of living adjustments and actuarial entries, $1,147 in lease liability from

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

8 (Continued)
additional leases, and $762 in workers’ compensation based on actuarial estimates . These increases were offset by decreases of $150,089 in outstanding revenue bonds from $125,285 in bond repayment, $24,812 in bond premium amortization, offset by $ 8 in bond discount amortization, $79,150 in the Wholesale Balancing Account liabi lity (see Note 11 for details), $16,444 in general liability based on actuarial report, $5,160 in unearned revenues mainly from lower custom work deposits and reduced Bay Area Water Supply and Conservation Agency (BAWSCA) Bond Surcharges, $3,138 in certificates of participation from $3,124 in principal repayment and $14 in amortization of premium, $848 in subscription liabilities from the implementation of GASB Statement No. 96 – SBITAs, and $351 in interest payable from lower outstanding revenue bonds.

Deferred inflows of resources decreased by $221,498 due to decreases of $220,200 related to pensions based on actuarial estimate s and $3,025 in leases based on Controller’s Office GASB 87 lease calculations, offset by an increase of $1,727 in OPEB obligations based on actuarial estimates.

Net Position, Fiscal Year 2022
For the period ended June 30, 2022, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $633,4 27. Total net position d ecreased from prior year by $17,937 or 2.8% (see Table 1). The decrease in net position was the result of a n increase of $ 23,776 in liabilities and deferred inflows of resources offset by an increase of $ 5,839 in assets and deferred outflows 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.

During the fiscal year 2022, current and other assets increased by $ 8,816 or 1.1%. The increases included $100,407 in restricted net pension asset based on actuarial estimates, $6,27 6 in prepaid charges advances and other receivables mainly for a settlement from PG&E related to damages on Casitas Avenue in San Francisco, $6,267 in charges for services attributed to more billings, net of decrease in allowance for doubtful accounts due to utility arrearage relief payment received from the State as Federal pass -through from the California Water and Wastewater Arrearages Payment Program (CWWAPP), $1,577 in subscription asset from the implementation of GASB Statement No. 96, $865 in inventory due to more purchases than issuances during the fiscal year, $167 in interest, leases and other receivables due to higher interest rates , and $159 in restricted interest and other receivables . These increases were offset by decreases of $60,453 in restricted and unrestricted cash and investments mainly due to debt principal and interest payments, capital projects spending, payments for salaries and goods and services, $41,993 reimbursement from the Sta te Water Resources Control Board (SWRCB) State Revolving Funds Loan relating to the SF Westside Recycled Water project, $2,945 in leases receivable from the implementation of Governmental Accounting Standards Board (GASB) Statement No. 87 – Leases, $1,425 in lease asset from the implementation of GASB Statement No. 87 – Leases, $70 mainly for custom work projects due from the Department of Public Works, and $16 for a Federal grant of culvert repairs relating to the Santa Clara Unit Lightning Complex fires.

Capital assets, net of accumulated depreciation and amortization, increased by $ 29,795 or 0.5% mainly due to Water Main Replacement, Treasure Island Well, Serramonte Well and all other well construction, and capital improvement activities. The largest port ion of the Enterprise’s net position of $ 584,646 or 92.3% represents net investment in capital assets (see Capital Assets section of the MDA for more information), which increased by $67,344 or 13.0 % from prior year’s $517, 302. The change was explained by an

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

9 (Continued)
increase of $81,232 in capital assets mainly from increased buildings, structures and improvements, offset by a decrease of $13,888 in liabilities related to capital assets mainly from bond principal repayment.

Deferred outflows of resources decreased by $32,772 due to decreases of $15,510 from amortization for unamortized loss on refunding , $11,945 relating to pensions based on actuarial reports, and $5,317 from OPEB obligations based on actuarial estimates.

Total liabiliti es decreased by $ 220,549 which was due to decreases of $216,417 in pensions based on actuarial report, $133,840 in outstanding revenue bonds from principal repayments, $4,656 from OPEB obligations due to actuarial report, $3,025 in certificates of particip ation mainly due to principal repayments, $1,381 in lease liability from the implementation of GASB Statement No. 87 – Leases, $745 in interest payable mainly due to lower bonds outstanding , and $654 in general liability based on actuarial report. These de creases were offset by increases of $100,435 in commercial paper from additional principal issuances, $14,354 in State Revolving Funds Loan payable due to additional loans related to the SF Westside Recycled Water project, $4,759 in restricted and unrestricted payables due to higher year end accruals as compared to prior year, $1,556 in subscription liability from the implementation of GASB Statement No. 96, $463 in accrued payroll, vacation and sick leave due to actuarial entries, $171 in unearned revenues mainly for deposits on custom work, and $145 in workers’ compensation based on actuarial estimates. The Enterprise owed the wholesale customers $79,150, an increase of $18,286 which was mainly due to annual revenues from the wholesale customers exceeding their share of expenditures.

This amount was recorded as a liability in accordance with the 2009 Water Supply agreement. See Note 1 1, Water Supply Agreement, for additional details.

Deferred inflows of resources increased by $244,325 due to an increase of $243,819 related to pensions and $4,033 from OPEB benefits based on actuarial reports, offset by a decrease of $3,527 from leases due to the implementation of GASB Statement No. 87 – Leases.

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

Restated
2022* 2021
Revenues:

Charges for services $ 661,241 539,526 550,306 121,715 (10,780) Rents and concessions 13,282 13,765 13,735 (483) 30 Other operating revenues 16,568 19,826 18,395 (3,258) 1,431 Interest and investment income (loss) 11,156 (10,896) 1,374 22,052 (12,270) Other non-operating revenues 40,679 41,871 45,874 (1,192) (4,003) Total revenues 742,926 604,092 629,684 138,834 (25,592) Expenses:

Operating expenses 460,253 401,764 448,782 58,489 (47,018) Interest expenses 214,913 213,681 184,678 1,232 29,003 Amortization of premium, discount, refunding loss, and issuance costs (9,971) (9,875) (7,782) (96) (2,093) Non-operating expenses 1,775 828 2,208 947 (1,380) Total expenses 666,970 606,398 627,886 60,572 (21,488) Change in net position before capital contributions and transfers 75,956 (2,306) 1,798 78,262 (4,104) Capital contributions 2,717 — 4,180 2,717 (4,180)
Transfers from the City and County of San Francisco 5 15,035 21,025 (15,030) (5,990) Transfers to the City and County of San Francisco (20,032) (30,666) (16,654) 10,634 (14,012) Capital contributions and net transfers (17,310) (15,631) 8,551 (1,679) (24,182) Change in net position 58,646 (17,937) 10,349 76,583 (28,286) Net position at beginning of year 633,427 651,364 641,015 (17,937) 10,349 Net position at end of year $ 692,073 633,427 651,364 58,646 (17,937) * Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Table 2
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2023, 2022, and 2021
2023
2023-2022
Change
2022-2021
Change

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

10 (Continued)
Results of Operations, Fiscal Year 2023
The Enterprise’s total revenues of $ 742,926 for the year represented an increase of $138,834 or 23.0% from prior year (see Table 2). Increases included $ 121,715 from charges for services, and $22,052 in interest and investment income. These increases were offset by decreases of $ 3,258 in other operating revenues, $1,192 in other non-operating revenues, and $483 in rents and concessions.

Charges for services were $ 661,241, an increase of $ 121,715 or 22.6 % mainly due to an adopted rate increase of 15.9% for wholesale customers and a 5% drought surcharge for retail customers beginning July 1, 202 2. Rents and concessions were $13,282 , a decrease of $ 483 or 3.5% mainly due to lease terminations. Other operating revenues were $16,568 , a decrease of $ 3,258 or 16 .4% mainly due to decreased consumption by other City departments and fewer capacity fee applications . Interest and investment income was $ 11,156, an increase of $22,052 or 202.4% due to prior year unrealized losses and higher interest earned on pooled cash. Other non -operating revenues were $40,679, a decrease of $1,192 or 2.8% due to an accrued settlement and water utility arrearages relief grant received in prior year.

The Enterprise’s total expenses were $666,970 , an increase of $ 60,572 or 10.0%. Operating expenses were $ 460,253, an increase of $ 58,489 or 14.6%, as a result of increases of $ 52,324 in personnel services mainly due to pensions based on actuarial estimates, $6,9 37 in depreciation from additional capital assets placed into service , $6,603 in services provided by other departments mainly for higher water assessments fees paid to Hetch Hetchy Water, $4,357 in contractual services mainly for custom work and professional & specialized service charges, and increase of $4,327 in materials and supplies mainly for water treatment supplies. These increases were offset by a decrease of $ 16,059 in general administrative and other expenses mainly from judgement and claims. Interest expenses increased by $1,232, compared to prior year, mainly due to increased commercial paper interest. Amortization of bond premium, discount, refunding loss and issuance costs increased by $ 96 mainly due to amortization of bond refunding loss.

Non-operating expenses increased by $947 mainly for youth employment and employment projects.

Transfer in of $ 5 from the General Fund was for the Mayor’s Office’s minimum compensation ordinance.

Transfer out of $ 20,032 included $20,000 to Hetch Hetchy Water to fund various 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 $2,717 was received from a de veloper for assets relating to the Potrero HOPE SF and Sunnydale HOPE SF projects.

Results of Operations, Fiscal Year 2022
The Enterprise’s total revenues of $604,092 for the year represented a decrease of $25,592 or 4.1% from prior year (see Table 2). Decreases included $12,270 from interest and investment loss, $10,780 from charges for service s, and $4,003 from other non -operating revenues. These decreases were offset by increases of $1,431 in other operating revenues, and $30 in rents and concessions.

Charges for services were $539,526, a decrease of $10,780 or 2.0% mainly due to 4.1% reduced consumption, offset by an adopted rate increase of 7.0% for retail customers beginning July 1, 2021. Rents and concessions were $ 13,765, an increase of $ 30 or 0.2% mainly due to a lease transfer fee and new tenants. Other operating revenues were $19,826, an increase of $1,431 or 7.8% mainly from increased capacity fee permits issued and a 7.0% adopted rate increase for retail customers. Interest and investment loss wa s $10,896, a decrease of $12,270 or 893.0% mainly due to unrealized losses as a result of the decline in market value of investments due to rising interest rates. Other non- operating revenues were $41,871, a decrease of $4,003 or 8.7% mainly due to $15,000 in State revolving fund (SRF) grant recognized in the prior year, $1,477 decrease in gain from sale of fixed assets, $292 in federal bond

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

11 (Continued)
subsidies, offset by increases of $6,750 from a PG&E settlement and $5,929 from a water utility arrearages relief grant and $87 in other non-operating revenues.

The Enterprise’s total expenses were $606,398, a decrease of $21,488 or 3.4%. Operating expenses were $401,764, a decrease of $47,018 or 10. 5%, the result of decreases of $49,14 3 in personnel services mainly due to decreases in pension obligations based on actuarial report, $ 5,357 in general and administrative and other expenses due to higher judge ment and claims in prior year, and $ 1,467 in contractual services mainly from other current expenses and subscriptions . These decreases were offset by increases of $3,333 in depreciation due to additional capital assets placed into service , $3,072 in services provided by other departments mainly for higher water assessment fees paid to Hetch Hetchy Water and higher gas and electric charges paid to Hetch Hetchy Power, and $2,544 in materials and supplies mainly for water treatment supplies . Interest expenses increased by $29,003 due to reduced bond interest capitalization resulting from the implementation of GASB 89, Accounting for Interest Cost Incurred Before the End of a Construction Period, in fiscal year 2022. Amortization of bond premium, discount, refunding loss and issuance costs increased by $2,093 due to prior year bond issuance co sts. Non -operating expenses decreased by $1,380 mainly due to prior year grant payments for water conservation.

Transfers in of $15,035 from the City included $15,030 for the Earthquake Safety and Emergency Response program, and $5 from the General Fund for low income assistance programs. Transfers out of $30,666 included $30,000 to Hetch Hetchy Water to fund various Mountain Tunnel projects, $500 to DPW for the UN Plaza Large Alternative Water Source project and purchase of capital assets, $134 for the Art s Commission for the arts enrichment fund for the new CDD Headquarters, and $32 to the Office of the City Administrator for the Enterprise’s contribution to the Surety Bond Program.

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

Capital Assets, Fiscal Year 2023
The Enterprise has net capital assets of $ 5,648,314 invested in a broad range of utility capital assets as of June 30, 2023 (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 $30,720 from the prior year. Facilities, improvements, machinery, and equipment decreased by $51,080 mainly due to depreciation. Intangible assets decreased by $821 mainly due to amortization.

Land decreased by $ 119 from the sale of Balboa Reservoir. Construction work in progress increased by $82,740 mainly from the Mountain Tunnel Improvement and SF Westside Recycled Water projects. 2023 2022 2021
2023-2022
Change
2022-2021
Change
Facilities, improvements, machinery, and equipment $ 5,005,667 5,056,747 4,948,186 (51,080) 108,561 Intangible assets 2,331 3,152 2,763 (821) 389
Land and rights-of-way 113,322 113,441 104,248 (119) 9,193 Construction work in progress 526,994 444,254 532,602 82,740 (88,348) Total $ 5,648,314 5,617,594 5,587,799 30,720 29,795 Table 3
Capital Assets, Net of Accumulated Depreciation and Amortization As of June 30, 2023, 2022, and 2021

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

12 (Continued)
Major additions to construction work in progress during the year ended June 30, 2023 include the following:

Major land, 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, 2023 include the following:

Water System Improvement Program (WSIP)
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 approximately 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, 20 23. The program consists of 35 local projects located within San Francisco and 52 regional projects spread over seven different counties from the Sierra Foothills to San Francisco. As of June 30, 2023, 35 local projects were completed. For regional projects, 48 projects were completed, the Alameda Creek Recapture and Regional Groundwater Storage projects are under construction, the Bioregional Habitat Restoration project is in close-out, and Long-Term Mitigation Endowment project is not applicable as it does not include construction. The expected completion date is February 2027 . Additional details regarding the WSIP are available at https://sfpuc.org/construction-contra cts/water-infrastructure-
improvements.

Mountain Tunnel Improvements $ 22,623
SF Westside Recycled Water Project 9,400
New Water Utility Service Facilities 7,594
Water Main Replacement and Auxiliary Water Supply System Pipeline - 19th Ave 7,183 College Hill Reservoir Outlet and Pipeline 7,087 Sunol Valley Water Treatment Plant Ozonation 6,987 Water Main Replacement - WD-2718 Prospect/Cortland/Fair Ave 5,987 Harry Tracy Water Treatment Plant - Filters No. 1 to 6 Underdrain Replacement 5,939 Water Main Replacement - WD-2859 Taraval Segment B 5,649 San Joaquin Pipeline Valve and Safe Entry Improvements 5,486 Water Main Replacement - WD-2843 Diamond/27th/28th Streets 5,372 Water Main Replacement - WD-2806 Vicente Street/19th to 25th Ave 5,189 Regional Groundwater Storage and Recovery 5,152 Other project additions individually below $5,000 80,743 Total $ 180,391
Auxiliary Water Supply System Pumping Station No. 2 Improvement - Structural System $ 14,683 Water Main Replacement - WD-2811 17th/Clayton/Ord Streets 11,240 New Water Utility Service Facilities 7,594
Water Main Replacement - 19th Ave 7,018
Auxiliary Water Supply System Pumping Station No. 2 Improvement - Diesel Engine Generator 6,235 Other items individually below $5,000 54,730
Total $ 101,500
See Note 4 for additional information about Capital Assets.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

13 (Continued)
Capital Assets, Fiscal Year 2022
The Enterprise has net capital assets of $5,617,594 invested in a broad range of utility capital assets as of June 30, 2022 (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 $2 9,795 from the prior year. Facilities, improvements, machinery, and equipment increased by $108,561 mainly due to Water Main Replacement and Treasure Island Well projects. Land increased by $9,193 mainly from the acquisition of Oak Ridge Ranch Estates and Arroyo Hondo Estates. Construction work in progress decreased by $88,348 mainly due to Water Main Replacement and Treasure Island Well projects placed into service. Intangible assets increased by $389 mainly due to Java to Groovy Conversion software and Cross-Connection Assembly asset additions.

Major additions to construction work in progress during the year ended June 30, 2022 include the following:

SF Recycled Water Project $ 18,684
Sunol Long Term Improvements 17,655
New Water Utility Service Facilities 8,843
Watershed Right of Way Land Acquisition 7,731 Upper Alameda Creek Filter Gallery 6,347
Regional Groundwater Storage & Recovery 5,769 Water Main Replacement - WD-2739 Castro/19th/26th Streets 5,504 Auxiliary Water Supply System - Pump Station No. 2 5,116 Other project additions individually below $5,000 99,542 Total $ 175,191

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

14 (Continued)
Major land, 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, 2022 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 approximately 800,000 residential customers in San Fra ncisco, 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 up grade 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, 2022. The program consists of 35 local projects located within San Francisc o and 52 regional projects spread over seven different counties from the Sierra Foothills to San Francisco. As of June 30, 2022, 35 local projects were completed. For regional projects, 47 projects are completed, the Alameda Creek Recapture, Regional Groundwater Storage and Recovery Phase 2A, Regional Groundwater Storage and Recovery Phase 2B projects are under construction, the Bioregional Habitat Restoration project is in close-out, and Long -Term Mitigation Endowment project is not applicable as it does not include construction. The expected completion date is February 2027. Additional details regarding the WSIP are available at https://sfpuc.org/construction-contracts/water-infrastructure-improvements.

Water Main Replacement - WD-2739 Castro/19th/26th Streets $ 15,666 Treasure Island Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 11,656 Serramonte Well - Architectural/Structural/Well 10,977 Lake Merced Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 8,851 New Water Utility Service Facilities 8,843
Colma BART Well - Architectural/Structural/Well 8,739 Serramonte Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 8,351 Colma BART Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 7,826 Treasure Island Well - Architectural/Structural/Well 7,646 Hickey Well - Architectural/Structural/Well 7,137 Auxiliary Water Supply System - Pipelines on 19th Ave 6,990 Linear Park Well - Architectural/Structural/Well 6,576 Water Main Replacement - WD-2616 Baker/Sutter Streets 6,567 Hickey Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 6,465 Funeral Home Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 6,447 Millbrae Yard Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 6,086 Linear Park Well - Civil/Electrical/I&C/Mechanical/Pipeline/Plumbing 5,736 Water Main Replacement - WD-2842 Casitas/Lansdale Ave 5,423 Lake Merced Well - Architectural/Structural/Well 5,266 Other items individually below $5,000 113,430
Total $ 264,678
See Note 4 for additional information about Capital Assets.

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

15 (Continued)
Debt Administration
As of June 30 , 2023, the Enterprise had $ 5,338,431 total debt outstanding, an increase of $53,801 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 decrease of $150,089 in revenue bonds was due to decreases of $ 125,285 from bond repayment , $24,812 in bond premium from amortization, offset by a $ 8 increase in bond discount from amortization .

The $3,138 decrease of certificates of participation was due to $ 3,124 from principal repayment, and $14 amortization of premium. The increase of $41,866 in State revolving funds loans was mainly from additional reimbursement requests of $32,10 2 for the Mountain Tunnel Improvement project and $9,76 4 for SF Westside Recycled Water project. The Enterprise had $ 343,767 in tax -exempt and $ 27,692 in taxable commercial paper as of June 30 , 20 23, and $179,600 in tax -exempt and $26,697 in taxable commercial paper as of June 30, 2022 . The increase of $ 165,162 was due to additional issuances of $164,167 in tax-exempt and $995 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, 2023, and “Aa2” and “AA-” from Moody’s and Standard & Poor’s (S&P) at June 30, 2022, 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 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 20 23 and 2022 , 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, 202 3, the Board of Supervisors has authorized the issuance of $ 4,758,518 in revenue bonds under Proposition E, with $ 3,903,617 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 was approved by the voters in November 2002. As of June 30, 202 3, $ 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.
2023 2022 2021
2023-2022
Change
2022-2021
Change
Revenue bonds $ 4,710,846 4,860,935 4,994,775 (150, 089) (133,840) Commercial paper 371,459 206,297 105,862 165,162 100,435 Certificates of participation 92,499 95,637 98,662 (3,138) (3,025) State revolving fund loans 163,627 121,761 107,407 41,866 14,354 Total $ 5,338,431 5,284,630 5,306,706 53,801 (22,076) Table 4
Outstanding Debt, Net of Unamortized Costs
As of June 30, 2023, 2022, and 2021

SAN FRANCISCO WATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

16 (Continued)
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, 202 3 and 2022. The Enterprise’s short -term debt has interest rates ranging from 1.2% to 5.3% during fiscal year 2023, and 0.1% to 2.0% during fiscal year 2022.

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 every five years. In compliance with City Charter section 8B.125, a rate study was completed in spring 2023. In May 2023, t he Commission su bsequently adopted three years of retail rate increases from July 1, 2023 through June 30, 2026.

Other miscellaneous fees for service and charges were last approved in 2018, and generally increase annually by the Consumer Price Index from the Controller’s Office of the City and County of San Francisco, or the 20-City Average Construction Index (CCI) published by Engineering News-Record (ENR) Magazine.

All current SFPUC Rates Schedules and Fees are available at https://sfpuc.org/accounts-se rvices/water-
power-and-sewer-rates.

Wholesale Customers
The Water Supply Agreement (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 extension options, and was most recently amended and restated in January 2023. Compared to the prior contract with the wholesale customers, the WSA changed the rate basis by which the capital cost recovery is dete rmined 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 or at the time of budget appropriation and spending for revenue-funded capital projects, rather than the life of the asset. The WSA requires the rate be calculated and set annually and include a reconciliation between prior year revenues and expenses. Refer to Note 1 1 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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

17 The following table is the Enterprise’s ten-year average percent 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 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, 13
th Floor, San Francisco, CA 94102. This report is available at https://sfpuc.org/about-us/reports/audited-financial-statements-reports.

July 1, 2016 10.0 1     9.3
July 1, 2017 7.0 1     -
July 1, 2018 9.0 2     -
July 1, 2019 8.0 2     -
July 1, 2020 7.0 2     -
July 1, 2021 7.0 2     -
July 1, 2022 - 3     15.9
July 1, 2023 5.0 4     9.7
July 1, 2024 5.0 4
July 1, 2025 5.0 4
1 Four-year retail rate increases adopted and effective July 1, 2014. 2 3
No retail rate increase adopted and effective July 1, 2022. 4 5
Wholesale rates adopted annually.

Four-year retail rate increases adopted and effective July 1, 2018.

Retail Wholesale 5Effective Date:

Ten-year Average Rate Adjustments
Three-year rate increases adopted and effective July 1, 2023.

SAN FRANCISCO WATER ENTERPRISE
Statements of Net Position
June 30, 2023 and 2022
(In thousands)
18 (Continued)

Restated
2023 2022*
Current assets:

Cash and investments with City Treasury $ 402,885 460,954 Cash and investments outside City Treasury 192 318
Receivables:

Charges for services, current portion (net of allowance for doubtful accounts of $8,615 as of June 30, 2023 and $3,915 as of June 30, 2022) 63,943 61,740 Wholesale balancing account receivable, current portion 5,571 — Due from other City departments 115 178
Interest 2,621 399
Interest - Leases 911 884
Restricted due from other governments 36,147 7,553
Leases receivable, current portion 3,521 3,325
Restricted interest and other receivable (net of allowance for doubtful accounts of $30 as of June 30, 2023 and $146 as of June 30, 2022) 3,510 4,142 Total current receivables 116,339 78,221
Prepaid charges, advances, and other receivables, current portion 5,909 12,180 Inventory 8,191 6,802
Restricted cash and investments outside City Treasury, current portion 10,863 11,063 Total current assets 544,379 569,538
Non-current assets:

Wholesale balancing account receivable, less current portion 4,481 — Restricted net pension asset — 100,407
Restricted cash and investments with City Treasury 21,000 9,299 Restricted cash and investments outside City Treasury, less current portion 66,482 64,894 Leases receivable, less current portion 40,109 42,840
Restricted interest and other receivable (net of allowance for doubtful accounts of $8 as of June 30, 2023 and $8 as of June 30, 2022) 4 4 Charges for services, less current portion (net of allowance for doubtful accounts of $656 as of June 30, 2023 and $656 as of June 30, 2022) 209 207 Note receivable - Balboa Reservoir 11,007 —
Right-to-use lease asset, net of accumulated amortization 3,943 2,812 Right-to-use subscription asset, net of accumulated amortization 695 1,577 Capital assets, not being depreciated and amortized 640,995 558,374 Capital assets, net of accumulated depreciation and amortization 5,007,319 5,059,220 Prepaid charges, advances, and other receivables, less current portion 3,406 3,760 Total non-current assets 5,799,650 5,843,394
Total assets 6,344,029 6,412,932
Deferred outflows of resources
Unamortized loss on refunding of debt 124,635 139,481
Pensions 70,101 52,852
Other post-employment benefits 28,616 32,445
Total deferred outflows of resources $ 223,352 224,778 Assets

SAN FRANCISCO WATER ENTERPRISE
Statements of Net Position
June 30, 2023 and 2022
(In thousands)
19 Restated
2023 2022*
Current liabilities:

Accounts payable $ 22,671 22,852
Accru
ed payroll 11,807 10,495
Accrued vacation and sick leave, current portion 7,057 6,888 Accrued workers’ compensation, current portion 1,914 1,700 Due to other City departments 2,440 —
Damage claims liability, current portion 11,125 10,191 Unearned revenues, refunds, and other 13,977 19,137
Bond, loan, lease, and subscription interest payable 35,104 35,455 Lease liability, current portion 1,189 1,008
Subscription liability, current portion 400 848
Revenue bonds, current portion 135,095 125,285
C
ertificates of participation, current portion 3,267 3,138 Commercial paper, current portion — 206,297
State revolving fund loans, current portion — 3,283
Wholesale balancing account, current portion — 48,422
Current liabilities payable from restricted assets 40,863 25,353 Total current liabilities 286,909 520,352
Long-term liabilities:

Other post-employment benefits obligations 148,601 144,115 Net pension liability 115,343 —
Lease liability, less current portion 2,821 1,855
Subscription liability, less current portion 308 708
Accrued vacation and sick leave, less current portion 6,528 6,841 Accrued workers’ compensation, less current portion 7,821 7,273 Damage claims liability, less current portion 8,500 25,878 Revenue bonds, less current portion 4,575,751 4,735,650 Certificates of participation, less current portion 89,232 92,499 Commercial paper, less current portion 371,459 —
State revolving fund loans, less current portion 163,627 118,478 Wholesale balancing account, less current portion — 30,728 Pollution remediation obligation 1,271 1,271
Total long-term liabilities 5,491,262 5,165,296
Total liabilities 5,778,171 5,685,648
Deferred inflows of resources
Related to pensions 28,504 248,704
Leases 41,558 44,583
Other post-employment benefits 27,075 25,348
Total deferred inflows of resources 97,137 318,635
Net position
Net investment in capital assets 545,542 584,646
Restricted for debt service 14,625 14,671
Restricted for capital projects 15,959 —
Restricted for other purposes — 100,407
Unrestricted 115,947 (66,297)
Total net position $ 692,073 633,427
See accompanying notes to financial statements
* Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Liabilities

SAN FRANCISCO WATER ENTERPRISE
Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2023 and 2022
(In thousands)
20 Restated
2023 2022*
Charges for services $ 661,241 539,526
Rents and concessions 13,282 13,765
Capacity fees 1,256 2,163
Other revenues 15,312 17,663
Total operating revenues 691,091 573,117
Operating expenses:

Personnel services 135,709 83,385
Contractual services 16,919 12,562
Materials and supplies 20,046 15,719
Depreciation and amortization 155,714 148,777
Services provided by other departments 79,910 73,307
General and administrative and other 51,955 68,014
Total operating expenses 460,253 401,764
Operating income 230,838 171,353
Non-operating revenues (expenses):

Federal and state grants — 5,931
Interest and investment income (loss) 11,156 (10,896)
Interest expenses (214,913) (213,681)
Amor
tization of premium, discount, refunding loss, and issuance costs 9,971 9,875 Net gain from sale of assets 12,660 1,079
Other non-operating revenues 28,019 34,861
Other non-operating expenses (1,775) (828)
Net non-operating expenses (154,882) (173,659)
Change in net position before capital contributions and transfers 75,956 (2,306) Capital contributions 2,717 —
Transfers from the City and County of San Francisco 5 15,035 Transfers to the City and County of San Francisco (20,032) (30,666) Capital contributions and net transfers (17,310) (15,631) Change in net position 58,646 (17,937)
Net position at beginning of year 633,427 651,364
Net position at end of year $ 692,073 633,427
See accompanying notes to financial statements.
* Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Operating revenues:

SAN FRANCISCO WATER ENTERPRISE
Statements of Cash Flows
Year Ended June 30, 2023 and 2022
(In thousands)
21 (Continued)

Restated
2023 2022*
Cash received from customers, including cash deposits $ 582,603 570,183 Cash received from tenants for rent 13,098 15,032
Cash received from miscellaneous revenues 4,832 4,558
Cash paid to employees for services (142,866) (137,080) Cash paid to suppliers for goods and services (174,938) (158,443) Cash paid for judgments and claims (6,927) (2,515)
Net cash provided by operating activities 275,802 291,735 Cash flows from non-capital financing activities:

Cash received from grants — 5,947
Cash received from settlements 6,750 —
Cash paid for rebates and program incentives (1,775) (828) Transfers from the City and County of San Francisco 5 15,035 Transfers to the City and County of San Francisco (20,032) (30,666) Net cash (used in) non-capital financing activities (15,052) (10,512) Cash flows from capital and related financing activities:

Proceeds from sale of capital assets 1,370 986
Proceeds from commercial paper borrowings 165,162 130,221 Proceeds from State revolving fund loan 12,371 56,113
Principal paid on commercial paper — (29,786)
Principal paid on long-term debt (128,408) (111,470)
Interest paid on long-term debt (209,194) (213,922)
Interest paid on commercial paper (5,170) (212)
Issuance cost paid on long-term debt — (10)
Lease payment (1,050) (1,439)
Subscription payment (862) —
Acquisition and construction of capital assets (172,835) (183,671) Federal interest income subsidy from Build America Bonds 23,260 23,590 Net cash (used in) capital and related financing activities (315,356) (329,600) Cash flows from investing activities:

Interest income received 9,141 2,154
Proceeds from sale of investments outside City Treasury 348,315 398,825 Purchase of investments outside City Treasury (348,315) (398,825) Net cash provided by investing activities 9,141 2,154
Decrease in cash and cash equivalents (45,465) (46,223) Cash and cash equivalents:

Beginning of year 560,366 606,589
End of year 514,901 560,366
Reconciliation of cash and cash equivalents to the statement of net position:

Cash and investments with City Treasury:

Unrestricted 402,885 460,954
Restricted 21,000 9,299
Add: Unrealized loss on investments with City Treasury 13,479 13,838 Cash and investments outside City Treasury:

Unrestricted 192 318
Restricted 77,345 75,957
Cash and cash equivalents at end of year on $ 514,901 560,366 statements of cash flows
* Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs), and reclassification of prior year $6,750 settlement to confirm with current year presentation.

Cash flows from operating activities:

SAN FRANCISCO WATER ENTERPRISE
Statements of Cash Flows
Years Ended June 30, 2023 and 2022
(In thousands)
22 Restated
2023 2022*
operating activities:

Operating income $ 230,838 171,353
Adjustments to reconcile operating income to
net cash provided by operating activities:

Depreciation and amortization 155,714 148,777
Miscellaneous revenue 4,832 4,558
Provision for uncollectible accounts 4,584 (1,410)
Write-off of capital assets and other non-cash items 4,628 4,592 Changes in operating assets and liabilities:

Receivables:

Charges for services (13,655) (4,734)
Prepaid charges, advances, and other 6,709 207
Due from other City departments 63 70
Inventory (1,389) (865)
Leases 575 380
Subscriptions 895 —
Accounts payable (181) 6,669
Accrued payroll 1,312 650
Other post-employment benefits obligations 10,042 4,694 Pension obligations (21,699) (61,060)
Accrued vacation and sick leave (144) (187)
Accrued workers’ compensation 762 145
Due to other City departments 2,440 —
Wholesale balancing account (89,202) 18,286
Damage claims liability (16,444) (654)
Unearned revenues, refunds, and other liabilities (4,878) 264 Total adjustments 44,964 120,382
Net cash provided by operating activities $ 275,802 291,735 Noncash transactions:

Accrued capital asset costs $ 40,863 25,353
Interfund payable 2,440 —
Unrealized loss on investments 13,479 13,838
Capital contribution 2,717 —
Sale of land promissory note 11,007 —
See accompanying notes to financial statements.
* Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs)
Reconciliation of operating income to net cash provided by

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

23 (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 Francisco (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 Ci ty 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 202 3, the Enterprise sold approximately 62,227 million gallons, i.e. , about 1 70 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 ( SFPUC 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.

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

Proposition E, a City Charter SEC. 4.112 amendment approved by the voters in the June 3, 2008 election, terminated the te rms 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 Enterprise s 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, 2023 and 2022, the changes in its financial position, or, where 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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

24 (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. E nterprise 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 resources measurement focus, using the accrual basis of accounting 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 applicable Governmental Accounting Standards Board (GASB) pronouncements.
(b) Cash and Cash Equivalents
The Enterprise considers its pooled cash and investments held with the City Treasur y to be demand deposits and, therefore, cash and cash equivalents for financial reporting. The City Treasury also holds non- pooled cash and investments for the Enterprise. Non- pooled restricted deposits and investments held outside the City Treasury with o riginal 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 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 recor ded 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 at the time of donation and capital assets r eceived in a service concession arrangement, are valued at acquisition value. Depreciation and

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

25 (Continued)
amortization are computed using the straight -line method over the 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 depreciation or amortization is recorded in the year of disposal. (f) Intangible Assets
Intangible assets are defined as identifiable, non -financial assets capable of being separated, sold, transferred, or licensed, an d include contractual or legal rights. Examples of intangible assets include rights -of-way easements, land use rights, water rights, licenses, permits, leases, and SBITAs. The Enterprise capitalizes purchased or internally developed intangible assets with a useful life extending beyond one reporting period. It has established a capitalization threshold of $100. Intangible assets are amortized over the benefit period or the contract term for leases and SBITAs, except for certain assets having an indefinite u seful 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) 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 is of fset against the related debt and is also amortized using the effective interest method.
(i) 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.
(j) Workers’ Compensation
The Enterprise is self-insured for workers’ compensation claims and accrues the estimated cost of those claims, including the estimate d cost of incurred but not reported claims (see Note 14(b)).
(k) 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, contamination, pollution remediation efforts, and other specific naturally occurring contaminants such as mold. The liability represents a n estimate of the cost of all outstanding claims, including adverse loss development and estimated incurred but not reported claims (see Note 14(a)).

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

26 (Continued)
(l) Arbitrage Rebate Payable
Certain bonds are subject to arbitrage rebate requirements in accordance with reg ulations 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 fift h anniversary of each bond issue. The arbitrage rebate liability was $0 as of June 30, 2023 and 2022. (m) 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.
(n) Income Taxes
As a department of a government agency, the Enterprise is exempt from both federal income taxes and California state franchise taxes.
(o) 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, 20 23 and 2022 were $31,704 and $29,774, respectively.
(p) 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 during the reporting period. Actual results could differ from those estimates.
(q) Accounting and Financial Reporting for Pollution Remediation Obligations According to GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obl igations, a government would have to estimate its expected outlays for pollution remediation if it 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 governme nt 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;

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

27 (Continued)
• 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).

As a part of ongoing operations, situations may occur requiring 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 times, 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 15(d)).
(r) Leases
Leases are defined as a contract that conveys control of the right to use another entity’s underlying asset for a specified period. The Enterprise is a lessee and lessor for various noncancellable leases of land, building, equipment, vehicles, easement, etc.

Short-term Leases

For leases with a maximum possible term of 12 months or less at commencement, the Enterprise recognizes lease revenue if the Enterprise executes a lessor lease or lease expense if the Enterprise executes a lessee lease based on the provisions of the lease contract. Liabilities are only recognized if payments are received in advance, and receivables are only recognized if payments are received subsequent to the reporting period.

Leases Other Than Short-term

For all other leases (i.e. those that are not short -term), the Enterprise recognizes a lease liability and intangible right -to-use lease asset for the Enterprise as lessee leases, or lease receivable and deferred inflow of resources for the Enterprise as lessor leases.

Measurement of Lease Amounts (Lessee)

The Enterprise’s lease liability is recorded at the present value of future minimum lease payments as of the date of commencement. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as the i nitial amount of the lease liability, less lease payments made at or before the lease commencement date, plus any initial direct costs ancillary to placing the underlying asset into service, less any lease incentives received at or before the lease commencement date. Subsequently, the lease asset is amortized into depreciation and amortization expense on a straight -line basis over the shorter of the lease term. If the Enterprise is reasonably certain of exercising a purchase option contained in a lease, the lease asset will be amortized over the useful life of the underlying asset.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

28 (Continued)
Measurement of Lease Amounts (Lessor)

The Enterprise’s lease receivable is measured at the present value of payments expected to be received during the lease term, reduced by any provision of estimated uncollectible amounts.

Subsequently, the lease receivable is reduced by the principal portion of lease payments collected. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, less any lease incentives paid to, or on behalf of, the lessee at or before the commencement of the lease term, plus lease payments received from the lease at or before the commencement of the lease term that related to future periods. Subsequently, the deferr ed inflow of resources as lease revenue is on a straight-line basis over the lease term.

Key Estimates and Judgements

Key estimates and judgements include how the Enterprise determines (a) the discount rate it uses to calculate the present value of the ex pected lease payments, (b) lease terms, (c) lease payments, and (d) materiality threshold for equipment.
• The Enterprise generally uses its estimated incremental borrowing rate as the discount rate for leases unless the rate implicit in the lease. The Cit y’s incremental borrowing rate (IBR) is established using the average of Municipal Market Data (MMD) AAA benchmark interest rate index by maturity date (year 1 to 30+), plus the average credit spread based on City’s Aa/AA, COP, Tax -exempt to generate the y ield curve and discount rate table. The City’s incremental borrowing rate for leases is based on the rate of interest it would need to pay if it issued general obligation bonds to borrow an amount equal to the lease payments under similar terms at the commencement or remeasurement date.
• The lease term includes the noncancellable period of the lease, plus any additional periods covered by either lessee or lessor unilateral option to (1) extend for which it is reasonably certain to be exercised, or (2) terminate for which it is reasonably certain not to be exercised.

Periods in which both the lessee and lessor have an option to terminate (or if both parties have to agree to extend) are excluded from the lease term.
• Payments are evaluated by the Enterprise to determine if they should be included in the measurement of the lease receivables or lease liabilities, including those payments that require a determination of whether they are reasonably certain of being made, such as residual value guarantees, purchase options, payments for termination penalties, and other payments. • Equipment and other leases have a capitalization threshold of $100. 70% below market rent and/or ground leases are determined to be below market rent (BMR), excluded from lease capitalization.

Remeasurement of Lease

The Enterprise monitors changes in circumstances that may require remeasurement of a lease.

When certain changes occur that are expected to significantly affect the amount of the lease receivable or lease liability, the receivable or liability is remeasured and a corresponding adjustment is made to the deferred inflow of resources or lease asset, respectively.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

29 (Continued)
Presentation in Statement of Net Position

Lease assets are reported with current and non-current assets, lease liabilities are reported with current and long -term liabilities, and both lease assets and liabilities are reported under net investment in capital assets in the statement of net position (see Note 9). (s) Subscription-Based Information Technology Arrangements Subscription–Based Information Technology A rrangements (SBITAs) are defined as a contract that conveys control of the right to use another entity’s IT software, alone or in combination with tangible capital assets for a specified period. The Enterprise has noncancellable subscription arrangements (similar to a lease) for the right to use various information technology hardware and software SBITAs.

Short-term SBITAs
For SBITAs with a maximum possible term of 12 months or less at commencement, the Enterprise recognizes subscription expense based on the provisions of the SBITA. Liabilities are only recognized if payments are received in advance, and receivables are only recognized if payments are received subsequent to the reporting period.

SBITAs Other Than Short-term
For all other SBITAs (i.e., those that are not short -term) the Enterprise recognizes SBITA liability and intangible right-to-use subscription asset for the Enterprise.

The Enterprise’s subscription liability is recorded at the present value of future minimum subscription payments as of the date of commencement. Subsequently, the subscription liability is reduced by the principal portion of subscription payments made. The subscription asset is initially measured as the initial amount of the subscription liability, less payments made at or before the subscription commencement date, plus any initial direct costs ancillary to placing the underlying asset into service, less any subscription incentives received at or before the subscription commencement date. For SBITAs, subscription assets also include qualify softw are implementation costs. Subsequently, the subscription asset is amortized into depreciation and amortization expense on a straight-line basis over the subscription term.

Key Estimates and Judgements
Key estimates and judgements include how the Enterprise determines (a) the discount rate it uses to calculate the present value of the expected subscription payments, (b) subscription terms, (c) subscription payments, and (d) materiality threshold. • The Enterprise generally uses its estimated increm ental borrowing rate as the discount rate for SBITAs unless the rate is implicit in the agreement. The Enterprise incremental borrowing rate (IBR) is established using the average of Municipal Market Data (MMD) AAA benchmark interest rate index by maturity date (year 1 to 30+), plus the average credit spread based on Enterprise’s Aa/AA, COP, Tax-exempt to generate the yield curve and discount rate table. • The subscription term includes the noncancellable period of the subscription, plus any additional periods covered by either subscriber or lessor unilateral option to (1) extend for which it is reasonably certain to be exercised, or (2) terminate for which it is reasonably certain not to

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

30 (Continued)
be exercised. Periods in which both the subscriber and lessor have an option to terminate (or if both parties have to agree to extend) are excluded from the subscription term. • Payments are evaluated by Enterprise to determine if they should be included in the measurement of the subscription liabilities, including those payments that require a determination of whether they are reasonably certain of being made, such as residual value guarantees, purchase options, payments for termination penalties, and other payments. • SBITAs have a capitalization threshold of $100.

Remeasurement of Lease or SBITAs
The Enterprise monitors changes in circumstances that may require remeasurement of SBITA.

When certain changes occur that are expected to significantly affect the amount of the subscription liability, the liability is remeasured, a nd a corresponding adjustment is made to the subscription asset.

Presentation in Statement of Net Position
Subscription assets are reported with current and non- current assets, subscription liabilities are reported with short-term and long-term liabilities, and both subscription assets and liabilities are reported under net investment in capital assets in the statement of net position (see Note 10). (t) Other Post-Employment Benefits Other Than Pensions (OPEB) As prescribed under GASB 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 determined on a citywide basis. Net O PEB 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 investment s measured at fair value (see Note 12(b)).
(u) New Accounting Standards Adopted in Fiscal Year 20 23 1) 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 SFPUC adopted the provisions of Statement No. 91 in fiscal year 2023 which di d not have a significant effect on its financial statements.

2) 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 financ ial reporting by addressing issues related to public -private and public -public partnership arrangements (PPPs). The SFPUC adopted the provisions of Statement No. 94 in fiscal year 2023 which did not have a significant effect on its financial statements.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

31 (Continued)
a government. The new standard is effective for periods beginning after June 15, 2022. The Enterprise adopted the provisions of Statement No. 96 in fiscal year 2023 (see Note 10 for more details). As a result of adoption, the cumulative effect of applying this St atement is recorded as beginning balance for the following accounts as of July 1, 2021:

(v) GASB Statements Implemented in Fiscal Year 2022
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 beginning balances as of July 1, 2020 were restated as a result of adopting this standard.

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 construction period. The new standard is effective for periods beginning after December 15, 2020. The Enterprise adopted the provisions of Statement No. 89 in fiscal year 2022.

3) 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 adopted the provisions of Statement No. 9 2 in fiscal year 2022, which did not have a significant effect on its financial statements.

4) 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 accou nting 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 adopted the provisions of Statement No. 93 in fiscal year 2022, which did not ha ve a significant effect on its financial statements.
(w) Future Implementation of New Accounting Standards
1) In April 2022, the GASB issued Statement No. 99, Omnibus 2022. GASB Statement No. 99 addresses a variety of topics. The requirements related to extension of the use of the London Interbank Offered Rate, accounting for Supplemental Nutrition Assistance Program distributions, disclosures of nonmonetary transactions, pledges of future revenues by Water
FY 2022
Beginning Balance FY2022 Activities
FY 2022
Ending Balance
Subscription asset 2,344$ 106$ 2,450$ Accumulated amortization - (873) (873) Accrued interest payable - (12) (12) Subscription liability - current (1,636) 788 (848) Subscription liabiity - L T (708) - (708) Expenses - (9) (9) Change to net position -$ (9)$ (9)$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

32 (Continued)
pledging governments, clarification of certain provisi ons in Statement No. 34, and terminology updates related to Statement No. 53 and Statement No. 63 are effective upon issuance and did not have a significant impact on the Enterprise for the year ended June 30, 2022. The requirements related to leases, public-public and public-private partnerships, and subscription-based information technology arrangements are effective for fiscal years beginning after June 15, 2022, and effective for the Enterprise’s year ending June 30, 2023. The requirements related to fi nancial guarantees and the classification and reporting of derivative instruments within the scope of Statement No. 53 are effective for fiscal years beginning after June 15, 2023, and effective for the Enterprise’s year ending June 30, 2024. The Enterpris e is currently analyzing its accounting practices to determine the potential impact of the provisions of Statement No. 99 applicable in future years.

2) In June 2022, the GASB issued Statement No. 100, Accounting Changes and Error Corrections. This Statement enhances accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The new standard is effective for periods beginning after June 15, 2023. The SFPUC will implement the provisions of Statement No. 100 in fiscal year 2024.

3) In June 2022, the GASB issued Statement No. 101, Compensated Absences . This Statement is to better meet the info rmation needs of financial statement users by updating the recognition and measurement guidance for compensated absences. The new standard is effective for periods beginning after December 15, 2023. The SFPUC will implement the provisions of Statement No. 101 in fiscal year 2025.
(x) Reclassifications
The Enterprise has reclassified certain amounts relating to the prior period to conform to its current period presentation. For fiscal year 2022, cash received from settlements in the amount of $6,750 was reclassified to cash received from customers including cash deposits to conform with the fiscal year 2023 presentation . In addition, for fiscal year 2022, net pension assets in the amount of $100,407 was reclassified from unrestricted to restricted for oth er purposes in the statement of net position. These 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 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, 20 23 and 20 22 were $77,345 and

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

33 (Continued)
$75,957, 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 inves tment 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, 202 3 were “Aaa-mf” and “P-1” by Moody’s, and “AAAm” and “A-1” by S&P. The credit ratings of the money market funds invested in as of June 30, 2022 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.

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 techni ques used for valuing securities are not necessarily an indication 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, 2023 and 2022:

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

U.S. Treasury Money Market Funds AAAm/Aaa-mf < 90 days 64,249 64,249 — — — Money Market Funds A-1/P-1 < 90 days 43 43 — — —
Cash and Cash Equivalents N/A 13,053 13,053 — — —
Total Restricted Cash and Investments outside City Treasury $ 77,345 77,345 — — —

Cash and Cash Equivalents N/A 192 192 — — —
Total Unrestricted Cash and Investments outside City Treasury $ 192 192 — — — Investments
exempt
from fair
value
Fair Value Measurements Using
Investments
June 30, 2023
Cash and Investments outside City Treasury

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 $ 62,854 62,854 — — — Money Market Funds A-1+/P-1 < 90 days 48 48 — — —
Cash and Cash Equivalents N/A 13,055 13,055 — — —
Total Restricted Cash and Investments outside City Treasury $ 75,957 75,957 — — —

Cash and Cash Equivalents N/A 318 318 — — —
Total Unrestricted Cash and Investments outside City Treasury $ 318 318 — — — June 30, 2022
Investments
exempt
from fair
value

prices in
active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Cash and Investments outside City Treasury
Investments
Fair Value Measurements Using
Unobservable
Inputs
(Level 3)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

34 (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 23 and 2022 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 and $28 as of June 30, 20 23 and 2022, 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 $ 164 and $ 290 as of June 30, 2023 and 2022, respectively.

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:

2023 2022
Cash and investments with City Treasury $ 402,885 460,954 Cash and investments outside City Treasury 192 318
Restricted cash and investments outside City Treasury 10,863 11,063 Non-current assets:

Restricted cash and investments with City Treasury 21,000 9,299 Restricted cash and investments outside City Treasury 66,482 64,894 Total cash, cash equivalents, and investments $ 501,422 546,528 Current assets:

Fiscal years
ended June 30 Under 1 1 to less than 6 6 to less than 12 12 to 60 2023 21.5% 18.0% 14.5% 46.0%
2022 20.2% 14.0% 14.9% 50.9%
Investment maturities (in months)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

35 (Continued)
(4) Capital Assets
Capital assets as of June 30, 2023 and 2022 consist of the following:

2022 Increases Decreases 2023
Land $ 113,441 — (119) 113,322
Intangible assets ** 679 — — 679
Construction work in progress 444,254 180,391 (97,651) * 526,994 Total capital assets not being depreciated and amortized 558,374 180,391 (97,770) 640,995 Capital assets being depreciated and amortized:

Facilities and improvements 6,660,691 94,616 — 6,755,307 Intangible assets** 25,142 979 — 26,121
Machinery and equipment 332,473 5,905 (579) 337,799
Total capital assets being depreciated and amortized 7,018,306 101,500 (579) 7,119,227 Less accumulated depreciation and amortization for:

Facilities and improvements (1,688,717) (140,215) — (1,828,932) Intangible assets** (22,669) (1,800) — (24,469)
Machinery and equipment (247,700) (11,386) 579 (258,507) Total accumulated depreciation and amortization (1,959,086) (153,401) 579 (2,111,908) Total capital assets being depreciated and amortized, net 5,059,220 (51,901) — 5,007,319 Total capital assets, net $ 5,617,594 128,490 (97,770) 5,648,314 ** Right-to-use lease and subscription assets are reported separately from intangible assets in Notes 9 and 10, respectively. * Decrease in construction work in progress includes $4,628 in capital project write-offs, mainly related to Stern Grove Emergency Restoration and Upper Alameda Creek Filter projects. The remaining difference of $8,477 is mainly due to direct additions to facilities and improvements, intangible assets and machinery and equipment.

Capital assets not being depreciated and amortized:
2021 Increases Decreases 2022
Capital assets not being depreciated and amortized:

Land $ 104,248 9,193 — 113,441
Intangible assets** 679 — — 679
Construction work in progress 532,602 175,191 (263,539) * 444,254 Total capital assets not being depreciated and amortized 637,529 184,384 (263,539) 558,374 Capital assets being depreciated and amortized:

Facilities and improvements 6,413,238 247,453 — 6,660,691 Intangible assets** 23,772 1,370 — 25,142
Machinery and equipment 326,126 6,662 (315) 332,473
Total capital assets being depreciated and amortized 6,763,136 255,485 (315) 7,018,306 Less accumulated depreciation and amortization for:

Facilities and improvements (1,554,515) (134,202) — (1,688,717) Intangible assets** (21,688) (981) — (22,669)
Machinery and equipment (236,663) (11,352) 315 (247,700) Total accumulated depreciation and amortization (1,812,866) (146,535) 315 (1,959,086) Total capital assets being depreciated and amortized, net 4,950,270 108,950 — 5,059,220 Total capital assets, net $ 5,587,799 293,334 (263,539) 5,617,594 ** Right-to-use lease and subscription assets are reported separately from intangible assets in Notes 9 and 10, respectively. * Decrease in construction work in progress of $8,054 includes $4,592in capital project write-offs, mainly related to Stern Grove Emergency Restoration and Lake Merced Water Level Restoration projects and $9,193transferred to land. The remaining difference of $5,731is mainly due to direct additions to facilities and improvements, intangible assets and machinery and equipment.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

36 (Continued)
(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 Wa ter 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 Treasury. These funds, held at the City Treasury, are recorded in the statement of net position of the Enterprise as cash and investments. Deposits in the Water Revenue Fund, including ear nings thereon, shall be appropriated, transferred, 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;

2. The payment of pension charges and proportionate 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 re quired by any of the Enterprise’s Revenue Bond ordinances duly adopted and approved; and

6. The acquisition of land, real property, or interest in real property for, and the acquisition, construction, enlargement, and improvement of, new and existing building s, structures, facilities, equipment, appliances, and other property necessary or convenient to the development or improvement of such utility owned, controlled, or operated by the Enterprise; and for any other lawful purpose of the Enterprise, including t he transfer of surplus funds pursuant to the Charter.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

37 (Continued)
In accordance with the Indenture, the bond financing program maintains that certain restricted cash and investment balances be held in trust. Restricted assets held in trust consisted of the following a s of June 30, 2023 and 2022:

Restricted assets listed above as cash and investments with City Treasury are held in fund accounts within the Water Revenue Fund of the City Treasury.
(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, 202 3 and 2022, amounts outstanding under Proposition E were $ 371,459 and $ 206,297, respectively.

Commercial paper interest rates ranged from 1.2% to 5.3%.

With maturities up to 270 days, the Enterprise intends 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 2023 2022
Water revenue bond construction fund $ 21,000 9,299
Cash and investments outside City Treasury:
2010A Water revenue bond fund 12 —
2010B Water revenue bond fund 21,861 21,386
2010D Water revenue bond fund 12 1
2010E Water revenue bond fund 16,643 16,304
2010F Water revenue bond fund 8 —
2010G Water revenue bond fund 18,178 17,703
2012A Water revenue bond fund — 1
2015A Water revenue refunding bond fund 4 —
2016A Water revenue refunding bond fund 8 —
2016B Water revenue refunding bond fund 1 —
2016C Water revenue bond fund 2 —
2017B Water revenue bond fund 2 —
2017C Water revenue bond fund 1 —
2017D Water revenue refunding bond fund 4 —
2017E Water revenue refunding bond fund 1 —
2019A Water revenue refunding bond fund 5 —
2020A Water revenue bond fund 2 86
2020B Water revenue bond fund 1 34
2020C Water revenue bond fund 1 54
2020D Water reveune bond fund — 38
2020E Water revenue refunding bond fund 2 —
2020F Water revenue refunding bond fund 13 12
2020G Water reveune refunding bond fund 23 22
2020H Water revenue refunding bond fund 8 7
2009C Certificates of participation - 525 Golden Gate 1,696 1,638 2009D Certificates of participation - 525 Golden Gate 5,761 5,567 Commercial Paper - Tax Exempt 15 14
Commercial Paper - Taxable 28 37
Habitat reserve endowment fund 13,053 13,053
Total cash and investments outside City Treasury 77,345 75,957 Interest and other receivables:

Water bond construction fund including interest, prepaids, and other receivables 3,514 4,146 Due from other government for State Revolving Fund 36,147 7,553 Total restricted assets $ 138,006 96,955
Cash and investments with City Treasury:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

38 (Continued)
exceeds these benefits, the Enterprise w ill refinance the commercial paper with the long -term, fixed- rate debt.

As of June 30, 2023, the Enterprise had $371,459 in outstanding commercial paper which were repaid by the 2023 Series AB Water Revenue Bonds issued in July 2023. The $371,459 has been reclassed to long-term liabilities on the financial statements.

In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowing and Direct Placements , the Enterprise had $128,541 and $293,703 in unused authorization as of June 30, 2023 and 2022, 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 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 interest coverage, and/or termination of the respective agreement. As of June 30, 2023, there were no such events describe herein.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

39 (Continued)
(7) Changes in Long-Term Liabilities
Long-term liability activities for the years ended June 30, 2023 and 2022 are as follows:

Maturity Due
Interest (Calendar Restated within
rate Year) 2022* Additions Reductions 2023 one year
2010B revenue bonds (Build America) 4.00% – 6.00% 2040 $ 349,170 — (12,780) 336,390 13,245 2010E revenue bonds (Build America) 4.90 – 6.00 2040 344,200 — (12,745) 331,455 13,165 2010G revenue bonds (Build America) 6.95 2050 351,470 — — 351,470 — 2015A revenue refunding bonds 2.00 – 5.00 2036 382,420 — (16,045) 366,375 28,070 2016A revenue refunding bonds 4.00 – 5.00 2039 719,735 — (32,790) 686,945 23,590 2016B revenue refunding bonds 1.50 – 5.00 2030 71,510 — (12,530) 58,980 13,175 2016C revenue bonds 0.87 – 4.19 2046 231,230 — (5,955) 225,275 6,105 2017A revenue bonds 5.00 2047 27,000 — (2,325) 24,675 2,445 2017B revenue bonds 5.00 2047 32,930 — (2,835) 30,095 2,985 2017C revenue bonds 5.00 2047 15,750 — (1,355) 14,395 1,425 2017D revenue refunding bonds 2.00 – 5.00 2035 346,795 — (1,455) 345,340 1,270 2017E revenue refunding bonds 4.00 – 5.00 2031 48,890 — (765) 48,125 795 2017F revenue refunding bonds 5.00 2031 8,705 — (700) 8,005 735 2017G revenue refunding bonds 2.03 – 2.91 2024 31,960 — (13,070) 18,890 13,665 2019A revenue refunding bonds 1.81 – 3.47 2043 591,320 — (3,495) 587,825 3,565 2019B revenue refunding bonds 3.15 – 3.52 2041 16,385 — (70) 16,315 70 2019C revenue refunding bonds 3.15 – 3.52 2041 17,850 — (75) 17,775 80 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 335,535 — (500) 335,035 1,530 2020F revenue refunding bonds 0.26 – 3.15 2047 135,455 — — 135,455 1,430 2020G revenue refunding bonds 0.26 – 3.10 2043 114,765 — (5,795) 108,970 7,065 2020H revenue refunding bonds 0.26 – 3.15 2047 64,815 — — 64,815 685 Less issuance discount (124) — 9 (115) —
Add issuance premiums 276,409 — (24,813) 251,596 —
Total revenue bonds payable 4,860,935 — (150,089) 4,710,846 135,095 2009C certificates of participation (COPs) 2.00 – 5.00 2022 3,124 — (3,124) — — 2009C COPs issuance premiums 14 — (14) — —
2009D COPs (Build America) 6.36 – 6.49 2041 92,499 — — 92,499 3,267 Commercial paper 1.20 – 5.30 2023 — 371,459 371,459 — State Revolving Funds Loan 1.00 – 1.10 2057 121,761 41,866 — 163,627 — Other post-employment benefits obligations 144,115 4,486 — 148,601 — Lease liability 2,863 2,562 (1,415) 4,010 1,189
Subscription liability 1,556 — (848) 708 400
Net pension liability — 115,343 — 115,343 —
Accrued vacation and sick leave 13,729 12,427 (12,571) 13,585 7,057 Accrued workers’ compensation 8,973 3,984 (3,222) 9,735 1,914 Damage claims liability 36,069 1,898 (18,342) 19,625 11,125 Wholesale balancing account 79,150 — (79,150) — —
Pollution remediation obligation 1,271 — — 1,271 —
Total $ 5,366,059 554,025 (268,775) 5,651,309 160,047 * Restated due to implementation of GASB 96 - Subscriptions-Based Information Technology Arrangments (SBITAs) Revenue Bonds:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

40 (Continued)

Maturity Due
Interest (Calendar within
rate Year) 2021 Additions Reductions 2022* one year
Revenue Bonds:
2010B revenue bonds (Build America) 2040 $ 361,500 — (12,330) 349,170 12,780 2010E revenue bonds (Build America) 4.90 – 6.00 2040 344,200 — — 344,200 12,745 2010G revenue bonds (Build America) 6.95 2050 351,470 — — 351,470 — 2011B revenue bonds 3.50 – 5.00 2041 755 — (755) — — 2011C revenue bonds 3.00 – 5.00 2041 825 — (825) — — 2015A revenue refunding bonds 2.00 – 5.00 2036 397,745 — (15,325) 382,420 16,045 2016A revenue refunding bonds 4.00 – 5.00 2039 743,050 — (23,315) 719,735 32,790 2016B revenue refunding bonds 1.50 – 5.00 2030 81,525 — (10,015) 71,510 12,530 2016C revenue bonds 0.87 – 4.19 2046 237,050 — (5,820) 231,230 5,955 2017A revenue bonds 5.00 2047 27,000 — — 27,000 2,325 2017B revenue bonds 5.00 2047 32,930 — — 32,930 2,835 2017C revenue bonds 5.00 2047 15,750 — — 15,750 1,355 2017D revenue refunding bonds 2.00 – 5.00 2035 347,720 — (925) 346,795 1,455 2017E revenue refunding bonds 4.00 – 5.00 2031 48,890 — — 48,890 765 2017F revenue refunding bonds 5.00 2031 8,705 — — 8,705 700 2017G revenue refunding bonds 2.03 – 2.91 2024 32,780 — (820) 31,960 13,070 2019A revenue refunding bonds 1.81 – 3.47 2043 615,725 — (24,405) 591,320 3,495 2019B revenue refunding bonds 3.15 – 3.52 2041 16,450 — (65) 16,385 70 2019C revenue refunding bonds 3.15 – 3.52 2041 17,925 — (75) 17,850 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 — (5,900) 335,535 500 2020F revenue refunding bonds 0.26 – 3.15 2047 136,880 — (1,425) 135,455 — 2020G revenue refunding bonds 0.26 – 3.10 2043 120,585 — (5,820) 114,765 5,795 2020H revenue refunding bonds 0.26 – 3.15 2047 65,495 — (680) 64,815 — Less issuance discount (133) — 9 (124) —
Add issuance premiums 301,758 — (25,349) 276,409 —
Total revenue bonds payable 4,994,775 — (133,840) 4,860,935 125,285 2009C certificates of participation (COPs) 2.00 – 5.00 2022 6,094 — (2,970) 3,124 3,124 2009C COPs issuance premiums 69 — (55) 14 14
2009D COPs (Build America) 6.36 – 6.49 2041 92,499 — — 92,499 — State Revolving Funds Loan 1.00 2051 107,407 14,354 — 121,761 3,283 Other post-employment benefits obligations 148,771 14,868 (19,524) 144,115 — Lease liability 4,244 — (1,381) 2,863 1,008
Subscription liability — 1,556 — 1,556 848
Net pension liability 216,417 — (216,417) — —
Accrued vacation and sick leave 13,916 8,177 (8,364) 13,729 6,888 Accrued workers’ compensation 8,828 2,793 (2,648) 8,973 1,700 Damage claims liability 36,723 452 (1,106) 36,069 10,191 Wholesale balancing account 60,864 18,633 (347) 79,150 48,422 Pollution remediation obligation 1,271 — — 1,271 —
Total $ 5,691,878 60,833 (386,652) 5,366,059 200,763

4.00% – 6.00%
* Restated due to implementation of GASB 96 - Subscriptions-Based Information Technology Arrangments (SBITAs)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

41 (Continued)
The payments of principal and interest amounts on various bonds are secured by net revenues of the Enterprise.
(a) Water Revenue Bonds 2010 Series B
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 final maturity of 2040. The Series B bonds have a true interest cost (net of federal subsidy) of 3.9%. As of June 30, 2023 and 2022, the principal amount outstanding was $336,390 and $349,170, respectively. (b) 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 $102,725 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 portio n 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, 2023 and 2022, the principal amount of 2010 Series D bonds outstanding was $0.

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

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

42 (Continued)
(net of federal subsidy) of 3.8%. As of June 30, 2023 and 2022, the principal amount of 2010 Series E bonds outstanding was $331,455 and $344,200, respectively. (c) 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 the bonds is to provide $437,980 in new money for WSIP cap ital 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 $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% and 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, 2023 and 2022, the principal amount of 2010 Series G bonds outstanding was $351,470. (d) Water Revenue Bonds 2011 Series ABCD
In August 2011, the Enterprise i ssued 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 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 monie s 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, 2023 and 2022, 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 sto rage 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 Escrow Agreement, dated February 27, 2013, to

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

43 (Continued)
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 ref und 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 an d 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, 2023 and 2022, the principal amount of 2011 Series B bonds outstanding was $0.

The $33,595 Series C bonds were issued as tax -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 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 u nder 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 Se ries 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, 2023 and 2022, the principal amount of 2011 Series C bonds outstanding was $0.

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

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

44 (Continued)
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 mat urities of the 2011 Series D bonds starting on November 1, 2022 and thereafter. As of June 30, 202 3 and 2022, the principal amount of 2011 Series D bonds outstanding was $0.
(e) Water Revenue Refunding Bonds 2015 Series A
In April 2015, the Enterprise issued t ax-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, 2023 and 2022, the principal amount of 2015 Series A bonds outstanding was $366,375 and $382,420, respectively. (f) 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 outst anding 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 “A A-” 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%. Unamortized 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 $107,152 or 11.5% of refunded principal. As of June 30, 2023 and 2022, the principal amount of 2016 Series AB bonds outstanding was $745,925 and $791,245, respectively.
(g) Water Revenue Bonds 2016 Series C
In December 2016, the Enterprise issued taxable 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 fin al 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

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

45 (Continued)
bonds have a true interest cost of 3.9%. As of June 30, 2023 and 2022, the principal amount of 2016 Series C bonds outstanding was $225,275 and $231,230, respectively. (h) 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 $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. The 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 irrevocable 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 redeem the maturities of the 2017 Series A bonds starting on November 1, 2030 and thereafter. As of June 30, 2023 and 2022, the principal amount of 2017 Series A bonds outstanding was $24,675 and $27,000, 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 O ctober 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, 2023 and 2022, the principal amount of 2017 Series B bonds outstanding was $30,095 and $32,930, 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

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

46 (Continued)
C bonds starting on November 1, 2030 and thereafter. As of June 30, 2023 and 2022, the principal amount of 2017 Series C bonds outstanding was $14,395 and $15,750, respectively. (i) Water Revenue Refunding Bonds 2017 Series DEFG
In December 2017, the Enterprise issued tax -exempt revenue bonds, 2017 Series DE F, 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 purpose of refunding a portion of the outstanding 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 purpose of refunding a portion of the outstanding 2011 Series C bonds maturing on or after November 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, 2023 and 2022, the principal amount of 2017 Series DEFG bonds outstanding was $420,360 and $436,350, respectively.
(j) 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 purpo se of refunding a portion of the outstanding 2010 Series F (WSIP) bonds maturing on and after November 1, 2020, a portion 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) bond s 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 rates 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, 2023 and 2022, the principal amount of 2019 Series ABC bonds outstanding was $621,915 and $625,555, respectively.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

47 (Continued)
(k) 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, respectively. The 2020 Series ABCD bonds include 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 coup ons 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, 2023 and 2022, 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% and have a final maturity of 2050. The Series B bonds have a true interest cost of 3.7%. As of June 30, 2023 and 2022, 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 S eries 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, 2023 and 2022, 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, 2023 and 2022, the principal amount of 2020 Series D bonds outstanding was $49,200.
(l) 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 purp ose 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.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

48 (Continued)
The 2020 Series H (Hetch Hetchy Water) bonds issued 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 with 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 service savings of $117,114, and an economic gain of $75,212 or 12.0% of refunded principal.

As of June 30, 2023 and 2022, the principal amount of 2020 Series EFGH bonds outstanding was $644,275 and $650,570, respectively.
(m) 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, 2023 . The federal interest subsidy amounts represent 35.0%, excluding sequestration, of th e 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).
(n) 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 Water State Revolving Fund (CWSR F) 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 rep ayment 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, 202 3 Principal
Interest
before
subsidy
Federal
interest
subsidy*
Interest net
of subsidy
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 157,635 177,956 (19,345) 158,611
2028 163,125 170,410 (18,772) 151,638
2029-2033 926,810 728,151 (83,650) 644,501
2034-2038 1,117,065 489,895 (59,144) 430,751
2039-2043 924,965 255,105 (29,912) 225,193
2044-2048 443,220 125,062 (14,788) 110,274
2049-2051 299,035 23,037 (2,629) 20,408
4,459,365 2,543,745 (289,327) 2,254,418
Less: Current portion (135,095)
Less: Unamortized bond discount (115)
Add: Unamortized bond premiums 251,596
Long-term portion as of June 30, 2023 $ 4,575,751
* The SFPUC received an IRS notice dated May 25, 2023 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 $17,488, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.

Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

49 (Continued)
and 202 2 were $131,525 and $121,761 , respectively . In addition, there was $15,000 of principal forgiveness in fiscal year 2023.

(o) Drinking Water State Revolving Fund (DWSRF) Loan
In April 2022, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Drinking Water State Revolving Fund (DWSRF) Loan to fund the Enterprise’s Mountain Tunnel Improvement Project. The DWSRF loan is in the amount of $238,219. It will bear an interest rate of 1.1% for a 30- year term, with interest payments beginning annually after the initial loan proceed draw occurs and loan principal repayment beginning one year after substantial completion of project construction. Power Enterprise is responsible for repayment for its share of SRF Loan debt service costs representing up to its allocable share of the cost of the Mountain Tunnel Improvement Project by a Memorandum of Understanding that will be executed with the Water Enterprise. The DWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The principal outstanding as of June 30, 2023 and 2022 was $32,102 and $0, respectively.

California Clean Water State Revolving Fund Loan Principal Interest Total 2024 $ — — —
2025 — — —
2026 3,781 1,315 5,096
2027 3,819 1,277 5,096
2028 3,857 1,239 5,096
2029-2033 19,872 5,610 25,482
2034-2038 20,885 4,596 25,481
2039-2043 21,951 3,531 25,482
2044-2048 23,070 2,411 25,481
2049-2053 24,247 1,234 25,481
2054-2057 10,043 152 10,195
131,525 21,365 152,890
Less: Current portion —
Long-term portion as of June 30, 2023 $ 131,525
Fiscal years ending June 30:

Drinking Water State Revolving Fund Loan Principal Interest Total 2024 $ — — —
2025 — — —
2026 — — —
2027 — — —
2028 — — —
2029-2033 4,708 1,512 6,220
2034-2038 4,948 1,272 6,220
2039-2043 5,200 1,019 6,219
2044-2048 5,465 754 6,219
2049-2053 5,744 475 6,219
2054-2057 6,037 183 6,220
32,102 5,215 37,317
Less: Current portion —
Long-term portion as of June 30, 2023 $ 32,102
Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

50 (Continued)
(p) 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, 202 3, 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, 2023.
(q) Proposition E
On November 5, 2002, the San Francisco voters passed Proposition E, which authorizes the Board of Supervisors’ approval of the issuance 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, 2023, the Board of Supervisors authorized the issuance of $4,758,518 in revenue bonds with $3,903,617 issued against this authorization; in September 2017 and amended in April 2023, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Water State 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 in April 2022, the SFPUC entered in to an Installment Sale Agreement with the State Water Resources Control Board for a Drinking Water State Revolving Fund (DWSRF) Loan to fund the Mountain Tunnel Improvement Project in the amount of $238,219. Additionally, $371,459 and $206,297 in commercial paper was outstanding pursuant to this authorization as of June 30, 2023 and 2022, respectively. (r) 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 certificate s 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.

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 de bt 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.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

51 (Continued)
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 certifi cates of participation 2009 Series D outstanding as of June 30, 2023 are as follows:

(s) 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, and SRF 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 provider), declaring the principal and the interest accrued thereon, to be due and payable immediately. As of June 30, 2023 and 2022 , 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 2058.

The original amount of revenue bonds and State Revolving Funds loan issued, total principal and interest remaining, principal and interest paid during fiscal years 2023 and 20 22, applicable net revenues and funds available for debt service are as follows:

Principal
Interest before
subsidy
Federal interest
subsidy *
Interest net
of subsidy
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 3,695 5,201 (1,716) 3,485
2028 3,852 4,961 (1,637) 3,324
2029-2033 21,834 20,808 (6,868) 13,940
2034-2038 26,918 12,940 (4,271) 8,669
2039-2042 25,986 3,460 (1,142) 2,318
Total 92,499 64,317 (21,226) 43,091
Less: Current portion (3,267)
Long-term portion as of June 30, 2023 $ 89,232
Certificates of Participation 2009 Series D (Taxable)
* The SFPUC received an IRS notice dated May 25, 2023 that the federal interest subsidy on the 2009 Series D bonds is reduced by 5.7%, or a total reduction of $1,283, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.

Fiscal years ending June 30:

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

52 (Continued)

(9) Leases
Water Enterprise as Lessee
The Enterprise has entered into long -term leases for land, office space, communication site, data processing, machinery, and other equipment. The terms and conditions for these leases vary, which range between 1 – 75 years.

A summary of intangible right -to-use leases during the year ended June 30, 202 3 and 202 2 is as follows:

2023 2022
Bonds issued with revenue pledge $ 4,882,130 4,891,480 Principal and interest remaining due at the end of the year 7,193,317 7,472,962 C
lean Water State Revolving Fund (CWSRF) loans with revenue pledge 163,627 121,761 Principal and interest paid during the year 307,062 279,352 Net revenues for the year ended June 30 372,689 306,918 Funds available for debt service 566,764 410,424
Balance Balance
July 1, 2022 Increases Decreases Remeasurements June 30, 2023 Right-to-use assets:

Land $ 605 - - - 605 Building/Facility 5,041 149 - 2,413 7,603 Total lease assets 5,646 149 - 2,413 8,208 Less accumulated amortization:

Right-to-use assets:

Land (383) (197) - - (580) Building/Facility (2,451) (1,234) - - (3,685) Total accumulated
amortization (2,834) (1,431) - - (4,265) Total lease assets, net $ 2,812 (1,282) - 2,413 3,943 Balance Balance
Jul
y 1, 2021 Increases Decreases Remeasurements June 30, 2022 Right-to-use assets:

Land $ 605 - - - 605 Building/Facility 5,041 - - - 5,041 Total lease assets 5,646 - - - 5,646 Less accumulated amortization:

Right-to-use assets:

Land (187) (196) - - (383) Building/Facility (1,222) (1,229) - - (2,451) Total accumulated
amortization (1,409) (1,425) - - (2,834) Total lease assets, net $ 4,237 (1,425) - - 2,812

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

53 (Continued)
A summary of changes in the related lease liabilities during the year ended June 30, 2023 and 2022 is as follows:

Future annual lease payments for fiscal years 2023 and 2022 are as follows:

Variable lease payments
Variable lease payments, other than those payments that depend on an index or rate or are fixed in substance, are excluded from the measurement of the lease liability. Such amounts are recognized as lease expenses in the period in which the obligation for those payments is incurred.

Balance Balance
July 1, 2022 Additions Rem easurements Deductions June 30, 2023 Water lease liabilities $ 2,863 149 2,413 (1,415) 4,010 1,189 Total $ 2,863 149 2,413 (1,415) 4,010 1,189 Amounts Due
Within One Year
Balance Balance
July 1, 2021 Additions Remeasurements Ded uctions June 30, 2022 Water lease liabilities $ 4,244 - - (1,381) 2,863 1,008 Total $ 4,244 - - (1,381) 2,863 1,008 Amounts Due
Within One Year
Year ending June 30:

Principal
amount
Interest
amount Total
2024 $ 1,189 81 1,270
2025 1,028 55 1,083
2026 546 32 578
2027 135 26 161
2028 122 23 145
2029-2033 416 86 502 2034-2038 445 39 484 2039-2043 129 3 132 4,010 345 4,355
Less: current portion (1,189)
Long-term portion as of June 30, 2023 $ 2,821
Year ending June 30:

Principal
amount
Interest
amount Total
2023 $ 1,008 42 1,050
2024 370 33 403
2025 186 29 215
2026 101 27 128
2027 103 25 128
2028-2032 436 96 532 2033-2037 446 49 495 2038-2042 213 6 219 2,863 307 3,170
Less: current portion (1,008)
Long-term portion as of June 30, 2022 $ 1,855

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

54 (Continued)
Certain equipment or facility rental leases require the Enterprise to make variable lease payments that based on usage, related to the property taxes levied on the lessor, and insurance payments made by the lessor; these amounts are generally determined annually. The amounts recognized as expense for variable lease payments not included in the measurement of the lease liability were $263 and $34 during the year ended June 30, 2023 and 2022, respectively.

Water Enterprise as Lessor
The Enterprise has leased facilities, easements, communication site and equipment to various tenants. The terms and conditions for these leases vary, which range between 1- 65 years.

Variable payments include percentage of sales, or payments depended on an index made by the lessee; these amounts are generally determined periodically. The Enterpri se did not incur revenue related to residual value guarantees or lease termination penalties. The total amounts for lease revenue, interest revenue, and other lease -related revenues recognized during the year ended June 30, 2023 and 2022 were $1,161 and $2,332, respectively.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

55 (Continued)
Principal and interest requirements to maturity for the lease receivable at June 30, 202 3 and 2022 are as follows:

Year ended
June 30 Prin cipal Interest Total
2024 3,521$ 869 4,390 2025 3,610 821 4,431 2026 3,046 756 3,802 2027 2,721 698 3,419 2028 2,423 645 3,068 2029-2033 10,951 2,571 13,522 2034-2038 9,941 1,477 11,418 2039-2043 828 914 1,742 2044-2048 - 1,027 1,027 2049-2053 - 1,191 1,191 2054-2058 117 1,263 1,380 2059-2063 832 768 1,600 2064-2068 1,208 647 1,855 2069-2073 1,676 475 2,151 2074+ 2,756 250 3,006 43,630$ 14,372 58,002 Year ended
June 30 Principal Interest Total
2023 3,325$ 907 4,232 2024 3,389 848 4,237 2025 3,470 804 4,274 2026 2,951 743 3,694 2027 2,619 687 3,306 2028-2032 10,827 2,777 13,604 2033-2037 10,736 1,691 12,427 2038-2042 2,258 940 3,198 2043-2047 - 998 998 2048-2052 - 1,157 1,157 2053-2057 - 1,341 1,341 2058-2062 765 789 1,554 2063-2067 1,128 675 1,803 2068-2072 1,577 513 2,090 2073+ 3,120 327 3,447 46,165$ 15,197 61,362

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

56 (Continued)
(10) Subscription-Based Information Technology Arrangements Water Enterprise as Subscriber
The Enterprise has noncancellable subscription arrangements (similar to a lease) for the right to use various information technology hardware and software (SBITAs). The terms and conditions for these subscriptions varies, which ranges between 1 – 5 years.

A summary of intangible right-to-use subscription IT assets during the year ended June 30, 2023 and 2022 are as follows:

A summary of changes in the related subscription liabilities during the year ended June 30, 2023 and 2022 is as follows:

Future annual subscription payments as of June 30, 2023 and 2022 are as follows:

Balance Balance
July 1, 2022 Increases Decreases Remeasurements June 30, 2023 Subscription assets $ 2,450 - - - 2,450 Less accumulated amortization: (873) (882) - - (1,755) Total subscription assets, net $ 1,577 (882) - - 695 Balance
June 30, 2022
July 1, 2021 Increases Decreases Remeasurements as restated * Subscription assets $ 2,344 106 - - 2,450 Less accumulated amortization: - (873) - - (873) Total subscription assets, net $ 2,344 (767) - - 1,577 * Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Balance Balance
July 1, 2022 Additions Remeasurements Deductions June 30, 2023 SBITA IT libabilities $ 1,556 - - (848) 708 400 Total $ 1,556 - - (848) 708 400 Amounts Due
Within One Year
Balance
Balance June 30, 2022
July 1, 2021 Add itions Remeasurements Deductions as restated* SBITA IT libabilities $ 2,344 - - (788) 1,556 848 Total $ 2,344 - - (788) 1,556 848 * Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Amounts Due
Within One Year
Year ending June 30:

Principal
amount
Interest
amount Total
2024 $ 400 8 408
2025 153 4 157
2026 155 2 157
708 14 722
Less: current portion (400)
Long-term portion as of June 30, 2023 $ 308

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

57 (Continued)

(11) 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 Customers). 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 most recently restated and amended in January 2023). 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 regional 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 allowed by Section 5.03 of the WSA. The WSA continues much of the rate setting, 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 Ar ticle V of the WSA (the Wholesale Revenue Requirement (WRR)). During fiscal years ending in 202 3 and 202 2, the WRR, net of adjustments, charged to such wholesale customers was $ 300,502 and $289,828, 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 base d 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 account (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 (if the WRR exceeds the wholesale revenues paid). In accordance with Year ending June 30:

Principal
amount
Interest
amount Total
2023 $ 848 14 862
2024 400 8 408
2025 153 4 157
2026 155 2 157
1,556 28 1,584
Less: current portion (848)
Long-term portion as of June 30, 2022 $ 708

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

58 (Continued)
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 the 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 Wholesale Customers owed the Enterprise $ 10,052 as of June 30, 2023. The Enterprise owed the Wholesale Customers $79,150 as of June 30, 2022. Refer to the compliance audit report for the final balancing account available at https://sfpuc.org/about-us/r eports/audited-financial-
statements-annual-financial-reports.
(12) Employee Benefits
(a) Pension Plan
The Enterprise participates in a cost-sharing multiple-employer defined benefit pension Plan (SFERS Plan). 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 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 94.87 % as of June 30, 2022 (measurement date) , and 94.64% as of June 30, 202 1 (measurement date) , 0.2 3% 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 2022 and 2021. The Enterprise’s net pension liability /(assets), 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 Valuation Date (VD) June 30, 2021 updated to June 30, 2022 Mea
surement Date (MD) June 30, 2022
Measurement Period (MP) July 1, 2021 to June 30, 2022
Valuation Date (VD) June 30, 2020 updated to June 30, 2021 Measurement Date (MD) June 30, 2021
Measurement Period (MP) July 1, 2020 to June 30, 2021
Fiscal Year 2023
Fiscal Year 2022

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

59 (Continued)
City’s proportionate share was 4.2 7% as of June 30, 20 22, and 4.2 7% as of June 30, 202 1 (measurement dates).

Replacement Benefits Plan – The Enterprise’s allocation percentage was determined based on the Enterprise’s total pension liabilities divided by the City’s total pension liabilities for fiscal year 202 2. The Enterprise’s total pension liability /(assets), 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 2.31 % as of June 30, 202 2, and 1.85 % as of June 30, 202 1 (measurement dates).

SFERS Plan Description – The 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 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 oblig ations of the Plan. The Retirement System issues a publicly 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 Employees’ Retirement System, 1145 Market Street, 5 th Floor, San
Francisco, CA 94103 or by calling (415) 487-7000.

SFERS Benefits – Retirement System provides service retirement, disability and death benefits based on specified percentages of defined final average monthly salary and annual cost of living adjustments after retirement. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plan. The Retirement System pays benefits acc ording 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, operational, 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 pre vents 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 changes in CPI with increases capped at 2%. The

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

60 (Continued)
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 basis. 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 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, 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 pe rmanent adjustments to retirement benefits. That is, in years when a Supplemental COLA is not paid, all previously paid Supplemental COLAs will expire.

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 202 3 and 2022. Most employee groups agreed through colle ctive 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, 20 21 actuarial report, the required employer contribution rate for fiscal year 202 3 was 17.85% to 21.35 %. Based on the July 1, 2020 actuarial report, the required employer contribution rate for fiscal year 202 2 was

19.91% to 24.41%
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, 20 22 and 2021 (measurement period) were $729,578 and $791,736, respectively. The Enterprise’s allocation of employer contributions for fiscal year 2022 and 2021 (measurement period) were $31,151 and $33,367, respectively.

Replacement Benefits Plan – The RBP is and will remain unfunde d 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 $4,472 replacement benefits in the year ended June 30, 2023.

Pension Liabilities/(Asset), Pension Expenses, and Deferred Outflows and Inflows of Resources Related to Pensions
Fiscal Year 2023
As of June 30, 202 3, the City reported net pension liability (NPL) for its proporti onate share of the net pension liability of the SFERS Plan and net pension liability of RBP of $2, 708,927. The City’s NPL/net pension asset s (NPA) for each of its cost -sharing plans is measured as a proportionate share of the plans’ net pension liability. The net pension liability of the SFERS Plan

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

61 (Continued)
is measured as of June 30, 2022 (measurement date), and the total pension liability for the SFERS Plan and RBP used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 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 3 (reporting year) was $111,743 . The Enterpr ise’s allocation of total pension liability for the RBP as of June 30, 2023 was $3,600.

For the year ended June 30, 2023, the City’s recognized pension expense was $1,771 including amortization of deferred outflow/inflow related pension items. The Enterpri se’s allocation of pension expense including amortization of deferred outflow/inflow related pension items was $6,225. Pension expense increased from the prior year, largely due to the amortization of deferrals
As of June 30, 202 3, the Enterprise reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

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 (benefit) as follows:

Fiscal Year 2022
As of June 30, 2022, the City reported net pension assets (NPA) for its proportionate share of the net pension (asset) of the SFERS Plan and net pension liability of RBP of $2,227 million. The City’s net pension asset for the SFERS Plan is measured as the proportionate share of the net pension asset. The net pension (asset) of the SFERS Plan is measured as of June 30, 2021 (measurement date), and the total pension asset for the SFERS Plan and RBP used to calculate the net pension (asset) was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension (asset) 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 Deferred Outflows
of Resources
Deferred Inflows
of Resources
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contribution subsequent to measurement date $ 27,925 — — — Differences between expected and actual experience 10,200 — 475 455 Changes in assumptions 29,035 8,713 579 778
Net difference between projected and actual earnings on pension plan investments
— 13,890 — —
Change in employer’s proportion 1,869 3,138 18 1,530 Total $ 69,029 25,741 1,072 2,763
SFERS Plan Replacement Benefits Plan
Fiscal Year 2023 Schedule of Deferred Outflows and Inflows of Resources Fiscal Years SFERS Plan
Replacement
Benefits Plan
2024 $ (5,899) (283)
2025 (8,602) (374)
2026 (17,636) (589)
2027 47,500 (445)
Total $ 15,363 (1,691)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

62 (Continued)
employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension (asset) for the SFERS Plan and RBP as of June 30, 2022 (reporting year) was ($100,407). The Enterprise’s allocation of total pension liability for the RBP as of June 30, 2022 was $4,056.

For the year ended Jun e 30, 2022, the City’s recognized pension (benefit) was ($922,979) including amortization of deferred outflow/inflow related pension items. The Enterprise’s allocation of pension (benefit) including amortization of deferred outflow/inflow related pension items was ($29,908). Pension (benefit) increased from the prior year, largely due to the amortization of deferrals
As of June 30, 2022, the Enterprise reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Actuarial Assumptions
Fiscal Year 2023
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, 2022 (measurement year) is provided below, including any assumptions that differ from those used in t he July 1, 2021 actuarial valuation. Refer to the July 1, 2021 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
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contribution subsequent to measurement date $ 31,151 — — — Differences between expected and actual experience 9,593 343 552 — Changes in assumptions 7,068 18,339 757 —
Net difference between projected and actual earnings on pension plan investments
— 226,935 — —
Change in employer’s proportion 3,531 1,706 200 1,381 Total $ 51,343 247,323 1,509 1,381
SFERS Plan Replacement Benefits Plan
Fiscal Year 2022 Schedule of Deferred Outflows and Inflows of Resources Fiscal Years
Replacement
Benefits Plan
2023 $ (57,166) 247
2024 (51,954) 52
2025 (54,608) 1
2026 (63,403) (172)
Total $ (227,131) 128
Deferred
Outflows/(Inflows)

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

63 (Continued)

Mortality rates for health Miscellaneous members were based upon adjusted PubG- 2010 Employee and Retiree tables for non- annuitants and retirees, respectively. Mortality rates were then projected generationally from the base year using the MP-2019 projection scale.

The actuarial assumptions used at the June 30, 2022 measurement date was based upon the result of a demographic experience study for the period July 1, 2014 through June 30, 2019 and an economic experience study as of July 1, 2021.

Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability/(Assets) for both SFERS Plan and RBP as of June 30, 2021 (measurement year) is provided below, including any assumptions that differ from those used in the July 1, 2020 actuarial valuation. Refer to the July 1, 2020 actuarial valuation report for a complete Key Actuarial Assumptions
Valuation Date June 30, 2021 updated to June 30, 2022
Measurement Date June 30, 2022
Actuarial Cost Method Entry-Age Normal Cost
Expected Rate of Return 7.20% net of investment expenses Municipal Bond Yield 2.16% as of June 30, 2021

3.54% as of June 30, 2022
Bond Buyer 20-Bond GO Index, June 24, 2021 and June 30, 2022 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 7.40% as of June 30, 2021

7.20% as of June 30, 2022
Administrative Expenses 0.60% of payroll as of June 30, 2021

0.60% of payroll as of June 30, 2022
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, 2021 2.00% 1.90% 2.50% 3.60%
June 30, 2022 2.00% 1.90% 2.50% 3.60%
Key Actuarial Assumptions
Valuation Date June 30, 2021 updated to June 30, 2022
Measurement Date June 30, 2022
Actuarial Cost Method Entry-Age Normal Cost
Municipal Bond Yield 3.54% as of June 30, 2022
Bond Buyer 20-Bond GO Index, June 24, 2021 and June 30, 2022 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 3.54% as of June 30, 2022
Administrative Expenses 0.60% of payroll as of June 30, 2022 Basic COLA Old Miscellaneous Old Police & Fire
Old Police & Fire,
Charters
Old Police & Fire,
Charters
June 30, 2021 2.00% 1.90% 2.50% 3.60%
June 30, 2022 2.00% 1.90% 2.50% 3.60%
SFERS Plan
Replacement Benefits Plan

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

64 (Continued)
description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.

Mortality rates for health Miscellaneous members were based upon adjusted PubG -2010 Employee and Retiree tables for non- annuitants and retirees, respectively. Mortality rates were then projected generationally from the base year using the MP-2019 projection scale.

The actuarial assumptions used at the June 30, 2021 measurement date was based upon the result of a demographic experience study for the period July 1, 2014 through June 30, 2019 and an economic experience study as of July 1, 2020.

Key Actuarial Assumptions
Valuation Date Jun e 30, 2020 updated to June 30, 2021
Measurement Date June 30, 2021
Actuarial Cost Method Entry - Age Normal Cost
Expected Rate of Return 7.40% net of investment expenses Municipal Bond Yield 2.21% as of June 30, 2020

2.16% as of June 30, 2021
Bond Buyer 20-Bond GO Index, June 25, 2020 and June 24, 2021 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 7.40% as of June 30, 2020

7.40% as of June 30, 2021
Administrative Expenses 0.60% of payroll as of June 30, 2020

0.60% of payroll as of June 30, 2021
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, 2020 2.00% 2.50% 3.10% 4. 20%
June 30, 2021 2.00% 1.90% 2.50% 3.60%
Key Actuarial Assumptions
Valuation Date June 30, 2020 updated to June 30, 2021
Measurement Date June 30, 2021
Actuarial Cost Method Entry-Age Normal Cost
Municipal Bond Yield 2.16% as of June 30, 2021
Bond Buyer 20-Bond GO Index, June 25, 2020 and June 24, 2021 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 2.16% as of June 30, 2021
Administrative Expenses 0.60% of payroll as of June 30, 2021 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%
June 30, 2021 2.00% 1.90% 2.50% 3.60%
SFERS Plan
Replacement Benefits Plan

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

65 (Continued)
Discount Rate
Fiscal Year 2023
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 7.20% as of June 30, 2022 (measurement date) and 7.40% June 30, 2021 (measurement date).

The discount rate used to measure the Total Pension Liability as of June 30, 2022 was 7.20%.

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, 2021 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 period commencing July 1, 2014. Experience gains and losses and assumption or method changes on or aft er 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 3.25% 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.

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 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 a ctuarial 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 COL A depends on the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2022 for the probability and amount of Supplemental COLA for each future year. A full Supplemental COLA will be paid to all retir ed members, and their beneficiaries, who were retired effective July 1, 2022. The table below shows the net assumed Supplemental COLA for members with a

2.00% Basic COLA for sample years.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

66 (Continued)

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.

Projected benefit payments are discounted at the long- term expected return on assets of 7.20% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 3.54% to the extent they are not a vailable. The single equivalent rate used to determine the Total Pension Liability as of June 30, 2022 is 7.20%.

The long-term expected rate of return on pension plan investments was 7.20%. It was set by the Retirement Board after consideration of both exp ected 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 o f 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 discount rates. The discount rate was 3.54% as of June 30, 2022. 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 24, 2021 and June 30, 2022. These are the rates used to determine the total pension liability as of June 30, 2022.

The inflation assumption of 2.50% compounded annually was used for projecting the annual IRC Section 415(b) limitations. The actual IRC Section 415(b) limitations published by the IRS of $245 for was used for the 2022 measurement date.

Fiscal Years
2024 0.75 % 0.70 %
2025 0.75 0.60
2026 0.75 0.60
2027+ 0.75 0.50
Before 11/6/96 or
After Prop C96 - Prop C
Assumed Supplemental COLA for Members with a 2.00% Basic COLA Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 37.0 % 4.8 %
Private Equity 23.0 7.9
Private Credit 10.0 5.8
Real Assets 10.0 4.7
Hedge Funds/Absolute Return 10.0 3.4
Treasuries 8.0 0.6
Liquid Credit 5.0 3.5
Leverage -3.0 0.6
Total 100.0
Long- Term Expected Real Rates of Return

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

67 (Continued)
The SFERS assumptions about Basic and Supplemental COLA previously discussed al so 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, 202 3, City’s membership in the RBP had a total of 3 27 active members and 160 retirees and beneficiaries currently receiving benefits. The Enterprise has 7 active members and 6 retirees and beneficiary currently receiving benefits.

Fiscal Year 2022
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 June 30, 2021 (measurement date) and June 30, 2020 (measurement date).

The discount rate used to measure the Total Pension Liability as of June 30, 2021 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 Char ter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2020 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 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 3.25% 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.

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 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 amount d epends 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.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

68 (Continued)
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, 2021 for the probability and amount of Supplemental COLA for each future year. A full Supplemental COLA will be paid to all retired members, and their beneficiaries, who were retired effective July 1, 2021. 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.

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 2.16% to the extent they are not available. The single equivalent rate used to determine the Total Pension Liability as of June 30, 2021 is 7.40%.

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 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 combin ed 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 Years
2023 0.75 % 0.70 %
2025 0.75 0.70
2027 0.75 0.60
2029 0.75 0.60
2031 0.75 0.60
2033+ 0.75 0.50
Before 11/6/96 or
After Prop C96 - Prop C
Assumed Supplemental COLA for Members with a 2.00% Basic COLA Asset Class Target Allocation Long -Term Expected Real Rate of Return Global Equity 37.0 % 4.2 %
Pr
ivate Equity 23.0 7.9
Private Credit 10.0 5.1
Real Assets 10.0 5.1
Hedge Funds/Absolute Return 10.0 2.9
Treasuries 8.0 0.0
Liquid Credit 5.0 2.3
Leverage -3.0 0.1
Total 100.0
Long- Term Expected Real Rates of Return

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

69 (Continued)
Replacement Benefits Plan – The beginning and end of year measurements are based on different assumptions that result in different discount rates. The discount rate was 2.16% as of June 30, 2021. 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 25, 2020 and June 24, 2021. These are the rates used to determine the total pension liability as of June 30, 2021.

The inflation assumption of 2.50% 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 2021 was used for the 2021 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, 2022, City’s membership in the RBP had a total of 350 active members and 135 retirees and beneficiaries currently receiving benefits. The Enterprise has 9 active members and 3 retirees and beneficiary currently receiving benefits.

Sensitivity of Proportionate Share of the Net Pension Liability (NPL)/Net Pension Assets (NPA) to Changes in the Discount Rate – The following presents the Enterprise’s allocation of the employer’s proportionate share of the net pension liability/( asset) 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/( asset) would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate.

Fiscal Year 2023

Fiscal Year 2022

The 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 calculated using a discount rate that is 1% lower or 1% higher than the current rate.

Fiscal Year 2023

Fiscal Year 2022

Employer
1% Decrease Share
of NPL @ 6.20%
Share of NPL
@ 7.20%
1% Increase Share
of NPA @ 8.20%
Water 305,993$ 111,743 (48,394) Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPA
@ 7.40%
1% Increase Share
of NPA @ 8.40%
Water 69,621$ (104, 463) (248,184) Employer 1% Decrease @ 2.54%
Measurment
Date @ 3.54% 1% Increase @ 4.54%
Water 4,270$ 3,600 3,072 Employer 1% Decrease @ 1.16%
Measurment
Date @ 2.16% 1% Increase @ 3.16%
Water 4,889$ 4,056 3,411

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

70 (Continued)
(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 resul ts 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, 2022 and June 30, 2021. The Enterprise’s net OPEB liability, deferred outflows/inflows of resources related to OPEB, amortization 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, 20 22 and 20 21 measurement dates were 3.97 % and

3.90%, 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:

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 under Charter Section 8.603. 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.

Valuation Date (VD) June 30 2022
Mea
surement Date (MD) June 30, 2022
Measurement Period (MP) July 1, 2021 to June 30, 2022
Valuation Date (VD) June 30 2020, updated to June 30, 2021 Measurement Date (MD) June 30, 2021
Measurement Period (MP) July 1, 2020 to June 30, 2021
San Francisco Health Service System Retiree Plan - Single-Employer Fiscal year 2023
Fiscal year 2022

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

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

Medical: PPO – Blue Shield (self-insured) and UHC Medicare Advantage (fully - insured)
HMO – Kaiser (fully- insured) and Blue Shield (flex -funded) and Health Net (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, 2023 and 2022, funding was based on “pay-as-you-go” plus a contribution of $ 45,241 and $41,841 to the Retiree Healthcare Trust Fund , respectively. The “pay-as-you-go” portion paid by the City was $ 215,408 for a total contribution of $ 260,649 for the fiscal year ending June 30, 2023, and $211,025 for a total contribution of $252,866 for the fiscal year ending June 30, 2022. The Enterprise’s proportionate share of the City’s contributions for fiscal year 20 23 was $10,339, and for fiscal year 20 22 was $9,873, and will be recognized as a reduction of the net OPEB liability in the subsequent fiscal period.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

72 (Continued)
OPEB liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB Fiscal Year 2023
As of June 30, 20 23, the City reported net OPEB liabilities related to the Plan of $3 ,746,270.

The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 20 23 was $148,601.

For the year ended June 30, 20 23, the City’s recognized OPEB expense was $256,974 .

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 $20,381.

As of June 30, 20 23, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

Fiscal Year 2022
As of June 30, 2022, the City reported net OPEB liabilities related to the Plan of $3,691,122.

The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2022 was $144,115.

For the year ended June 30, 2022, the City’s recognized OPEB expense was $272,001.

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 $14,566.

Deferred
Outflows of
Re s
ources
Deferred
Inflows of
Re s
ources
Contributions subsequent to measurement date 10,339$ -$ Differences between expected and actual experience 3,299 24,740 Changes in assumptions 6,344 -
Net difference between projected and actual earnings
on plan investments
2,392 -
Change in Proportion 6,242 2,335
Total 28,616$ 27,075$
Year ended June 30:
2024 (2,253)$
2025 (2,213)
2026 (720)
2027 (1,132)
Thereafter (2,480)
Total (8,798)$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

73 (Continued)
As of June 30, 2022, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:

Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 9,873$ -$ Differences between expected and actual experience 4,330 22,191 Changes in assumptions 6,091 -
Net difference between projected and actual earnings
on plan investments
- 2,728
Change in Proportion 12,151 429
Total 32,445$ 25,348$
Year ended June 30:
2023 (313)$
2024 (324)
2025 (286)
2026 (263)
2027 (669)
Thereafter (921)
Total (2,776)$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

74 (Continued)
Actuarial Assumptions
Fiscal Year 2023
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2022 (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.

Valuation Date June 30, 2022
Measurement Date June 30, 2022
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 7.74% trending down to ultimate rate of 3.93% in 2076 Medicare trend starts at 7.74% trending down to ultimate rate of 3.94% in 2076 10-County average trend starts at 5.00% trending down to ultimate rate of 3.94% in 2076 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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

75 (Continued)
Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2021 (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.

Valuation Date June 30, 2020, updated to June 30, 2021
Measurement Date June 30, 2021
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 6.74% trending down to ultimate rate of 4.04% in 2075 Medicare trend starts at 7.24% trending down to ultimate rate of 4.04% in 2075 10-County average trend starts at 5.50% 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):

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

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

76 (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 2023
The discount rate used to measure the Total OPEB Liability as of June 30, 2022 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 wa s 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:

Fiscal Year 2023
Employer -1.00% Healthcare Trend 1.00%
Water 127,125$ 148,601$ 175,238$ Fiscal Year 2022
Employer -1.00% Healthcare Trend 1.00%
Water 122,667$ 144,115$ 170,851$ Target Allocation
Long-term
Expected Real
Rate of Return
Equities
U.S. Large Cap 28.0% 6.8%
U.S. Small Cap 3.0% 7.4%
Developed Market Equity (non-U.S.) 15.0% 7.5%
Emerging Market Equity 13.0% 8.4%
Credit
Bank Loans 3.0% 4.0%
High Yield Bonds 3.0% 4.4%
Emerging Market Bonds 3.0% 4.2%
Rate Securities
Investment Grade Bonds 9.0% 2.4%
Long-term Government Bonds 4.0% 2.8%
Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.9% Private Markets
Private Equity 5.0% 10.0%
Core Private Real Estate 5.0% 6.1%
Risk Mitigating Strategies
Global Macro 5.0% 5.0%
Total 100.0%
Asset Class

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

77 (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 calcul ated using a discount rate that is 1% lower or 1% higher than the current rate:

Fiscal Year 2022
The discount rate used to measure the Total OPEB Liability as of June 30, 2021 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.

1% Decrease

6.00%
Discount Rate

7.00%
1% I
ncrease

8.00%
173,000$ 148,601$ 128, 583$ Target Allocation
Long-term
Expected Real
Rate of Return
Equities
U.S. Large Cap 28.0% 8.2%
U.S. Small Cap 3.0% 9.5%
Developed Market Equity (non-U.S.) 15.0% 8.9%
Emerging Market Equity 13.0% 11.0%
Credit
Bank Loans 3.0% 4.4%
High Yield Bonds 3.0% 4.4%
Emerging Market Bonds 3.0% 4.3%
Rate Securities
Investment Grade Bonds 9.0% 1.9%
Long-term Government Bonds 4.0% 3.2%
Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.5% Private Markets
Private Equity 5.0% 13.0%
Core Private Real Estate 5.0% 6.2%
Risk Mitigating Strategies
Global Macro 5.0% 4.4%
Total 100.0%
Asset Class

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

78 (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:

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.
(13) 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 of $55,121 or 48.2% and $52,769 or 49.2% were allocated to the Enterprise for the years ended June 30, 2023 and 2022, 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 $ 49,636 and $45,815 for the year s ended June 30, 20 23 and 2022 , 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 $11,398 and $11,394 for the years ended Ju ne 30, 20 23 and 2022 , 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 $ 1,552 and $1,819 for the years ended June 30, 2023 and 2022, 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 fisc al years 202 3 and 2022 , the Enterprise delivered water for fire hydrant purposes totaling $ 9 and $8, respectively, based on metered usage and applicable water rates, and the amount has been excluded from operating 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 $ 18,690 and $15,951 for the years ended June 30, 2023 and 2022, respectively, have been included in services provided by other departments in the accompanying financial statements.
1% Decrease

6.00%
Discount Rate

7.00%
1% Increase

8.00%
168,520$ 144,115$ 124,181$

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

79 (Continued)
During the fiscal year ended June 30, 2023 , the Enterprise transferred $20,000 to Hetch Hetchy Water to fund various Mountain Tunnel Improvement projects, and $32 to the Office of the City Administrator for the Enterprise’s contribution to the Surety Bond Program . The Enterprise received $5 from the General Fund for Mayor’s Office instructions relating to the minimum compensation ordinance.

As of June 30, 20 23, the Enterprise had interfund receivables of $115 from DPW relating to custom work projects . As of June 30, 2022, the Enterprise had interfund receivables of $102 from DPW relating to custom work projects and $69 from Academy of Sciences for unpaid interdepartmental services.

The Enterprise had receivables due from the Treasure Island Development Authority for capacity fees of $195 as of June 30, 2022, and from the Office of Community Investment and Infrastructure for custom work projects of $0 and $7 for the years ended June 30, 2023 and 2022, respectively.

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, 2023 , the Enterprise’s allocable shares of expenses and prepayment were $4 5 and $3, 220, respectively; and as of June 30, 202 2, the Enterprise’s allocable shares of expenses and prepayment were $44 and $3,265, respectively.

The Enterprise had a $2,440 payable to San Francisco Municipal Transportation Agency for a settlement payable relating to the Van Ness Corridor Transit Improvement project as of June 30, 2023.
(14) 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. 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 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 req uired by debt financing covenants, the Enterprise obtains commercial insurance. At least annually, the City 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 WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

80 (Continued)

(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 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 antici pated claim payments and the projected timing of disbursement.

The changes for the general liability (damage claims) for the years ended June 30, 20 23 and 2022 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 experience; 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 implement improved programs, 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.

The changes in the liabilities for workers’ compensation for the years ended June 30, 2023 and 2022 are as follows:

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
Risk
Beginning Claims paid and End of
of year Claims changes in estimates year
$ 36,069 1,898 (18,342) 19,625 36,723 452 (1,106) 36,069 Fiscal years
2022
2023
Beginning Claims and changes Claims End of
of year in estimates paid year
$ 8,973 3,984 (3,222) 9,735
8,828 2,793 (2,648) 8,973
Fiscal years
2022
2023

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

81 (Continued)
(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 contr actor to provide its own insurance, while 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 st atutory requirements for bonding of various 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.
(j) Errors and Omissions
Errors and omissions, also known as Professional Liability, are commonly transferred through contract to the contracted profes sional, 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.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

82 (Continued)
(k) Builders’ Risk
Builders’ risk policies of insurance are required to be provided by the contractor on all construction projects for the full value of construction. (15) Commitments and Litigation
(a) Commitments
As of June 30, 2023 and 2022, the Enterprise has outstanding commitments with third parties of $ 220,706 and $322,132 , 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. (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 those 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 23 and 202 2, the pollution remediation liability o f $1,271 is related to the Pacific Rod & Gun Club site.

SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

83 (16) Subsequent Events
(a) Water Revenue Bonds, Series 2023 AB Issuance
On July 27, 2023, the SFPUC issued its San Francisco Water Revenue Bonds, 2023 Sub-Series A (Regional and Local Water, Tax-exempt) and Sub-Series B (Hetch Hetchy Water, Tax-exempt) in the aggregate principal amount of $414,035 to (i) refund principal and interest on Commercial Paper Notes issued to finance and refinance a portion of the design, acquisition and construction of various capital projects of benefit to the SFPUC’s Water Enterprise, (ii) finance and refinance a portion of the design, acquisition and construction of various capital projects of benefit to the SFPUC’s Water Enterprise, and (iii) fund capitalized interest through May 1, 2025 and other financing costs.
(b) Water Revenue Bonds, Series 2023 CD Issuance
On August 10, 2023, the SFPUC is sued its San Francisco Water Revenue Bonds, 2023 Sub - Series C (Tax -exempt Refunding – WSIP, Green Bonds), and Sub- Series D (Tax -exempt Refunding –Local Water) an aggregate principal amount of $514,855 to refund all or a portion of various series of the SFPUC’s Outstanding Bonds.
(c) Water Enterprise Commercial Paper Program
On July 10, 2023, the SFPUC entered into new commercial paper dealer agreements with BofA Securities, Inc., J.P. Morgan Securities LLC and Wells Fargo Bank, National Association for the offering and sale, and remarketing from time to time of water commercial paper program notes.

www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA94596
84 Independent Auditor’s 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
Honorable Mayor and the 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 contai ned in Government Auditing Standards issued by the Comptroller General of the United States ( Government Auditing Standards ), the financial statements of the San Francisco Water Enterprise (the Enterpris e), an enterprise fund of the City and County of San Francisco (City), as of and for the year ended Ju ne 30, 2023, and the related notes to the financial statements, and have issued our report thereon dated December 26, 2023.

Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statement s, 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 effectivene ss 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 correct, misstatements on a timely basis. A material weakness is a defic iency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility t hat a material misstatement of the entity’s financial statements will not be prevented, or detected and cor rected, 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 c ontrol was for the limited purpo se described in the first paragraph of this section and was not designed to i dentify 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 or significant deficiencies may exist that were not identified.

Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal 85 control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. A ccordingly, this communication is not suitable for any other purpose.

Walnut Creek, California
December 26, 2023

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14 SAN FRANCISCO WASTEWATER ENTERPRISE
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 4
Basic Financial Statements:

Statements of Net Position 20
Statements of Revenues, Expenses, and Changes in Net Position 22 Statements of Cash Flows 23
Notes to Financial Statements 25
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 81

www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA94596
1 Independent Auditor’s Report
Honorable Mayor and the Board of Supervisors
City and County of San Francisco, California
Opinion
We have audited the financial statements of the San Francisco Wastewater Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco (City), as of and for the year ended June 30, 2023, and the related notes to the financial statements, as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Enterprise as of June 3 0, 2023, and the changes in financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial aud its contained in Government Auditing Standards issued by the Comptroller General of the United States ( Government Auditing Standards).

Emphasis of Matters
As discussed in Note 1, the financial statements present only the Enterprise and do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2023 and 2022, the changes in its financial position, or, where applicable, its cash flows for th e years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

As discussed in Note 2 to the financial statements, effective J uly 1, 2021, the Enterprise adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription- Based Information Technology Arrangements. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements The Enterprise’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.
2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in acc ordance with GAAS and Government Auditing Standards will always detect a material m isstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence t he judgment made by a reasonab le user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
 Exercise professional judgment and maintain professional skept icism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 Obtain an understanding of internal control relevant to the au dit in order to design audit procedures that are appropriate in the circ umstances, but not for the purp ose of expressing an opinion on the effectiveness of the Enterprise’s internal control. Accordingly, no such opinion is expressed.  Evaluate the appropriateness of accounting policies used and t he reasonableness of significant accounting estimates made by management, as well as evaluate th e overall presentation of the financial statements.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, as list ed in the table of contents, be presented to supplement the financial statements. Such information is the responsibility of management and, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the fin ancial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the info rmation for consistency with management’s responses to our inquiries, the financial statemen ts, and other knowledge we obtained during our audit of the 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 December 26, 2023 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 i
nternal 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 3 compliance. That report is an integral part of an audit perform ed in accordance with Government Auditing Standards in considering the Enterprise's internal control over financia l reporting and compliance.

Walnut Creek, California
December 26, 2023

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)
4 (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 23 and 20 22.

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
• 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 1,131 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 Fran cisco Bay and Pacific 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 Enterprise recovers costs of service through user fees based on the volume and strength of sanitary flow . As of June 30, 2023, the Enterprise serves 148,598 residential accounts, which discharge about 15.4 million units of sanitary flow pe r year (measured in hundreds of cubic feet, or ccf) and 27,082 non-residential accounts, which discharge about 5.6 million ccf per year. These reflected an increase of 0.3 million discharge units in non-residential accounts due to an increase of 292 accounts and a decrease of 0.3 million discharge units in residential accounts compared to prior year.

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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

5 (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 Enterpris e’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 through 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 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 equivalent s 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.

Financial Analysis

Financial Highlights for Fiscal Year 2023
• Total assets of the Enterprise exceeded total liabilities by $1,385,856. • Net position increased by $36,167 or 2.7% during the year. • Capital assets, net of accumulated depreciation and amortization, increased by $ 638,201 or

15.8% to $4,684,652.
• Operating revenues decreased by $4,946 or 1.3% to $363,936. • Operating expenses increased by $4,192 or 1.6% to $261,350.

Financial Highlights for Fiscal Year 2022
• Total assets of the Enterprise exceeded total liabilities by $1,447,677. • Net position increased by $60,119 or 4.6% during the year. • Capital assets, net of accumulated depreciation and amortization, increased by $439,601 or

12.2% to $4,046,451.
• Operating revenues increased by $41,217 or 12.6% to $368,882. • Operating expenses decreased by $35,015 or 12.0% to $257,158.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

6 (Continued)

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

Net Position, Fiscal Year 2023
For the year ended June 30, 2023, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $1,398,834. The Enterprise’s total net position increased by $36,167 or 2.7% as a result of increases of $142,505 in net investment in capital assets and $58,970 in 2023
Restated
2022* 2021
2023-2022
Change
2022-2021
Change
Total assets:

Current and other assets $ 576,140 629,325 360,711 (53,185) 268,614 Capital assets, net of accumulated depreciation and amortization 4,684,652 4,046,451 3,606,850 638,201 439,601 Total assets 5,260,792 4,675,776 3,967,561 585,016 708,215 Deferred outflows of resources:

Unamortized loss on refunding of debt 8 33 91 (25) (58) Pensions 32,592 25,369 30,219 7,223 (4,850) Other post-employment benefits 11,493 12,898 15,109 (1,405) (2,211) Total deferred outflows of resources 44,093 38,300 45,419 5,793 (7,119) Liabilities:

Current liabilities:

Revenue bonds 28,070 34,345 22,880 (6,275) 11,465 Certificates of participation 864 830 785 34 45 Commercial paper — 379,157 638,518 (379,157) (259,361) State revolving fund loans 2,526 2,481 2,483 45 (2) Other liabilities 200,992 165,662 149,357 35,330 16,305 Subtotal current liabilities 232,452 582,475 814,023 (350,023) (231,548) Long-term liabilities:

Arbitrage rebate payable 188 — — 188 — Revenue bonds 2,708,840 1,896,908 1,567,042 811,932 329,866 Revenue notes 349,556 350,356 — (800) 350,356 Certificates of participation 23,594 24,458 25,302 (864) (844) State revolving fund loans 316,163 300,178 106,076 15,985 194,102 Water Infrastructure Finance and Innovation Act (WIFIA) loans 122,357 — — 122,357 — Other liabilities 121,786 73,724 188,576 48,062 (114,852) Subtotal long-term liabilities 3,642,484 2,645,624 1,886,996 996,860 758,628 Total liabilities:

Arbitrage rebate payable 188 — — 188 — Revenue bonds 2,736,910 1,931,253 1,589,922 805,657 341,331 Revenue notes 349,556 350,356 — (800) 350,356 Certificates of participation 24,458 25,288 26,087 (830) (799) Commercial paper — 379,157 638,518 (379,157) (259,361) State revolving fund loans 318,689 302,659 108,559 16,030 194,100 Water Infrastructure Finance and Innovation Act (WIFIA) loans 122,357 — — 122,357 — Other liabilities 322,778 239,386 337,933 83,392 (98,547) Total liabilities 3,874,936 3,228,099 2,701,019 646,837 527,080 Deferred inflows of resources:

Unamortized gain on refunding of debt 11,353 — — 11,353 — Leases 1,453 — — 1,453 — Related to pensions 10,023 114,670 2,148 (104,647) 112,522 Other post-employment benefits 8,286 8,640 7,265 (354) 1,375 Total deferred inflows of resources 31,115 123,310 9,413 (92,195) 113,897 Net position:

Net investment in capital assets 1,235,215 1,092,710 1,253,789 142,505 (161,079) Restricted for debt service 3,510 5,391 2,992 (1,881) 2,399 Restricted for capital projects — 114,657 — (114,657) 114,657 Restricted for other purposes — 48,770 — (48,770) 48,770 Unrestricted 160,109 101,139 45,767 58,970 55,372 Total net position $ 1,398,834 1,362,667 1,302,548 36,167 60,119 *Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) Table 1
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

7 (Continued)

unrestricted net position offset by decrease s of $114,657 in restricted for capital projects , $48,770 in restricted for other purposes, and $1,881 in restricted for debt service (see Table 1).

During the fiscal year 2023, current and other assets decreased by $53,185 or 8.5%. The decrease was mainly due to $188,853 in receivables from the State Water Resources Control Board (SWRCB) attributed to $207,364 cash receipts from reimbursement requests relating to the Southeast Water Pollution Control Plant (SEP) Biosolids Digester Project, the Southeast Water Pollution Co ntrol Plant New Headworks (Grit) Replacement Project, and the Oceanside Plant (OSP) Digester Gas Ut ilization Upgrade Project , offset by $18,511 aggregate new reimbursement requests for the SEP New Headworks (Grit) Replacement and OSP Digester Gas Utilization Upgrade projects. Other decreases included $48,770 in restricted net pension asset based on actuarial report, $2,325 in lease assets due to amortization, $1,014 due from the Treasure Island Development Authority (TIDA) for capacity fees, $535 in subscription asset due to implementation of GASB 96 Subscriptions-Based Information Technology Arrangements (SBITAs), $241 in capacity charges net of allowance for doubtful accounts as more collection than billings in current year, $228 in receivables for charges for services due to $5,787 increase in allowance for doubtful accounts attributed to increased sewer charges receivable aged over 120 days old offset by $5,559 increase in charges for services due to higher billings, $96 decrease in interfund receivable due to $105 collection of prior year balance from the Academy of Sciences, offset by $9 receivable from the Department of Public Works (DPW) for the Mission Bay South Project, $28 decrease in Federal interest subsidy receivable, $25 decrease in State grant receivable due to receipt of reimbursement for the Baker Beach project, and $7 decrease in custom work receivable. These decreases in current and other assets were offset by increases of $184,889 in restricted and unrestricted cash and investments largely from the issuance proceeds of 2023 Series ABC revenue bonds, $1,682 in interest receivable due to higher interest earnings , $1,457 in lease receivable due to additional GASB 87 leases, $ 495 increase in prepaid charges due to $1,004 prepaid expenses in the current year such as property rental, software license, an d membership fees offset by $471 prior year prepaid expenses recognized in current year and $38 lease prepaymen ts amortizations for the Civic Center Garage and the Mariposa Pump Station & Force , $382 in inventory as there were more purchases than issuances during the year, $27 in property rent receivable, and $5 in other receivable.

Capital assets, net of accumulated depreciation and amortization , increased by $638,201 or 1 5.8% reflecting an increase in construction and capital improvement activities . The largest portion of the Enterprise’s net position of $1,235,215 or 88.3%, represents net investment in capital assets (see Capital Assets section of the MDA for more information). Deferred outflows of resources increased by $5,793 mainly due to $7,223 increase in pensions based on actuarial report offset by $1,405 decrease in other post-employment benefits based on actuarial report, and $25 amortization of the 2013 Series A bonds loss on refunding.

Total liabilities increased by $646,837 or 20.0%. As of June 30 , 202 3, total outstanding balance of $3,551,970 for revenue bonds, revenue notes, certificates of participation (COP), State Revolving Fund (SRF) loans, and Water Infrastructure Finance and Innovation Act (WIFIA) loans represented 91.7% of total liabilities, an increase of $563,257 or 18.8%. The increase was mainly due to issuance of 2023 Series ABC and 2022 Series B revenue bonds with an aggregate par value of $974,380 and $137,080, an aggregate premiums of $161,622 and $16,852 from the 2023 Series ABC and 2022 Series B, respectively, to refund principal amount of and interest on commercial paper and portion of certain outstanding revenue bonds and to finance certain capital projects, $177,564 from issuance of commercial paper, $122,357 new WIFIA loan to fund for the Biosolids Digester Facilities Project, and $18,511 additional SRF loans to fund for the SEP New Headworks (Grit) Replacement and OSP Digester Gas Utilization Upgrade projects . These increases were offset by $ 556,721 refunding of commercial paper, $419,505 refunded principal for

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

8 (Continued)

revenue bonds series 2013AB and 2018C, debt principal repayments of $34,345 in bonds, $2,481 in SRF, and $826 in COP, $15,494 refunded premium for revenue bonds series 2013AB, and $15,737 in premium amortization. Other liabilities of $322,966, including arbitrage rebate payable, such as payables to vendors, contractors, and other government agencies for goods and services under contractual agreements, increased by $83,580 or 34.9% due to increases of $49,549 in net pension liability based on actuarial report, $33,539 in restricted and unrestricted payable to vendors and contractors due to increased vouchers, $6,450 in bond, loan, lease , and subscription interest payable mainly due to higher outstanding debt principal resulting from new debts relating to the issuance of revenue bonds 2023 Series ABC and 2022 Series B bonds, and new WIFIA loan, $2,442 in employee related benefits including vacation, workers’ compensation, and accrued payroll mainly due to actuarial estimates , and 5.25% increase cost of living adjustment (COLA) , $2,102 in payable to Municipal Transportation Agency (MTA), and $320 in unearned revenues mainly due to $ 402 in customer credit balances due to overpayments offset by decreases of $8 0 in deposits from Pacific Gas & Electric due to expenses incurred fo r the Cross Bore Project and $2 in liens payable, and $188 in arbitrage rebate payable . The increase in other liabilities was offset by decreases of $7,695 in damage claims liability due to actuarial estimates, $2,341 in lease liability due to lease payment, $515 in subscription liability due to implementation of GASB 96 Subscription-Based Information Technology Arrangements (SBITAs), $260 in pollution remediation obligation, $111 in payable to Hetch Hetchy Power related to the 525 Golden Gate Living Machine System , and $88 in other post - employment benefits obligations based on actuarial report . Deferred inflows of resources decreased by $92,195 mainly due to decreases in pensions and other post-employment benefits by $104,647 and $354, respectively, based on actuarial report, offset by increases in unamortized gain on refunding of debt and leases by $11,353 and $1,453, respectively.

Net Position, Fiscal Year 2022
For the year ended June 30, 202 2, the Enterprise’s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $1,362,667. The Enterprise’s total net position increased by $60,119 or 4.6% as a result of increases of $114,657 in restricted for capital projects , $55,372 in unrestricted net position , $48,770 in restricted for other purposes, and $2,399 in restricted for debt service offset by a decrease of $161,079 in net investment in capital assets (see Table 1).

During the fiscal year 202 2, current and other assets increased by $268,614 or 74.5%. The increase was mainly due to $182,040 in receivables from the State Water Resources Control Board (SWRCB) attributed to $202,795 aggregate new SRF reimbursement requests consisting of $132,000 for the Southeast Water Pollution Control Plant (SEP) Biosolids Digester Project, $ 64,678 for the SEP New Headworks (Grit) Replacement Project, and $6,117 for the Oceansi de Plant (OSP) Digester Gas Utilization Upgrade Project , offset by $20,755 cash receipts from prior year receivables relating to the OSP Digester Gas Utilization Upgrade Project , an increase of $48,770 in restricted net pension asset based on actuarial report and $32,650 increase in restricted and unrestricted cash and investments mainly from the issuance proceeds of tax-exempt 2021 Series AB (Green) revenue notes and 2021 Series A B revenue bonds. Other increases included $7,241 in receivables for charges for services mainly due to increased billings of $6,143, $1,098 decrease in allowance for doubtful accounts due to utility arrearage relief payment received from the State as Federal pass -through from the California Water and Wastewater Arrearages Payment Program (CWWAPP), $1,014 due from the Treasure Island Development Authority (TIDA) for capacity fees, $957 in subscription asset due to implementation of GASB 96 SBITAs, $301 in inventory as there were more purchases than issuances during the year, $190 in capacity charges net of allowance for doubtful accounts, $118 in interest receivable , and $25 in State grant receivable for the Baker Beach reimbursement. These increases in current and other assets were offset by decreases of $2,325 in lease assets net of

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

9 (Continued)

accumulated amortization due to amortization, $1,763 in Federal interest subsidy receivable (attributed to $5,817 subsidy received offset by $4,054 subsidy accrual during the year ), $324 decrease in rent receivable mainly due to $304 collection of prior year balance from the San Francisco Community College, $219 decrease in prepaid charges mainly due to $652 prior year prepaid expenses recognized in current year and $39 lease prepayments amortizations for the Civic Center Garage and the Mariposa Pump Station & Force, offset by $472 prepaid expenses in the current year , $56 decrease in interfund receivables and due from component unit consisting of $1 18 from the D epartment 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 component unit for the TIDA Replacement & Repair Project, offset by an increase of $10 6 in receivable from the Academy of Science s and Office of Community Investment Infrastructure , and $ 5 decrease in custom work receivable.

Capital assets, net of accumulated depreciation and amortization, increased by $4 39,601 or 1 2.2% reflecting an increase in construction and capital improvement activities . The largest portion of the Enterprise’s net position of $1,092,710 or 80.2%, represents net investment in capital assets (see Capital Assets section of the MDA for more information). Deferred outflows of resources decreased by $7,119 mainly due to decreases in pensions and other post -employment benefits by $4,850 and $2,211, respectively based on actuarial report and $58 amortization of the 2013 Series A bonds loss on refunding.

Total liabilities increased by $527,080 or 19.5%. As of June 30, 202 2, total debt outstanding balance of $2,988,713 for revenue bonds and notes payable, certificates of participation (COP), commercial paper, and SRF loans, represented 92.6% of total liabilities, an increase of $625,627 or 26.5%. The increase was mainly due to $373,700 issuance of 2021 Series AB revenue bonds, consisting of $297,880 par amounts and $75,820 premiums, $350,823 issuance of 2021 Series AB revenue notes consisting of $347,465 par amounts and $3,358 premiums, $200,702 new SRF loans to finance the SEP Biosolids Digester Facilities, the SEP New Headworks Replacement, and the OSP Dige ster Gas Utilization Upgrade projects, and $80,639 issuance of commercial paper. These increases were offset by $340,000 retirement of commercial paper, $26,148 in debt principal repayments, $9,970 in premium amortization during the year, and $4,000 loan principal forgiveness for the SRF OSP Digester Gas Utilization Upgrade Project along with $119 unreimbursed loan claim. Other liabilities of $239,386 such as payables to vendors, contractors, and other government agencies for goods and services under contractual agreements and employees, decreased by $98,547 or 29.2%, mainly due to decreases of $103,746 in net pension liability based on actuarial report, $4,668 in general liability based on actuarial estimates , $2,314 in lease liability due to implementation of GASB 87 Leases, $1,588 in other post -employment benefits obligations based on actuarial report, and $110 in payable to Hetch Hetchy Power related to the 525 Golden Gate Living Machine System . These decreases were offset by increases of $7,229 in restricted and unrestricted payable due to increased vouchers , $4,192 in bond, loan, lease, and subscription interest payable due to higher outstanding debt principal, $944 in subscription liability due to implementation of GASB 96 SBITAs, $792 in unearned revenues mainly due to $892 in customer credit balances mainly due to overpayments offset by decreases of $81 in deposits from Pacific Gas & Electric due to expenses incurred for the Cross Bore Pro ject and $19 in liens payable , $462 in employee related benefits including vacation , workers’ compensation, accrued payroll mainly due to actuarial estimates , and 4% increase of cost of living adjustment (COLA), and $260 in pollution remediation obligation. Deferred inflows of resources increased by $113,897 due to increases in pensions and other post-employment benefits by $112,522 and $1,375, respectively based on actuarial report.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

10 (Continued)

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

Results of Operations, Fiscal Year 2023
The Enterprise’s total revenues were $376,402, a decrease of $10,847 or 2.8% from prior year (see Table 2). Charges for services decreased by $1,550 or 0.4% mainly due to a n increase in allowance for doubtful accounts by $ 6,885 as there were more sewer charge receivables aging over 120 days, offset by a 5% drought surcharge and a sanitary flow increase of 47,124 ccf or 0.2% from residential and non -residential customers. Other non-operating revenues decreased by $15,544 or 61.1% mainly due to Federal and State grants received in prior year consisting of $9,302 for the customer utility arrearage relief, $8,000 SRF loan principal forgiveness of the SEP Biosolids Digester Facilities and the OSP Digester Gas Handling Utilization Upgrade projects, and $3,409 Baker Beach grant, a decrease of $91 in Federal interest subsidy, and $44 refunded f ederal grant relating to customer utility arrearage relief program, offset by $5,000 Monsanto settlement related to water pollution, $196 Baker Beach grant in current year, and increases of $92 in gain from sale of assets and $14 in miscellaneous revenue. Other operating revenues decreased by $3,513 or

28.9% mainly due to decreases of $ 3,203 in capacity fees resulting from $3,985 decrease in permits issued offset by $782 decrease in allowance for doubtful accounts , and $310 in other operating revenues to other City departments such as the Recreation & Park, the San Francisco Municipal Transportation Agency, and the Zuckerberg San Francisco General Hospital and Trauma Center . Rents and concessions increased by $117 or 16.6% mainly due to increases in rental income of $ 162 from short-term conference room rentals at Southeast Community Center beginning December 2022 , $ 17 from tenants with 5.3% Table 2
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years ended June 30, 2023, 2022, 2021
2023
Restated
2022* 2021
2023-2022
Change
2022-2021
Change
Revenues:

Charges for services $ 354,491 356,041 318,236 (1,550) 37,805 Rents and concessions 822 705 642 117 63 Other operating revenues 8,623 12,136 8,787 (3,513) 3,349 Interest and investment income/(loss) 2,556 (7,087) (1,187) 9,643 (5,900) Other non-operating revenues 9,910 25,454 4,911 (15,544) 20,543 Total revenues 376,402 387,249 331,389 (10,847) 55,860 Expenses:

Operating expenses 261,350 257,158 292,173 4,192 (35,015) Interest expenses 95,520 77,751 34,944 17,769 42,807 Amortization of premium, refunding loss, and issuance cost (14,387) (8,422) (8,497) (5,965) 75 Non-operating expenses 535 482 409 53 73 Total expenses 343,018 326,969 319,029 16,049 7,940 Change in net position before capital contributions and transfers 33,384 60,280 12,360 (26,896) 47,920 Capital Contributions 2,740 — — 2,740 — Transfers from the City and County of San Francisco 75 — 1,440 75 (1,440) Transfers to the City and County of San Francisco (32) (161) (4,188) 129 4,027 Capital contributions and net transfers 2,783 (161) (2,748) 2,944 2,587 Change in net position 36,167 60,119 9,612 (23,952) 50,507 Net position at beginning of year as restated 1,362,667 1,302,548 1,292,936 60,119 9,612 Net position at end of year $ 1,398,834 1,362,667 1,302,548 36,167 60,119 *Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs)

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

11 (Continued)

consumer price index average rate increase, offset by decreases of $59 from three terminated leases in the current year and $3 related to leases due to GASB 87 implementation . Interest and investment income increased by $9,643 or 136.1% mainly due to $4,436 decrease in unrealized loss in City Treasury pooled investments attributed to improved market value of investments and higher interest rates, an increase of $3,697 in interest earned from pooled cash due to increase in cash balances and higher annualized interest rate, $1,500 increase in interest earned from fiscal agent account due to increase in fiscal agent cash balances and rising interest rates, and $10 interest earned from lease receivable.

Total expenses were $343,018, an increase of $16,049 or 4.9% due to increases of $ 17,769 in interest expenses mainly due to higher bond principal , $4,192 in operating expenses , and $53 increase in City grants program expenses due to increased expenditures for community based organization services such as for the Youth Employment & Environment Project and the UC Wastewater Treatment Project, offset by an increase of $5,965 in amortization of premium, refunding loss, and issuance cost . The increase of $4,192 in operating expenses w ere mainly due to increases of $2 6,270 in personnel services due to $21,594 increase in expenses related to GASB 68 pension adjustment and 5.25% increase in cost of living adjustment (COLA), $2,462 in materials and supplies due to water sewage treatment supplies for Bayside Operations, $2,205 in contractual services mainly due to higher building and equipment maintenance for sludge removal, vehicle rental, and power utility, $1,354 in services provided by other departments mainly for electricity from Hetch Hetchy Power, water from Water Enterprise, and for toxics waste & hazard materials services and cleanup charges related to the UC Wastewater Treatment Project , offset by decreases of $28,033 in general and administrative and other operating expenses mainly due to increased capitalized expenditures to fixed assets and a decrease in judgements and claims offset by increased capital project expenses primarily related to SSIP Biosolids Digester Proje ct, New Grit Removal/Influent Pump Project, and Westside Pump Station Reliability Improvement Project and $ 66 in depreciation and amortization expenses.

Capital contributions of $2,740 was for the Sunnydale Hope SF Developer Project. Net transfers of $ 43 included transfer in of $75 from the General Fund for the Wastewater Add -backs Master Project offset transfer out of $32 to the Office of the City Administrator for the Surety Bond Program.

Results of Operations, Fiscal Year 2022
The Enterprise’s total revenues were $387,249, an increase of $ 55,860 or 16.9% from prior year (see Table 2). Charges for services increased by $37,805 or 11.9% mainly due to an average 8% adopted rate increase and a decrease in allowance for doubtful accounts by $ 1,098 as there were less sewer charge receivables aging over 120 days due to utility arrearage relief payments received from the State, offset by a sanitary flow decrease of 257,472 ccf or 1. 2% from residential and non-residential customers. Other non- operating revenues increased by $ 20,543 mainly due to $9,302 utility arrearage relief payment received from the State as Federal pass -through from the CWWAPP , $8,000 SRF loan principal forgiveness component of the SEP Biosolids Digester Facilities Project and the OSP Digester Gas Handling Utilization Upgrade Project, $3,409 Baker Beach grant , and $4 gain from sale of assets offset by decreases of $164 in miscellaneous revenue due to less overhead recovery, redemption penalty and stormwater control plan review fees, and $8 in Federal interest subsidy . Other operating revenues increased by $ 3,349 or 38.1% mainly due to increases of $2,570 in capacity fees resulting from a 58.9% increase in average permit price and a 5.4% increase in permits issued attributed to new developments on Treasure Island and the City’s re- opening and eliminating local restrictions on business operations, and $779 in other operating revenues to other City departments such as the Recreation & Park, Academy of Science s, and the San Francisco General Hospital . Rents and concessions increased by $63 or 9.8% mainly due to increases in rental income of $34 from the Sheri ff Department, $22 from tenants with 3.6% consumer price index average

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

12 (Continued)

rate increase, and $7 from a short -term tenant, Young Community Developers. Interest and investment income decreased by $5,900 or 497.1% mainly due to $5,618 increase in unrealized loss in City Treasury pooled investments attributed to the decline in market value of investments and rising interest rates and $292 decrease in interest ear ned from pooled cash due to lower annualized interest rate offset by $10 increase in interest earned from fiscal agent account due to increase in fiscal agent cash balances.

Total expenses were $326,969, an increase of $7,940 or 2.5% due to increases of $42,807 in interest expenses mainly due to increased outstanding bond principal balance and the implementation of Governmental Accounting Standards Board (GASB) 89, Accounting for Interest Cost Incurred before the End of a Construction Period, which eliminated the capitalization of interest to capital assets beginning in fiscal year 2022, a decrease of $75 in amortization, refunding loss, and issuance cost , and $73 increase in City grants program expenses due to increased participation in the flood water management program for San Francisco propert ies offset by $35,015 decrease in operating expenses . The decrease of $35,015 in operating expenses was mainly due to decreases of $26,993 in personnel service s due to $38,115 decrease in expenses related to GASB 68 pension adjustment offset by a 4% increase in cost of living adjustment (COLA) and $17,952 in general and administrative and other operating expenses mainly due to lower capital project expense s particularly for the Biosolids /Digester Project and Southeast Community Center Project, offset by increases of $3,762 in depreciation expense due to more capitalized assets put in service, $2,753 in materials and supplies mainly due to water sewage treatment supplies for Bayside Operations, $2,083 in contractual services mainly due to higher maintenance for building structures and professional and specialized services , and $1,332 in services provided by other departments mainly for electricity from Hetch Hetchy Power , water from Water Enterprise, and for facilities management services from the General Services Agency (GSA).

Net transfers of $ 161 included transfer out of $129 in art enrichment fund to the San Francisco Art Commission for the Westside Reliability Improvement and $32 to the Office of the City Administrator for the Surety Bond Program.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

13 (Continued)

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

Capital Assets, Fiscal Year 2023
The Enterprise has capital assets of $4,684,652, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2023 (see Table 3). This amount represents an increase of $638,20 1 or 15.8% 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 $508,546 or 29.5%. Facilities, improvements, machinery, and equipment increased by $ 122,696 or 5.4%.

Land improvements increased by $6,733 or 100% relating to improvements for the Southeast Community Center Project. Intangible assets increased by $ 226 or 3.2% due to asset addition of $1,212 for the Customer Billing System Project, offset by $986 depreciation expense.

Major additions to construction work in progress during the year ended June 30, 2023 include the following:

Table 3
Capital Assets, Net of Accumulated Depreciation and Amortization As of June 30, 2023, 2022, and 2021
2023 2022 2021
2023-2022
Change
2022-2021
Change
Facilities, improvements, machinery, and equipment $ 2,393,051 2,270,355 2,214,227 122,696 56,128 Intangible assets 7,333 7,107 7,407 226 (300) Land and rights-of-way 44,572 44,572 44,572 — — Land Improvements 6,733 — — 6,733 — Construction work in progress 2,232,963 1,724,417 1,340,644 508,546 383,773 Total $ 4,684,652 4,046,451 3,606,850 638,201 439,601 Southeast Plant Biosolids and Digester Facilities Project $ 332,775 Southeast Plant New Headworks (Grit) Replacement 157,143 Westside Pump Station Reliability Improvements 14,226
Large Diameter Sewer Projects and Channel Force Main Intertie 13,125 As-Needed Spot Sewer Replacement Number 42 (WW-699) 11,231 Southeast Community Center at 1550 Evans 9,794
Southeast Plant Power Feed and Primary Switchgear Upgrades 9,711 Oceanside Plant Digester Gas Handling Utilization Upgrade 9,195 North Shore Pump Station Wet Weather Improvements 8,853 New Treasure Island Wastewater Treatment Plant Capital Improvements 8,851 Southeast Plant Facility-Wide Distributed Control System Upgrades 7,581 Wawona Area Stormwater Improvement Project 5,879
As-Needed Main Sewer Replacement Number 9 (WW-713) 5,618 Folsom Area Stormwater Improvement Project 5,403
As-Needed Spot Sewer Replacement Number 43 (WW-715) 4,959 Public Works Golden Gate Avenue and Laguna Street Project 4,612 Ocean Beach Climate Change Adaptation Project 4,585
Taraval Sewer Improvements 4,519
Lower Alemany Area Stormwater Improvement Project 4,425 16th Street Sewer Replacement (Segment 2) 4,262
Oceanside Plant Condition Assessment Improvements - Part 2 4,208 Other project additions individually below $4,000 78,530 $ 709,485

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(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, 2023 include the following:

See Note 4 for additional information about capital assets.

Sewer System Improvement Program
The Sewer System Improvement Program (SSIP) is the SFPUC’s wastewater capital improvement program which includes multiple projects to improve the existing wastewater system. The implementation of the SSIP projects were originally phased over 20 years to maintain ratepayer affordability and minimize impacts to communities throughout the City . On March 22, 2016, the refined program scope and budget for $ 7.0 billion was endorsed by the Commission along with the baseline for scope, schedule, and budget for Phase 1 projects totaling $2.9 billion. The revised program is referred to as the “2016 SSIP Baseline”.

As of June 30, 202 3, 43 projects or 61.4% totaling $ 457 million were completed, 7 projects in pre - construction phase, 11 projects in construction phase, and 9 projects in close-out phase. The SEP Seismic Reliability and Condition Assessment Improvements Project was completed on March 31, 2023 with reported project expenditures of $33.6 million. This project represents immediate improvements to the existing facilities at Southeast Plant (SEP) identified as part of the condition assessment effort that are not specifically included as part of another near -term SSIP Phase 1 project. This project includes items for rehabilitation such as concrete spalling repair and seismic retrofit of priority process buildings. The Westside Pump Station Reliability Improvements is on-going construction. The project is reported a t 86.2% complete and forecasted final completion is on June 27, 2024. Program expenditures as of June 30, 202 3 totaled $2,469.3 million. Additional details regarding the SSIP are available at https://sfpuc.org/construction-contracts/sewer-system-improvement-program.

Southeast Community Center at 1550 Evans $ 111,510
Mariposa Pump Station & Force Main 35,852
As-Needed Spot Sewer Replacement Number 42 (WW-699) 12,531 Large Diameter Sewer Projects and Channel Force Main Intertie 9,182 Public Works 41st and 44th Avenue Infrastructure Improvements 7,042 Equipment Purchase, Repair & Replacement Project 6,076
Castro, 19th, 26th Street Water and Sewer Improvements - WD-2739 3,773 Other project additions individually below $3,000 18,887 $ 204,853 *
* Does not include $1,573 equipment transfers from the Department of Public Works (DPW).

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

15 (Continued)

Capital Assets, Fiscal Year 2022
The Enterprise has capital assets of $4,046,451, net of accumulated depreciation and amortization, invested in a broad range of utility capital assets as of June 30, 2022 (see Table 3). This amount represents an increase of $ 439,601 or 12.2% from prior fiscal year. The investment in capital assets inclu des 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 $383,773 or 28.6%. Facilities, improvements, machinery, and equipment increased by $56,128 or 2.5%.

Intangible assets decreased by $300 or 4.1% due to $872 depreciation expense and $780 transfers out to non-capitalized repair and other expenses , offset by asset additions of $ 1,352 for the Customer Billing System Project.

Major additions to construction work in progress during the year ended June 30, 2022 include the following:

Southeast Plant Biosolids and Digester Facilities Project $ 133,997 Southeast Plant New Headworks Grit Replacement 131,458
Southeast Community Center 30,582
Southeast Plant Power Feed and Primary Switchgear Upgrades 26,911 Wawona Area Stormwater Improvement Project 15,644
Westside Pump Station Reliability Improvements 13,895
North Shore Pump Station Wet Weather Improvements 13,366 Large Sewer Condition Improvements 11,656
As-Needed Spot Sewer Replacement Number 41 (WW-698) 9,514 Public Works 19th Avenue Infrastructure Improvements 8,782 Oceanside Plant Digester Gas Handling Utilization Upgrade 8,175 As-Needed Spot Sewer Replacement Number 40 (WW-693) 5,007 Various Locations Sewer Replacement Number 8 (WW-679) 4,927 Folsom Area Stormwater Improvement Project 4,728
Public Works 41st and 44th Avenues Infrastructure Improvements 4,676 Mariposa Dry-Weather Pump Station & Force Main Improvements 4,527 Taraval Sewer Improvements 4,401
Ocean Beach Climate Change Adaptation Project 4,301
Southeast Plant Facility-Wide Distributed Control System Upgrades 4,275 Other project additions individually below $4,000 73,857 $ 514,679

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

16 (Continued)

See Note 4 for additional information about capital assets.

Sewer System Improvement Program
The Sewer System Improvement Program (SSIP) is the SFPUC’ s wastewater capital improvement program which includes multiple projects to improve the existing wastewater system. The implementation of the SSIP projects and their associated expenditures will be phased over 20 years . In March 2016, the refined program scope and budget increased from $6.9 billion to $7.0 billion was endorsed by the Commission , referred to as the “2016 SSIP Baseline”. In December 2020 , the Commission approved the 2020 SSIP Baseline, increasing the budget for SSIP Phase 1 program to $3,655 million from $2,910.4 million in 2016.

The SFPUC is transitioning away from the original intent of three distinct SSIP phases and instead implementing capital improvement projects as part of a rolling Ten-Year capital plan.

As of June 30, 202 2, 38 projects or 5 4.3% totaling $37 3 million were completed, 7 projects in pre - construction phase, 1 2 projects in construction phase, and 13 projects in close -out phase . The SEP 521/522 and Disinfection Upgrades Project was completed on J une 30, 2021, with reported project expenditures of $ 44.8 million. The major components of the project are modifications to the existing SEP 521 building to include a new Effluent Sampling Station, new DCS Control Station, and upgrade to the existing bathroom for ADA compliance, new building (SEP 522) to house electrical and hydraulic controls, among others. The Southeast Water Pollution Control Plant New Headworks Facility is on -going construction. The project is reported at 47.0% completion and forecasted final comple tion is o n February 29, 2024. Program expenditures as of June 30, 2022, totaled $1,943.8 million. Additional details regarding the SSIP are available at https://sfpuc.org/construction-contracts/sewer-system-improvement-program.

Southeast Plant Seismic Reliability and Condition Assessment Improvements $ 23,679 Force Main Rehabilitation at Embarcadero and Jackson Streets 11,480 As-Needed Spot Sewer Replacement Number 41 (WW-698) 9,571 Combined Sewer Discharge Backflow Prevention and Monitoring 9,029 Cargo Way Sewer Box Odor Reduction 8,615
Mission Street, 16th to Cesar Chavez Streets, Brick Sewer Rehabilitation 7,783 Public Works Various Locations Number 40 Infrastructure Improvements 6,575 Various Locations Sewer Replacement Number 8 (WW-679) 5,553 Various Locations Sewer Replacement Number 6 (WW-677) 5,347 As-Needed Spot Sewer Replacement Number 40 (WW-693) 5,006 Taraval Sewer Improvements 4,401
Public Works Sunset Parkside Pavement Renovations 4,360 Oceanside Plant Egg Shaped Digester Interior Lining Rehabilitation (WW-706) 3,499 Other project additions individually below $3,000 26,181 $ 131,079

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

17 (Continued)

Debt Administration
As of June 30 , 202 3, 2022, and 2021, the Enterprise’s debt from revenue bonds, revenue notes, commercial paper, certificates of participation, SRF, and WIFIA loans were $3,551,970, $2,988,713, and $2,363,086, 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 $563,257 was mainly due to $1,136,002 R evenue Bonds 2023 Series A (SSIP/Green), Series B (Non -SSIP), and Series C (Refunding – SSIP/Green) net of premium , $153,932 Revenue Bonds 2022 Series B (Refunding) net of premium, $177,564 issuance of commercial paper, $122,357 new WIFIA loan for Biosolids Digester Facilities Project, and $18,511 aggregate new SRF loans for the SEP New Headworks Replacement and OSP Digester Gas Utilization Upgrade projects, offset by $556,721 refunding of commercial paper, $419,505 aggregate refunded principal of revenue bond Series 2013AB and 2018C, $37,652 repayment of outstanding debt , $15,737 of premium amortizations , and $15,494 refunded premium of revenue bond Series 2013AB.

Credit Ratings and Bond Insurance – As of June 30, 20 23 and 2022, 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 2023 and 2022, 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 23, the Enterprise had $4,709,491 in combined debt issuance authorization from the Board of Supervisors under Proposition E, with $4,242,615 issued against this authorization. The Enterprise has a $750,000 authorized commercial paper program, with $0 in tax-exempt commercial paper outstanding as of June 30, 20 23 and $ 379,157 in tax -exempt commercial paper outstanding as of June 30, 2022.

Cost of Debt Capital – The coupon interest rates on the Enterprise’s outstanding revenue bonds and revenue notes ranged from 1.0% to 5.8%, with a blended true interest cost of 3.0%, after factoring in federal interest subsidy receipts on Build America Bonds at June 30, 20 23. The 2009 Series C certificates of participation carried coupon interest rates from 2.0% to 5.0% and 2009 Series D certificates of 2023-2022 2022-2021
2023 2022 2021 Change Change
Revenue bonds $ 2,736,910 1,931,253 1,589,922 805,657 341,331 Revenue notes 349,556 350,356 — (800) 350,356 Commercial paper — 379,157 638,518 (379,157) (259,361) Certificates of participation 24,458 25,288 26,087 (830) (799) State revolving fund loans 318,689 302,659 108,559 16,030 194,100 Water Infrastructure Finance and Innovation Act (WIFIA) loans 122,357 — — 122,357 — Total $ 3,551,970 2,988,713 2,363,086 563,257 625,627 Table 4
Outstanding Debt, Net of Unamortized Costs
As of June 30, 2023, 2022, and 2021

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

18 (Continued)

participation carried coupon interest rates from 6.4% to 6.5% in fiscal years 20 23 and 2022, respectively.

The interest rates on short-term debt ranged from 0.9% to 3.1% during fiscal year 2023 and from 0.1% to

1.4% during fiscal year 202 2. The State revolving fund loans (CWSRF loans) carried original interest rates ranging from 0.8% to 1.8% for a weighted average of 1.3% during fiscal year 2023. The State has elected to apply administrative service and grant charges to certain agreement repayment schedules in lieu of receiving interest payments; these charges will not affect the installment payments or increase the repayment amounts. The WIFIA loan carried interest rate of 1.5% during fiscal year 2023 and capitalized interest added to the principal balance of the WIFIA loan on each Semi -Annual Payment Date occurring during the Capitalized Interest Period.

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 author ity 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 study were completed in May 2023. The Commission subsequently adopted three years of wastewater rate increases from July 1, 2023 through June 30, 20 26. Other miscellaneous fees for service and charges were last approved in 2018, and generally increase annually by the by the Consumer Price Index from the Controller’s Office of the City and County of San Francisco, or the 20 -City Average Construction Index (CCI) published by Engineering News -Record (ENR) Magazine. All current SFPUC Rates Schedules and Fees are available at https://sfpuc.org/accounts-services/water-power-sewer-rates/rates.

SAN FRANCISCO WASTEWATER ENTERPRISE
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

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

Questions regarding any of the information provided in this re port 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 Adjustment
July 1, 2016 7.0 1
July 1, 2017 11.0 1
July 1, 2018 7.0 2
July 1, 2019 7.0 2
July 1, 2020 8.0 2
July 1, 2021 8.0 2
July 1, 2022 — 3
July 1, 2023 9.0 4
July 1, 2024 9.0 4
July 1, 2025 9.0 4
1 Four-year rate increases adopted and effective July 1, 2014. 2 Four-year rate increases adopted and effective July 1, 2018. 3 No retail rate adjustment.
4 Three-year rate increases adopted and effective July 1, 2023.

Ten-year Average Rate Adjustments

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Net Position
June 30, 2023 and 2022
(In thousands)

20 (Continued)

Restated
2023 2022*
Assets
Current assets:

Cash and investments with City Treasury $ 355,770 285,029 Cash and investments outside City Treasury 173 397 Receivables:
40,093 40,321
Due from other City departments 128 225 Due from other governments — 25
Interest 2,178 314
Lease receivable, current portion 212 —
Restricted due from other governments 13,942 202,795 1,191 2,301
Total current receivables 57,744 245,981
Prepaid charges, advances, and other receivables, current portion 570 346 Inventory 3,340 2,958
Restricted cash and investments outside City Treasury 48,717 15,587 Total current assets 466,314 550,298
Non-current assets:

Restricted net pension asset — 48,770 Restricted cash and investments with City Treasury 38,574 — Restricted cash and investments outside City Treasury 66,439 23,771 417 434
342 342
Lease receivable, less current portion 1,245 — Prepaid charges, advances, and other receivables, less current portion 1,115 1,156 Right-to-use lease assets, net of accumulated amortization 1,272 3,597 Right-to-use subscription assets, net of accumulated amortization 422 957 Capital assets, not being depreciated and amortized 2,280,581 1,772,035 Capital assets, net of accumulated depreciation and amortization 2,404,071 2,274,416 Total non-current assets 4,794,478 4,125,478
Total assets 5,260,792 4,675,776
Deferred outflows of resources
Unamortized loss on refunding of debt 8 33 Pensions 32,592 25,369
Other post-employment benefits 11,493 12,898
Total deferred outflows of resources $ 44,093 38,300 Charges for services, less current portion (net of allowance for doubtful accounts of $566 as of June 30, 2023 and $567 as of June 30, 2022)
Restricted interest, other receivable, and prepaid (net of allowance for doubtful accounts of $99 as of June 30, 2023 and $385 as of June 30, 2022)
Restricted interest, other receivable, and prepaid (net of allowance for doubtful accounts of $29 as of June 30, 2023 and $29 as of June 30, 2022)
Charges for services (net of allowance for doubtful accounts of $10,060 as of June 30, 2023 and $4,273 as of June 30, 2022)

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Net Position
June 30, 2023 and 2022
(In thousands)

21 Restated
2023 2022*
Liabilities
Current liabilities:

Accounts payable $ 23,207 22,588
Accrued payroll 7,631 6,402
Accrued vacation and sick leave, current portion 6,040 5,479 Accrued workers’ compensation, current portion 1,509 1,393 Due to other City departments, current portion 2,215 111 Damage claims liability, current portion 1,650 9,323 Unearned revenues, refunds, and other 6,457 6,137 Bond, loan, lease, and subscription interest payable 27,918 21,468 Revenue bonds, current portion 28,070 34,345
Certificates of participation, current portion 864 830 Commercial paper — 379,157
State revolving fund loans payable, current portion 2,526 2,481 Lease liability, current portion 1,297 2,341 Subscription liability, current portion 243 515 Current liabilities payable from restricted assets 122,825 89,905 Total current liabilities 232,452 582,475
Long-term liabilities:

Arbitrage rebate payable 188 —
Other post-employment benefits obligations 49,035 49,123 Net pension liability 49,549 —
Accrued vacation and sick leave, less current portion 5,622 5,422 Accrued workers’ compensation, less current portion 6,489 6,153 Due to other City departments, less current portion 405 518 Damage claims liability, less current portion 2,700 2,722 Revenue bonds, less current portion 2,708,840 1,896,908 Revenue notes 349,556 350,356
Certificates of participation, less current portion 23,594 24,458 State revolving fund loans payable, less current portion 316,163 300,178 Water Infrastructure Finance and Innovation Act (WIFIA) loans 122,357 — Lease liability, less current portion — 1,297 Subscription liability, less current portion 186 429 Pollution remediation obligation 7,800 8,060 Total long-term liabilities 3,642,484 2,645,624
Total liabilities 3,874,936 3,228,099
Deferred inflows of resources
Unamortized gain on refunding of debt 11,353 —
Leases 1,453 —
Related to pensions 10,023 114,670
Other post-employment benefits 8,286 8,640
Total deferred inflows of resources 31,115 123,310 Net position
Net investment in capital assets 1,235,215 1,092,710 Restricted for debt service 3,510 5,391
Restricted for capital projects — 114,657 Restricted for other purposes — 48,770 Unrestricted 160,109 101,139
Total net position $ 1,398,834 1,362,667
*Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) See accompanying notes to financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Revenues, Expenses, and Changes in Net Position Years ended June 30, 2023 and 2022
(In thousands)
22 Restated
2023 2022*
Operating revenues:

Charges for services $ 354,491 356,041
Rents and concessions 822 705
Capacity fees 3,077 6,280
Other revenues 5,546 5,856
Total operating revenues 363,936 368,882
Operating expenses:

Personnel services 89,726 63,456
Contractual services 20,777 18,572
Materials and supplies 14,306 11,844
Depreciation and amortization 78,039 78,105
Services provided by other departments 40,999 39,645 General and administrative and other 17,503 45,536 Total operating expenses 261,350 257,158
Operating income 102,586 111,724
Non-operating revenues (expenses):

Federal and state grants 152 20,711
Interest and investment income (loss) 2,556 (7,087) Interest expenses (95,520) (77,751)
Amortization of premium, refunding loss, and issuance costs 14,387 8,422 Net gain from sale of assets 114 22
Other non-operating revenues 9,644 4,721
Other non-operating expenses (535) (482)
Net non-operating expenses (69,202) (51,444)
Change in net position before capital contributions and transfers 33,384 60,280 Capital Contributions 2,740 —
Transfers from the City and County of San Francisco 75 — Transfers to the City and County of San Francisco (32) (161) Capital contributions and net transfers 2,783 (161) Change in net position 36,167 60,119
Net position at beginning of year 1,362,667 1,302,548 Net position at end of year $ 1,398,834 1,362,667

*Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) See accompanying notes to financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Cash Flows
Years ended June 30, 2023 and 2022
(In thousands)

23 (Continued)

Restated
2023 2022*
Cash flows from operating activities:

Cash received from customers, including cash deposits $ 364,180 360,654 Cash received from tenants for rent 3,126 1,035 Cash received from miscellaneous revenues 686 667 Cash paid to employees for services (95,895) (93,897) Cash paid to suppliers for goods and services (95,599) (103,455) Cash paid for judgments and claims (5,500) (10,795) Net cash provided by operating activities 170,998 154,209 Cash flows from non-capital financing activities:

Cash received from grants 177 12,686
Cash received from settlements 5,000 —
Cash paid for rebates and program incentives (535) (482) Transfers from the City and County of San Francisco 75 — Transfers to the City and County of San Francisco (32) (161) Net cash provided by non-capital financing activities 4,685 12,043 Cash flows from capital and related financing activities:

Proceeds from sale of capital assets 127 22 Proceeds from bond issuance, net of premium and refunding gain 1,287,593 373,700 Proceeds from revenue notes, net of premium — 350,823 Proceeds from commercial paper borrowings 177,564 80,639 Proceeds from State revolving fund loans 207,364 22,544 Proceeds from WIFIA loans 122,357 —
Principal paid on long-term debt (454,676) (23,665) Principal paid on commercial paper (556,721) (340,000) Principal paid on State revolving fund loans (2,481) (2,483) Lease payment (2,371) (2,371)
Subscription payment (523) (478)
Interest paid on long-term debt (75,309) (69,988) Interest paid on commercial paper (8,674) (614) Interest paid on State revolving fund loans (1,523) (1,522) Interest paid on revenue notes (3,475) (1,168) Interest paid on WIFIA loans (74) —
Issuance cost paid on long-term debt (3,124) (1,490) Acquisition and construction of capital assets (681,615) (516,097) Federal interest income subsidy for Build America Bonds 3,991 5,818 Net cash provided by (used in) capital and related financing activities 8,430 (126,330) Cash flows from investing activities:

Interest income received 4,948 1,335
Proceeds from sale of investments outside City Treasury 514,288 101,115 Purchase of investments outside City Treasury (514,288) (101,115) Net cash provided by investing activities 4,948 1,335 Increase in cash and cash equivalents 189,061 41,257 Cash and cash equivalents:

Beginning of year 333,163 291,906
End of year $ 522,224 333,163

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

Cash and investments with City Treasury:

Unrestricted $ 355,770 285,029
Restricted 38,574 —
Add: Unrealized loss on investments with City Treasury 12,551 8,379 Cash and investments outside City Treasury:

Unrestricted 173 397
Restricted 115,156 39,358
Cash and cash equivalents at the end of year on $ 522,224 333,163 statements of cash flows
*Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs)

SAN FRANCISCO WASTEWATER ENTERPRISE
Statements of Cash Flows
Years ended June 30, 2023 and 2022
(In thousands)

24 Restated
2023 2022*
Reconciliation of operating income to net cash provided by operating activities:

Operating income $ 102,586 111,724
Adjustment to reconcile operating income to net cash
provided by operating activities:

Depreciation and amortization 78,039 78,105
Miscellaneous revenues 686 667
Provision for uncollectible accounts 5,500 (781) Write-off of capital assets 911 993
Changes in operating assets and liabilities:

Receivables:

Charges for services (5,558) (6,143)
Prepaid charges, advances, and other 1 51 Due from other City departments 1,208 (901)
Inventory (382) (301)
Leases 2,321 —
Subscription 535 —
Accounts payable 830 7,095
Accrued payroll 1,229 255
Other post-employment benefits obligations 963 1,998 Pension obligations (13,551) (35,144)
Accrued vacation and sick leave 761 (757) Accrued workers’ compensation 452 964
Due to other City departments 2,102 —
Pollution remediation obligation (260) 260 Damage claims liability (7,695) (4,668)
Unearned revenues, refunds, and other liabilities 320 792 Total adjustments 68,412 42,485
Net cash provided by operating activities $ 170,998 154,209

Noncash transactions:

Accrued capital asset costs $ 122,825 89,905
Interfund payable 2,620 629
Unrealized loss on investments 12,551 8,379
Capital contribution 2,740 —
*Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs) See accompanying notes to financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

25 (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 for the purpose of acquiring, constructing, improving, and fina ncing 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 issuance 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 Commission (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 utilities (i.e., Hetch Hetchy Water and Power and CleanPowerSF, of wh ich 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 SEC. 4.112 amendment approved by the voters in the June 3, 2008 election, terminated the terms of all five existing members of the Commission, changed the proce ss 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 appointmen ts 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 Water Enterprise are included in the Annual Comprehensive Financial Report of the City as enterp rise 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 purpor t to, and do not, present fairly the financial position of the City as of June 30, 202 3 and 202 2, the changes in its financial position, or, where applicable, the cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles (GAAP).

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

26 (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 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 activi ty 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 resources 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 investments 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 carried 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 construc tion 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 estimated cost, as determined by an independent professional appraisal, or at cost, if known. All subsequent acquisitions have been r ecorded at cost.

All donated capital assets at the time of donation and capital assets received in a service concession arrangement, are valued at acquisition value. Depreciation and amortization are

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

27 (Continued)

computed using the straight -line method over the estimated useful lives of the 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
Intangible assets are defined as identifiable, non -financial assets capable of being separated, sold, transferred, or licensed, and include contractual or legal rights. Examples of intan gible assets include rights -of-way easements, land use rights, water rights, licenses, permits, and right-to-use capital assets for leases and SBITAs.

The Enterprise capitalizes purchased or internally developed intangible assets with a useful life extending beyond one reporting period. It has established a capitalization threshold of $100.

Intangible assets are amortized over the benefit period or the contract term for leases and SBITAs , 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) Bond Discount, Premium, and Issuance Costs
Bond issuance costs related to prepaid insurance costs are capitalized and amortized using the effective interest met hod. 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.
(i) Accrued Vacation and Sick Leave
Accrued vacation pay, which m ay 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.
(j) 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 13(b)). (k) 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, contamination, pollution remediation efforts, and other specific naturally occurring contaminants such as mold. The liability represents an estimate of t he cost of all outstanding claims, including adverse loss development and estimated incurred but not reported claims (see Note 13(a)).

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

28 (Continued)

(l) 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 liability due as of June 30, 2023 and 2022 were $188 and $0, respectively (see Note 7).

(m) 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. (n) Income Taxes
As a department of a government agency, the Enterprise is exempt from both feder al income taxes and California State franchise taxes.
(o) Revenue Recognition
Sewer service charges are based on water usage as determined b y 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, 2023 and 2022 were $14,919 and $15,704, respectively. (p) 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 fin ancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(q) 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 remediation if it 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

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

29 (Continued)

• 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 times, 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 14(d)). (r) Leases
Leases are defined as a contract that conveys control of the right to use another entity’s underlying asset for a specified period. The Enterprise is a lessee and a lessor for various noncancellable leases of land, building, equipment, vehicles, easements, etc.

Short-term Leases
For leases with a maximum possible term of 12 months or less at commencement, the Enterprise recognizes lease revenue if the Enterprise is the lessor of the lease or lease expense if the Enterprise is the lessee of the lease based on the provisions of the lease contract. Liabilities are only recognized if payments are received in advance, and receivables are only recognized if payments are received subsequent to the reporting period.

Leases Other Than Short-term
For all other leases (i.e., those that are not short-term) the Enterprise recognizes a lease liability and intangible right -to-use lease asset for the Enterprise as lessee leases, or lease receivable and deferred inflow of resources for the Enterprise as lessor leases.

Measurement of Lease Amounts (Lessee)
The Enterprise’s lease liability is recorded at the present value of future minimum lease payments as of the date of commencement. Subsequently, the lease liability is reduced by the principal portion of lease of payments made. The lease asset is initially measured as the initial amount of the lease liability, less lease payments made at or before the lease commencement date, plus any initial direct costs ancillary to placing the underlying asset into service, less any lease incentives received at or before the lease commencement date. Subsequently, the lease asset is amortized into depreciation and amortization expense on a straight -line basis over the shorter of the lease term . If the Enterprise is re asonably certain of exercising a purchase option contained in a lease, the lease asset will be amortized over the useful life of the asset.

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

30 (Continued)

Measurement of Lease Amounts (Lessor)
The Enterprise’s lease receivable is measured at the present value of payments expected to be received during the lease term, reduced by any provision of estimated uncollectible amounts.

Subsequently, the lease receivable is reduced by the principal portion of lease payments collected.

The deferred inflow or resources is initially measured as the initial amount of the lease receivable, less any lease incentives paid to, or on behalf of, the lessee at or before the commencement of the lease term, plus lease payments received from the lease at or before the com mencement of the lease term that related to future periods. Subsequently, the deferred inflow of resources as lease revenue is on a straight-line basis over the lease term.

Key Estimates and Judgements
Key estimates and judgements include how the Enterprise determines (a) the discount rate it uses to calculate the present value of the expected lease payments, (b) lease terms, (c) lease payments, and (d) materiality threshold for equipment.
• The Enterprise generally uses its estimated incremental borrowing rate as the discount rate for leases unless the rate is implicit in the lease. The City’s incremental borrowing rate (IBR) is established using the average of Municipal Market Data (MMD) AAA benchmark interest rate index maturity date (year 1 to 30+ ), plus the average credit spread based on City’s Aa/AA, COP, Tax -exempt to generate the yield curve and discount rate table. The City’s incremental borrowing rate for leases is based on the rate of interest it would need to pay if it issued general obligation bonds to borrow an amount equal to the lease payments under similar terms at the commencement or remeasurement date. • The lease term includes the noncancellable period of the lease, plus any additional periods covered by either lessee or lessor unilate ral option to (1) extend for which it is reasonably certain to be exercised, or (2) terminate for which it is reasonably certain not to be exercised. Periods in which both the lessee and lessor have an option to terminate (or if both parties have to agree to extend) are excluded from the lease term. • Payments are evaluated by the Enterprise to determine if they should be included in the measurement of the lease receivables or lease liabilities, including those payments that require a determination of whether they are reasonably certain of being made, such as residual value guarantees, purchase options, payments for termination penalties, and other payments.
• Equipment and other leases have a capitalization threshold of $100. 70% below market rent and/or ground leases are determined to be below market rent (BMR), excluded from lease capitalization.

Remeasurement of Lease
The Enterprise monitors changes in circumstances that may require remeasurement of a lease.

When certain changes occur that are expected to sig nificantly affect the amount of the lease receivable or lease liability, the receivable or liability is remeasured and a corresponding adjustment is made to the deferred inflow of resources or lease asset, respectively.

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

31 (Continued)

Presentation in Statement of Net Position
Lease assets are reported with current and non-current assets, lease liabilities are reported with current and long-term liabilities and both lease assets and liabilities are reported under net investment in capital assets in the statement of net position (see Note 9). (s) Subscription-Based Information Technology Arrangements Subscription-Based Information Technology Arrangements (SBITAs) are defined as a contract that conveys control of the right to use another entity’s IT software, alone or in combination with tangible capital assets for a specific period. The Enterprise has noncancellable subscription arrangements (similar to a lease) for the right to use various information technology hardware and software SBITAs.

Short-term SBITAs
For SBITAs with a maximum possible term of 12 months or less at commencement , the Enterprise recognizes subscription expense if the Enterprise i s subscriber of subscription based on the provisions of the SBITA. Liabilities are only recognized if payments are received in advance, and receivables are only recognized if payments are received subsequent to the reporting period.

SBITAs Other Than Short-term
For all other SBITAs (i .e., those that are not short -term) the Enterprise recognizes SBITA liability and intangible right-to-use subscription asset for the Enterprise.

Measurement of Subscription Amounts (Subscriber)
The Enterprise ’s subscription liability is recorded at the present value of future minimum subscription payments as of the date of commencement. Subsequently, the subscription liability is reduced by the principal portion of subscription payments made. The subsc ription asset is initially measured as the initial amount of the subscription liability, less payments made at or before the subscription commencement date, plus any initial direct costs ancillary to placing the underlying asset into service, less any subs cription incentives received at or before the subscription commencement date. For SBITAs, s ubscription assets also include qualify software implementation costs. Subsequently, the subscription asset is amortized into depreciation and amortization expense on a straight-line basis over the subscription term.

Key Estimates and Judgements
Key estimates and judgements include how the Enterprise determines (a) the discount rate it uses to calculate the p resent value of the expected subscription payments, (b) subscription terms, (c) subscription payments, and (d) materiality threshold.
• The Enterprise generally uses its estimated incremental borrowing rate as the discount rate for SBITAs unless the rate is implicit in the agreement. The Enterprise incremental borrowing rate (IBR) is established using the average of Municipal Market Data (MMD) AAA benchmark interest rate index by maturity date (year 1 to 30+), plus the average credit spread based on Enterprise’s Aa/AA, COP, Tax-exempt to generate the yield curve and discount rate table.

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

32 (Continued)

• The subscription term includes the noncancellable period of the subscription, plus any additional periods covered by either subscriber or lessor unilateral option to (1) extend for which it is reasonably certain to be exercised, or (2) terminate for which it is reasonably certain not to be exercised. Periods in which both the subscriber and lessor have an option to terminate (or if both parties have to agree to extend) are excluded from the subscription term.
• Payments are evaluated by the Enterprise to determine if they should be included in the measurement of the subscription liabilities, including those payments that require a determination of whether they are reasonably certain of being made, such as residual value guarantees, purchase options, payments for termination penalties, and other payments. • SBITAs have a capitalization threshold of $100.

Remeasurement of SBITAs
The Enterprise monitors changes in circumstances that may require remeasurement of SBITA. When certain changes occur that are expected to significantly affect the amount of the subscription liability, the liability is remeasured, and a corresponding adjustment is made to the subsc ription asset.

Presentation in Statement of Net Position
Subscription assets are reported with current and non -current assets, subscription liabilities are reported with current and long-term liabilities and both subscription assets and liabilities are reported under net investment in capital assets in the statement of net position (see Note 10). (t) 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 determined on a citywide basis. Net OPEB liability is measured as the por tion 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 (see Note 11(b)).
(u) New Accounting Standard Adopted in Fiscal Year 2023 1) 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 adopted the provisions of Statement No. 91 in fiscal year 2023, which did not have a significant effect on its financial statements. 2) 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 Enterprise adopted the provisions of Statement No. 9 4 in fiscal year 2023, which did not have a significant effect on its financial statements.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

33 (Continued)

3) In May 2020, the GASB issued Statement No. 9 6, 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, 202 2. The Enterprise adopted the provisions of Statement No. 9 6 in fiscal year 2023 (see Note 10 for more details ). As a result of adoption, the cumulative effect of applying this Statement is recorded as adjustments to beginning balance for the following accounts as of July 1, 2021:

(v) GASB Statement Implemented in Fiscal Year 2022
1) In June 2017, the GASB issued Statement No. 8 7, Leases. GASB Statement No. 8 7 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 beginning balances as of July 1, 2020 were restated as a result of adopting this standard. 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 construction period. The new standard is effective for periods beginning after December 15, 2020. The Enterprise adopted the provisions of Statement No. 89 in fiscal year 2022.
3) 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 adopted the provisions of Statement No. 92 in fiscal year 2022, which did not have significant effect on its financial statements. 4) In March 2020, the GASB issued Statement No. 93, Replacement of Interbank Offered Rates (IBOR). The ob jective 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 adopted the provisi ons of Statement No. 93 in fiscal year 2022, which did not have a significant effect on its financial statements. (w) Future Implementation of New Accounting Standards
1) In April 2022 , the GASB issued Statement No. 9 9, Omnibus 2022 . GASB Statement No. 99 addresses a variety of topics. The requirements related to extension of the use of the London FY 2022 FY 2022
FY2022 Activities Ending Balance
Subscription Assets $ 1,422 65$ 1,487$ Accumulated Amortization — (530) (530) Accrued Interest Payable - Current — (8) (8) Subscription Liability - Current (993) 478 (515) Subscription Liability - Long -Term (429) — (429) Expenses — (5) (5) Change to Net Position $ — (5)$ (5)$ Beginning Balance

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

34 (Continued)

Interbank Offered Rate, accounting for Supplemental Nutrition Assistance Program distributions, disclosures of nonmonetary transactions, p ledges of future revenues by pledging governments, clarification of certain provisions in Statement No. 34, and terminology updates related to Statement No. 53 and State ment No. 63 are effective upon issuance and did not have a significant impact on the Enterprise for the year ended June 30, 2022. The requirements related to leases, publ ic-public and public -private partnerships, and subscription -based information technology arrangements are effective for fiscal years beginning after June 15, 2022, and effective for the Enterprise’s year ending June 30, 2023. The requirements related to fi nancial guarantees and the classification and reporting of derivative instruments within the scope of Statement No. 53 are effective for fiscal years beginning after June 15, 2023, and effective for the Enterprise’s year ending June 30, 2024 . The Enterpris e is currently analyzing its accounting practices to determine the potential impact of the provisions of Statement No. 99 applicable in future years.
2) In June 2022, the GASB issued Statement No. 100, Accounting Changes and Error Corrections .

This Statement enhances accounting and financial reporting requirements for accounting changes and error corrections to provide more unders tandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The new standard is effective for periods beginning after June 15, 202 3. The Enterprise will implement the provisions of Statement No. 100 in fiscal year 2024.
3) In June 2022, the GASB issued Statement No. 101, Compensated Absences. This Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated abse nces. The new standard is effective for periods beginning after December 15, 2023. The Enterprise will implement the provisions of Statement No. 101 in fiscal year 2025.
(x) Reclassifications
For fiscal year 2022, net pension assets in the amount of $48,770 was reclassified from unrestricted to restricted for other purposes in the statement of 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 guide lines 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.

The restricted cash and investments for bond reserves is held by an independent trustee outside the City investment pool. The balances as of June 30, 20 23 and 20 22 were $ 115,156 and $39,358, 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 s hares are registered under

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

35 (Continued)

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 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 iden tical 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.

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, 2023 and 2022.

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 23 and 2022 included a $0 unrealized gain due to changes in fair values on Commercial Paper.

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 $ 115,082 115,082 — — — Money Market Funds A-1/P-1 < 90 days 50 50 — — — Cash and Cash Equivalents N/A 24 24 — — — Total Restricted Cash and Investments outside City Treasury $ 115,156 115,156 — — — Cash and Cash Equivalents N/A 173 173 — — — Total Unrestricted Cash and Investments outside City Treasury $ 173 173 — — — 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, 2023
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 $ 39,296 39,296 — — — Money Market Funds A-1+/P-1 < 90 days 44 44 — — — Cash and Cash Equivalents N/A 18 18 — — — Total Restricted Cash and Investments outside City Treasury $ 39,358 39,358 — — — Cash and Cash Equivalents N/A 397 397 — — — Total Unrestricted Cash and Investments outside City Treasury $ 397 397 — — — 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, 2022

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

36 (Continued)

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:

2023 2022
Current assets:

Cash and investments with City Treasury $ 355,770 285,029 Cash and investments outside City Treasury 173 397 Restricted cash and investments outside City Treasury 48,717 15,587 Non-current assets:

Restricted cash and investments with City Treasury 38,574 — Restricted cash and investments outside City Treasury 66,439 23,771 Total cash, cash equivalents, and investments $ 509,673 324,784

Fiscal years
ended June 30 Under 1 1 to less than 6 6 to less than 12 12 to 60 2023 21.5% 18.0% 14.5% 46.0%
2022 20.2% 14.0% 14.9% 50.9%
Investment maturities (in months)

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Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

37 (Continued)

(4) Capital Assets
Capital assets as of June 30, 2023 and 2022 consisted of the following:

.
2022 Increases Decreases 2023
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 1,724,417 709,485 (200,939) * 2,232,963 Total capital assets not being depreciated and amortized 1,772,035 709,485 (200,939) 2,280,581 Capital assets being depreciated and amortized:

Facilities and improvements 3,729,320 194,590 — 3,923,910 Land Improvements — 6,965 — 6,965 Intangible assets** 9,548 1,212 — 10,760 Machinery and equipment 103,274 3,659 (1,272) 105,661 Total capital assets being depreciated and amortized 3,842,142 206,426 * (1,272) 4,047,296 Less accumulated depreciation and amortization for:

Facilities and improvements (1,481,988) (69,779) — (1,551,767) Land Improvements — (232) — (232) Intangible assets** (5,487) (986) — (6,473) Machinery and equipment (80,251) (5,754) 1,252 (84,753) Total accumulated depreciation and amortization (1,567,726) (76,751) 1,252 (1,643,225) Total capital assets being depreciated and amortized, net 2,274,416 129,675 (20) 2,404,071 Total capital assets, net $ 4,046,451 839,160 (200,959) 4,684,652 ** Right-to-use lease and subscription assets are reported separately from intangible assets in note 9 and note 10, respectively. * Decrease in construction work in progress is less than increase in capital assets being depreciated is due to direct additions to machinery and equipment and buildings structures by $3,659 and $2,739, respectively, offset by $911 in capital project write-offs, mainly related to the Islais Creek Green Infrastructure Project.
2021 Increases Decreases 2022
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 1,340,644 514,679 (130,906) * 1,724,417 Total capital assets not being depreciated and amortized 1,388,262 514,679 (130,906) 1,772,035 Capital assets being depreciated and amortized:

Facilities and improvements 3,599,978 129,342 — 3,729,320 Intangible assets** 8,976 572 — 9,548 Machinery and equipment 102,397 1,165 (288) 103,274 Total capital assets being depreciated and amortized 3,711,351 131,079 * (288) 3,842,142 Less accumulated depreciation and amortization for:

Facilities and improvements (1,412,109) (69,879) — (1,481,988) Intangible assets** (4,615) (872) — (5,487) Machinery and equipment (76,039) (4,500) 288 (80,251) Total accumulated depreciation and amortization (1,492,763) (75,251) 288 (1,567,726) Total capital assets being depreciated and amortized, net 2,218,588 55,828 — 2,274,416 Total capital assets, net $ 3,606,850 570,507 (130,906) 4,046,451 ** Right-to-use lease and subscription assets are reported separately from intangible assets in note 9 and note 10, respectively. * Decrease in construction work in progress is less than increase in capital assets being depreciated is explained by $1,165 direct additions to machinery and equipment offset by $993 in capital project write-offs, mainly related to the Public Works various locations infrastructure improvement projects.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

38 (Continued)

(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 deposited 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. Thes e funds, held at the City Treasury, are recorded in the statements of net position of the Enterprise 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 bonds, parity State revolving and Federal fund loans, policy costs, and amounts due as reimbursement under any letter of credit agreement; and

3. Any other lawful purpose of the Enterprise.

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, 2023 and 2022:

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.
2023 2022
Cash and investments with City Treasury:

Wastewater revenue bond construction fund $ 38,574 — Cash and investments outside City Treasury:
2009 Series C Certificates of Participation - 525 Golden Gate 449 433 2009 Series D Certificates of Participation - 525 Golden Gate 1,523 1,472 2010 Series A Wastewater revenue bond fund 137 — 2010 Series B Wastewater revenue bond fund 7,153 8,826 2013 Series B Wastewater revenue bond fund 5 — 2016 Series A Wastewater revenue bond fund 6 — 2016 Series B Wastewater revenue bond fund 2 — 2018 Series A Wastewater revenue bond fund 6 — 2018 Series B Wastewater revenue bond fund 5 — 2018 Series C Wastewater revenue bond fund 2 — 2021 Series A Wastewater revenue bond fund 13,298 24,396 2021 Series B Wastewater revenue bond fund 2,163 3,937 2022 Series B Wastewater revenue bond fund 86 — 2023 Series A Wastewater revenue bond fund 65,673 — 2023 Series B Wastewater revenue bond fund 24,313 — 2023 Series C Wastewater revenue bond fund 19 — 2021 Series A Wastewater revenue note fund 152 145 2021 Series B Wastewater revenue note fund 89 86 Commercial Paper - Tax Exempt 75 63
Total cash and investments outside City Treasury 115,156 39,358 Interest and other receivables:

Wastewater revenue bond construction fund including interest, prepaid, and other receivables 1,608 2,735 Due from other government for State Revolving Fund 13,942 202,795 15,550 205,530
Total restricted assets $ 169,280 244,888

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

39 (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 Enterprise’s facilities. The Enterprise had $0 and $379,157 in commercial paper outstanding as of June 30, 2023 and 2022, respectively.

In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements , t he Enterprise had $750,000 and $ 370,843 in unused authorization as of June 30, 20 23 and 2022, 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 sp ecified 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 applicabl e); or issuance of a No -Issuance Notice, reduction in credit to outstanding amount plus interest coverage, and/or termination of the respective agreement. As of June 30, 20 23, there were no such events described herein.

(7) Changes in Long-Term Liabilities
Long-term liability activities for the years ended June 30, 2023 and 2022 are as follows:

Maturity Due
Interest (Calendar Restated within
rate Year) 2022* Additions Reductions 2023 one year
Revenue Bonds:
2010 Series B (Build America) 4.65% - 5.82% 2040 $ 192,515 — (7,280) 185,235 7,505 2013 Series A 1.00 - 5.00 2025 15,535 — (14,960) 575 575 2013 Series B 4.00 - 5.00 2042 331,585 — (238,490) 93,095 — 2016 Series A 4.00 - 5.00 2046 240,580 — — 240,580 5,475 2016 Series B 4.00 - 5.00 2046 67,820 — — 67,820 1,545 2018 Series A 4.00 - 5.00 2043 229,050 — (7,715) 221,335 7,160 2018 Series B 5.00 2043 185,950 — (6,260) 179,690 5,810 2018 Series C 2.13 2048 179,145 — (179,145) — — 2021 Series A 4.00 - 5.00 2051 260,835 — — 260,835 — 2021 Series B 5.00 2051 37,045 — — 37,045 — 2022 Series B 5.00 2034 — 137,080 — 137,080 — 2023 Series A 5.00 - 5.25 2042 — 530,565 — 530,565 — 2023 Series B 4.00 - 5.00 2042 — 278,155 — 278,155 — 2023 Series C 4.00 2048 — 165,660 — 165,660 — For issuance premiums 191,193 178,474 (30,427) 339,240 — Revenue Notes:
2021 Series A - Biosolids 1.00 2025 218,355 — — 218,355 — 2021 Series B - SEP Headworks 1.00 2026 129,110 — — 129,110 — For issuance premiums 2,891 — (800) 2,091 — Total revenue bonds & notes payable 2,281,609 1,289,934 (485,077) 3,086,466 28,070 2009 Series C Certificates of Participation (COPs) 2.00 - 5.00 2022 826 — (826) — — 2009 Series C COPs issuance premiums 4 — (4) — — 2009 Series D COPs (Build America) 6.36 - 6.49 2041 24,458 — — 24,458 864 State Revolving Fund Loans (CWSRF loans) 0.80 - 1.80 2056 302,659 18,511 (2,481) 318,689 2,526 Water Infrastructure Finance and Innovation Act (WIFIA) Loans 1.45 2059 — 122,357 — 122,357 — Arbitrage rebate payable — 188 — 188 — Other post-employment benefits obligations 49,123 — (88) 49,035 — Net pension liability — 49,549 — 49,549 — Accrued vacation and sick leave 10,901 4,729 (3,968) 11,662 6,040 Accrued workers' compensation 7,546 2,976 (2,524) 7,998 1,509 Due to other City departments 629 2,102 (111) 2,620 2,215 Lease liability 3,638 — (2,341) 1,297 1,297 Subscription liability 944 — (515) 429 243 Damage claims liability 12,045 2,716 (10,411) 4,350 1,650 Pollution remediation obligation 8,060 — (260) 7,800 — Total $ 2,702,442 1,493,062 (508,606) 3,686,898 44,414 *Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

40 (Continued)

The payments of principal and interest amounts on various bonds and notes 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 com mercial paper notes, fund a cash debt service reserve fund, and pay the costs of issuing the bonds. The bonds were rated “Aa 3” 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, 202 3 and 2022, the 2010 Series A bonds’ principal amount outstanding was $0.
(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 $53,500 in outstanding commercial paper notes, provide funding for capital projects in the amount of $112,429, fund a c ash 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 23 and 2022, the 2010 Series B bonds’ principal amount outstanding was $185,235 and $192,515, respectively.

Maturity Due
Interest (Calendar Restated within
rate Year) 2021 Additions Reductions 2022* one year
Revenue Bonds:
2010 Series A 4.00% - 5.00% 2021 $ 8,820 — (8,820) — — 2010 Series B (Build America) 4.65 - 5.82 2040 192,515 — — 192,515 7,280 2013 Series A 1.00 - 5.00 2025 29,595 — (14,060) 15,535 13,090 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 7,715 2018 Series B 5.00 2043 185,950 — — 185,950 6,260 2018 Series C 2.13 2048 179,145 — — 179,145 — 2021 Series A 4.00 - 5.00 2051 — 260,835 — 260,835 — 2021 Series B 5.00 2051 — 37,045 — 37,045 — For issuance premiums 124,862 75,820 (9,489) 191,193 — Revenue Notes:
2021 Series A - Biosolids 1.00 2025 — 218,355 — 218,355 — 2021 Series B - SEP Headworks 1.00 2026 — 129,110 — 129,110 — For issuance premiums — 3,358 (467) 2,891 — Total revenue bonds & notes payable 1,589,922 724,523 (32,836) 2,281,609 34,345 2009 Series C Certificates of Participation (COPs) 2.00 - 5.00 2022 1,611 — (785) 826 826 2009 Series C COPs issuance premiums 18 — (14) 4 4 2009 Series D COPs (Build America) 6.36 - 6.49 2041 24,458 — — 24,458 — State Revolving Fund Loans (CWSRF loans) 0.80 - 1.80 2056 108,559 196,583 (2,483) 302,659 2,481 Other post-employment benefits obligations 50,711 5,466 (7,054) 49,123 — Net pension liability 103,746 — (103,746) — — Accrued vacation and sick leave 11,658 2,895 (3,652) 10,901 5,479 Accrued workers' compensation 6,582 3,207 (2,243) 7,546 1,393 Due to other City departments 739 — (110) 629 111 Lease liability 5,952 27 (2,341) 3,638 2,341 Subscription liability — 1,422 (478) 944 515 Damage claims liability 16,713 8,812 (13,480) 12,045 9,323 Pollution remediation obligation 7,800 260 — 8,060 — Total $ 1,928,469 943,195 (169,222) 2,702,442 56,818 *Restated due to the implementation of GASB 96 - Subscription-Based Information Technology Arrangements (SBITAs)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

41 (Continued)

(c) Wastewater Revenue Bonds 2013 Series A
In January 2013, the Enterprise issued tax -exempt revenue bonds 2013 Series A in the amoun t 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 ha d a true interest cos t of 1.2% at issuance. 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.

A portion of the proceeds of the 2022 Series B refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated July 1, 2022 to refund and legally defease a portion of the outstanding 2013 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. Th e principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2013 Series A bonds starting on October 1, 2024 and thereafter. As of June 30, 20 23 and 2022, the principal amount outstanding of the 2013 Series A bonds was $575 and $15,535, 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 was 3.6% at issuance.

A portion of the proceeds of the 2022 Series B and 2023 Series B refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, date July 1, 2022 and April 1, 2023, respectively to refund and legally defease a portion of the outstanding 2013 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 redeem the maturities of the 2013 Series A bonds starting on October 1, 2024 through October 1, 2039. The remaining bonds mature through October 1, 2042. As of June 30, 20 23 and 20 22, the principal amount outstanding of the 2013 Series B bonds was $93,095 and $331,585, respectively. (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” fr om 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 23 and 2022, the principal amount outstanding of the 2016 Series A bonds was $240,580.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

42 (Continued)

(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 23 and 2022, 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 1, 2043. The bonds have a true interest cost of 3.4%. As of June 30, 2023 and 2022, the principal amount outstanding of the 2018 Series A bonds was $221,335 and $229,050, respectively. (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, 2023 and 2022, the principal amount outstanding of the 201 8 Series B bonds was $ 179,690 and $185,950, respectively.
(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. The 2018 Series C b onds was fully refunded by the 2023 Series C bonds. 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, 2023 and 2022, the principal amount outstanding of the 2018 Series C bonds was $0 and $179,145, respectively.
(j) Wastewater Revenue Bonds 2021 Series AB
In November 2021 , the Enterprise issued tax -exempt revenue bonds , 2021 Series AB in the aggregate amount of $ 297,880. The purpose of the 2021 Series AB Bonds was to refund approximately $340,000 aggrega te principal amount of commercial paper notes which funded various capital projects of the Wastewater Enterprise. The bonds carried “Aa2” and “AA” ratings from Moody’s and S&P, respectively.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

43 (Continued)

The $260,835 2021 Series A Bonds were issued as tax -exempt Green Bonds to refund approximately $296,000 of commercial paper notes for SSIP capital projects. The Series A bonds were issued as serial bonds with coupons of 4.0% and 5.0% and a final maturity of 2051. The 2021 Series A bonds h ave a true interest cost of 3.0%. As of June 30, 2023 and 2022, the principal amount of the 2021 Series A bonds outstanding was $260,835.

The $37,045 2021 Series B bonds were issued as tax -exempt bonds to refund approximately $44,000 of commercial paper no tes for Wastewater capital projects. The Series B bonds were issued as serial bonds with coupons of 5.0% and have a final maturity of 2051. The Series B bonds have a true interest cost of 3.2%. As of June 30, 2023 and 2022, the principal amount of the 2021 Series B bonds outstanding was $37,045.
(k) Wastewater Revenue Notes 2021 Series AB
In November 2021, the Enterprise issued tax-exempt revenue (Green) notes, 2021 Sub-Series A and Sub-Series B together with an aggregate principal of $347,465 to finance a portion of the design, acquisition and construction of the Biosolids Digester Facilit y Project and Southeast Water Pollution Control Plant improvements. The SFPUC intends to pay principal of the 2021A Notes and 2021B Notes from the proceeds of one or more draws under WIFIA Loan Agreements for the Biosolids Digester Facility Project and Sou theast Treatment Plant Improvements, respectively, or from the proceeds of future obligations.

The $218,355 2021 Series A Notes were issued as tax-exempt Green Notes to fund a portion of the Biosolids Digester Facilities Project. The Series A Notes were is sued with 1.0% coupons and a final maturity of 2025. The 2021 Series A Notes have a true interest cost of 0. 8%. As of June 30, 2023 and 2022, the principal amount of 2021 Series A Notes outstanding was $218,355.

The $129,110 2021 Series B Notes were issued as tax-exempt Green Notes to fund a portion of Southeast Water Pollution Control Plant improvements. The Series B Notes were issued with 1.0% coupons and a final maturity of 2026. The 2021 Series B Notes have a true interest cost of 0.8%. As of June 30, 2023 and 2022, the principal amount of 2021 Series B Notes outstanding was $129,110.
(l) Wastewater Revenue Refunding Bonds 2022 Series B
In July 2022 , the Enterprise issued tax -exempt revenue bonds, 202 2 Series B in the aggregate principal amount of $137,080 on a forward delivery basis. The 2022 Series B bonds were issued for the purpose of refunding a p ortion of the outstanding 2013 Series A bonds maturing on October 1, 2024 and October 1, 2025 and a portion of the outstanding 2013 Series B bonds maturing on October 1, 2024 through October 1, 2034 . The bonds carried “Aa2” and “AA” ratings from Moody’s and S&P, respectively.

The 2022 Series B bonds include serial bonds, each with an interest rate of 5% and have a final maturity in 2034. The Series B bonds have a true interest cost of 3. 2%. The refunding resulted in the recognition of a deferred accounting gain of $6,868, gross debt service savings of $12,446, and an economic gain of $12,012 or 8.0% of refunded bonds. As of June 30, 2023, the principal amount of the 2022 Series B bonds outstanding was $137,080.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

44 (Continued)

(m) Wastewater Revenue Refunding Bonds 2023 Series ABC
In April 2023, the Enterprise issued tax -exempt revenue bonds, 2023 Series ABC in the aggregate principal amount of $ 974,380. The purpose of the 2023 Series ABC bonds was to refund approximately $557,845 aggregate principal amount of commercial paper notes, finance various capital projects of the Enterprise, and refund certain outstanding revenue bonds. The bonds carried “Aa2” and “AA” ratings from Moody’s and S&P, respectively.

The $530,565 2023 Series A bonds were issued as tax -exempt Green Bonds to refund approximately $400,900 of commercial paper notes for SSIP capital projects and finance certain capital projects benefitting the Enterprise . The Series A bonds were issued as serial bonds with coupons of 5.0% and 5. 3% and a final maturity of 2042. The 2023 Series A bonds have a true interest cost of 2.9%. As of June 30, 2023, the principal amount of the 2023 Series A bonds outstanding was $530,565.

The $278,155 2023 Series B bonds were issued as tax -exempt bonds to refund a portion of the outstanding 2013 Series B bonds maturing on October 1, 2035 through October 1, 2039, refund approximately $156,900 of commercial paper notes for certain cap ital projects benefitting the Enterprise and finance certain capital projects benefitting the Enterprise. The Series B bonds were issued as serial bonds with coupons of 4.0% and 5.0% and a final maturity of 2042. The Series B bonds have a true interest cos t of 3.0%. The refunding resulted in the recognition of a deferred accounting gain of $5,316 and gross debt service savings of $10,626. As of June 30, 2023, the principal amount of the 2023 Series B bonds outstanding was $278,155.

The $165,660 2023 Series C bonds were issued as tax -exempt Green Bonds to refund all of the outstanding 2018 Series C bonds. The Series C bonds were issued as serial bonds with a coupon of

4.0% and a final maturity of 2048. The 2023 Series C bonds have a true interest cost of 3.5 %. The refunding resulted in the recognition of a deferred accounting gain of $963, gross debt service savings of $24,606, and an economic gain of $15,785 or 8.8% of refunded bonds. As of June 30, 2023, the principal amount of the 2023 Series C bonds outstanding was $165,660.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

45 (Continued)

(n) Future Annual Debt Services of Revenue Bonds, Notes, and Refunding Bonds The following table presents the future annual debt service relating to the revenue and refunding bonds and revenue notes outstanding as of June 30, 2023. The interest before subsidy amounts includes the interest for 2010 Series B, 2013 Series A and B, 2016 Series A and B , 2018 Series A and B, 2021 Series A and B bonds, 2021 Series A and B notes, 2022 Series B, and 2023 Series A, B, and C bonds. The federal interest subsidy amounts represent 35 .0% of the interest, excluding sequestration, for the 2010 Series B revenue bonds.

*The SFPUC received an IRS notice, dated May 25, 2023, that the federal interest subsidy on the 2010 Series B bonds is reduced by

5.7% through fiscal year 2030, or a total reduction of $2, 113, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.

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).

(o) 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 d 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.

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 Ma rch 2014 under a property lease in exchange for the proceeds of the sale of the certificates. The Trustee has leased the property back Interest Federal Interest
before interest net
Principal subsidy subsidy* of subsidy
Fiscal years ending June 30:
2024 $ 28,070 114,379 (3,356) 111,023
2025 35,370 115,140 (3,235) 111,905
2026 256,815 112,242 (3,105) 109,137
2027 199,405 107,815 (2,968) 104,847
2028 77,225 103,460 (2,822) 100,638
2029-2033 540,075 438,987 (11,623) 427,364
2034-2038 520,935 303,416 (6,675) 296,741 2039-2043 526,905 179,593 (1,173) 178,420 2044-2048 378,985 77,465 — 77,465 2049-2052 181,350 13,138 — 13,138 2,745,135 1,565,635 (34,957) 1,530,678
Less: Current portion (28,070)
Add: Unamortized bond premiums 341,331
Long-term portion as of June 30, 2023 $ 3,058,396

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

46 (Continued)

to the City for the City’s use under a project lease. The City is obligated under the project lease to pay base rental pa yments 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 certifi cates of participation 2009 Series D outstanding as of June 30, 2023 are as follows:

*The SFPUC received an IRS notice dated May 25, 2023, that the federal interest subsidy on the 2009 Series D bonds is reduced by 5.7% through fiscal year 2030 , or a total reduction of $ 339, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.

(p) 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 Infrastructure 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 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; completion was in October 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, 2023 and 2022, the principal amount outstanding of the loan was $5,945 and $6,112, respectively.

Interest Federal Interest
before interest net of
Principal subsidy subsidy* subsidy
Fiscal years ending June 30:
2024 $ 864 1,551 (512) 1,039
2025 900 1,494 (493) 1,001
2026 937 1,436 (474) 962
2027 977 1,375 (454) 921
2028 1,019 1,312 (433) 879
2029-2033 5,773 5,502 (1,816) 3,686 2034-2038 7,117 3,421 (1,129) 2,292 2039-2042 6,871 915 (302) 613 Total 24,458 17,006 (5,613) 11,393
Less: Current portion (864)
Long-term portion as of June 30, 2023 $ 23,594

Certificates of Participation 2009
Series D (Taxable)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

47 (Continued)

(q) 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, 007. 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 July 2019. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outsta nding revenue bonds. The SFPUC has received proceeds from loan disbursements to date totaling $39,741. As of June 30, 2023 and 2022, the principal amount outstanding of the loan was $36,409 and $37,450, respectively. (r) 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 Impr ovement Program. The aggregate amount of the CWSRF loans 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 CWSRF 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 wi th the Enterprise’s outstanding revenue bonds. The SFPUC has received proceeds from loan disbursements to date totaling $17,706. As of June 30, 2023 and 2022, the principal amount outstanding of the loan was $15,231 and $15,710, respectively.
(s) 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 CWSRF 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, 2023 and 2022, the principal amount outstanding of the loan was $25,254 and $26,048, respectively.
(t) 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,

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

48 (Continued)

with loan repayment beginning one year after substantial completion of each project’s construction .

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

The SFPUC has received proceeds from loan disbursements to date totaling $ 33,230, which included a loan forgiveness grant of $4,000. As of June 30, 20 23 and 2022, the principal amount outstanding of the loan was $29,230 and $24,661, respectively. (u) 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 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 substant ial 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 . The SFPUC has received proceeds from loan disbursements to date totaling $132,000, which include s a $4,000 loan forgiveness grant . As of June 30, 2023 and 2022, the principal amount outstanding of the loan was $128,000. (v) 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) Replacement Project of the Sewer System Improvement Program. The CWSRF loan is in the amount of $112,03 6.

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. The SFPUC has receiv ed proceeds from loan disbursements to date totaling $ 64,678 and a receivable for reimbursement of $13,942. As of June 30, 2023 and 2022, the principal amount outstanding of the loan was $78,620 and $64,678, respectively.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

49 (Continued)

(w) Future Annual Debt Services of State Revolving Fund Loans (CWSRF Loans) The future annual debt services relating to the SRF 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 Upgrade Project , the OSP Digester Gas Utilization Upgrade Project , the SEP Biosolids Digester Facilities Project , and the SEP New Headworks (Grit) Replacement Project outstanding as of June 30, 2023 are as follows:

* Interest and Fees included debt admin fees for the North Point Facility and SEP Clarifier Upgrade SRF loans.

(x) 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 purs uant to the WIFIA statute authorized by Congress in 2014. The WIFIA Loan will fund 49% of the costs of the Wastewater Enterprise’s Biosolids Digester Facility Project plus certain eligible expenses. Payment of the WIFIA Loan will be secured by a senior lie n 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 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 t o have a fixed interest rate of 1.45% for a 35-year term. All other terms of WIFIA Loan Agreement are unchanged.

In March of 2023, the SFPUC received disbursement of $122,283 in respect to eligible project costs and a capitalized interest of $74 added to principal. As of June 30, 2023, the principal amount of the loan outstanding was $122,357.

California Clean Water State Revolving Fund Loans Principal Interest
and Fees* Total
Fiscal years ending June 30:
2024 $ 2,526 1,479 4,005
2025 5,588 2,708 8,296
2026 5,669 2,627 8,296
2027 9,215 4,336 13,551
2028 9,347 4,204 13,551
2029-2033 48,792 18,960 67,752
2034-2038 52,411 15,341 67,752
2039-2043 56,308 11,444 67,752
2044-2048 60,505 7,247 67,752
2049-2053 48,755 3,197 51,952
2054-2056 19,573 481 20,054
318,689 72,024 390,713
Less: Current portion (2,526)
Long-term portion as of June 30, 2023 $ 316,163

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

50 (Continued)

(y) 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, 2023.
(z) WIFIA Master Loan Agreement and Project 1 Loan Agreement In April 2023, the SFPUC entered into a “Water Infrastructure Finance and Innovation Act (WIFIA )” Master Agreement and Project 1 Loan Agreement with the United States Environmental Protection Agency. The WIFIA Master Agreement and Project 1 Loan was entered into pursuan t to the “Water Infrastructure Finance and Innovation Act (WIFIA)” authorized by Congress in 2014. The SFPUC entered the WIFIA Master Loan Agreement with the EPA in an amount not to exceed $791,337 to provide partial funding for projects in the Wastewater Enterprise Capital Plan. The Master Agreement defines the general terms for funding a series of WIFIA loans, the first of which is the “Project 1 Loan Agreement”. The incurrence of the Project 1 Loan Agreement, in an aggregate initial principal amount not to exceed $369,335, will provide partial funding for six Wastewater Enterprise capital improvement projects. Those projects are Westside Pump Station Reliability Improvements, North Shore Pump Station Wet Weather Improvements, Wawona Area Stormwater Improv ement, New Treasure Island Wastewater Treatment Plant, Folsom Area Stormwater Improvement, and Yosemite Creek Daylighting. Proceeds of the loan will fund 49% of project costs plus eligible expenses. The Project 1 Loan is on a parity lien basis with the SFP UC’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 3.65% for a 32-year term, with loan repayment exp ected to begin in fiscal year 2033. The SFPUC has not yet submitted any requests for loan disbursements to date and there is no outstanding loan principal as of June 30, 2023.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

51 (Continued)

(aa) Future Annual Debt Services of WIFIA Loans
The future annual debt services relating to the WIFIA Loan to fund the Biosolids Digester Facility Project outstanding as of June 30, 2023 are as follows:

(bb) Events of Default and Remedies
In accordance with GASB Statement No. 88, Certain Disclosures Related 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, 2023 and 2022, there were no such events described herein.
(8) Revenue Pledge
The Enterprise has pledged future revenues to repay various revenue bonds , notes, SRF, and WIFIA loans. Proceeds from the revenue bonds , revenue notes, SRF, and WIFIA loans provided financing for various capital construction projects, and to refund previously issued bonds. The bonds, notes, SRF, and WIFIA loans are payable through fiscal years 2052, 2027, 2056, and 2059, respectively, and are solely from revenues of the Enterprise.

Water Infrastructure Finance and Innovation Act (WIFIA) Loans Principal Interest Total Fiscal years ending June 30:
2024 $ — — —
2025 — — —
2026 — 886 886
2027 — 1,773 1,773
2028 — 1,773 1,773
2029-2033 — 8,866 8,866
2034-2038 — 8,866 8,866
2039-2043 — 8,866 8,866
2044-2048 20,166 8,328 28,494
2049-2053 41,698 6,108 47,806
2054-2058 49,610 2,813 52,423
2059 10,883 119 11,002
122,357 48,398 170,755
Less: Current portion —
Long-term portion as of June 30, 2023 $ 122,357

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

52 (Continued)

The original amount of revenue bonds issued , revenue notes issued, SRF loans, and WIFIA loans, total principal and interest remaining, principal and interest paid during fiscal years 20 23 and 20 22, applicable net revenues, and funds available for debt service are as follows:

(9) Leases
The Enterprise as a lessee has entered into long-term leases for land, office space, communication site, data processing, machinery, and other equipment. The terms and conditions for these leases var y, which range between 1-75 years.

A summary of intangible right-to-use lease s during the year ended June 30, 202 3 and 202 2 is as follows:

2023 2022
Bonds issued with revenue pledge $ 3,029,385 1,964,975 Notes issued with revenue pledge 347,465 347,465
Clean Water State Revolving Fund (CWSRF) loans with revenue pledge 328,776 310,265 WIFIA loans with revenue pledge 122,357 —
Principal and interest remaining due at the end of the year 4,872,238 3,730,462 Principal and interest paid during the year 98,811 86,619 Net revenues for the year ended June 30 178,850 155,504 Funds available for debt service 313,443 310,835
Balance Balance
July 1, 2022 Increases Decreases Remeasurements June 30, 2023 Right-to-use assets:

Building/Facility $ 8,247 — — — 8,247 Total lease assets 8,247 — — — 8,247 Less accumulated amortization:

Right-to-use assets:

Building/Facility (4,650) (2,325) — — (6,975) Total accumulated
amortization (4,650) (2,325) — — (6,975) Total lease assets, net $ 3,597 (2,325) — — 1,272 Balance Balance
July 1, 2021 Increases Decreases Remeasurements June 30, 2022 Right-to-use assets:

Building/Facility $ 8,247 — — — 8,247 Total lease assets 8,247 — — — 8,247 Less accumulated amortization:

Right-to-use assets:

Building/Facility (2,325) (2,325) — — (4,650) Total accumulated
amortization (2,325) (2,325) — — (4,650) Total lease assets, net $ 5,922 (2,325) — — 3,597

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

53 (Continued)

A summary of changes in the related lease liabilities during the year ended June 30, 2023 and 2022 is as follows:

Future annual lease payments as of June 30, 2023 and 2022 are as follows:

Variable Lease Payments
Variable lease payments, other than those payments that depend on an index or rate or are fixed in substance, are excluded for the measurement of the lease liability. Such amounts are recognized as lease expenses in the period in which the obligation for those payments is incurred.

Certain equipment or facility rental leases require the Enterprise to make variable lease payments that based on usage, related to the property taxes levied on the lessor, and insurance payments made by the lessor, these amounts are generally determined annually. The amounts recognized as expense for variable lease payments not included in the measurement of the lease liability were $673 and $207 during the year ended June 30, 2023 and 2022, respectively.

Amounts
Balance Balance Due Within
July 1, 2022 Additions Remeasurements Deductions June 30, 2023 One Year Lease liabilities $ 3,638 — — (2,341) 1,297 1,297 Total $ 3,638 — — (2,341) 1,297 1,297 Amounts
Balance Balance Due Within
July 1, 2021 Additions Remeasurements Deductions June 30, 2022 One Year Lease liabilities $ 5,952 — — (2,314) 3,638 2,341 Total $ 5,952 — — (2,314) 3,638 2,341 Principal Interest
Year ending June 30: amount amount Total
2024 $ 1,297 6 1,303
1,297 6 1,303
Less: Current portion (1,297)
Long-term portion as of June 30, 2023 $ —
Principal Interest
Year ending June 30: amount amount Total
2023 $ 2,341 30 2,371
2024 1,297 6 1,303
3,638 36 3,674
Less: Current portion (2,341)
Long-term portion as of June 30, 2022 $ 1,297

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

54 (Continued)

Wastewater Enterprise as Lessor
The Enterprise has leased facilities, easements, communication site and equipment to varies tenants.

The terms and conditions for these leases varies, which ranges between 1–65 years.

Variable payments include percentage of sales, or payments depended on an index made by the lessee; these amounts are generally determined periodically. The Enterprise did no t incur revenue related to residual value guarantees or lease termination penalties. The total amounts for lease revenue, interest revenue, and other lease-related revenues recognized during the year June 30, 2023 and 2022 were $7 and $0, respectively.

Principal and interest requirements to maturity for the lease receivable at June 30, 2023 are as follows:

(10) Subscription-Based Information Technology Arrangements Wastewater Enterprise as Subscriber
The Enterprise has noncancellable subscription arrangements (similar to a lease) for the right to use various information technology hardware and software (SBITAs). The terms and conditions for th ese subscriptions varies, which ranges between 1-5 years.

A summary of intangible right -to-use subscription IT assets during the year ended June 30, 202 3 and June 30, 2022 is as follows:

Year ending June 30: Principal Interest Total
2024 $ 212 38 250
2025 226 32 258
2026 241 26 267
2027 257 19 276
2028 215 12 227
2029-2033 306 13 319
$ 1,457 140 1,597
Balance Balance
July 1, 2022 Increases Decreases Remeasurements June 30, 2023 Subscription assets $ 1,487 — — — 1,487 Less accumulated amortization: (530) (535) — — (1,065) Total subscription IT assets, net $ 957 (535) — — 422 Balance
Balance June 30, 2022
July 1, 2021 Increases Decreases Remeasurements as restated* Subscription assets $ 1,422 65 — — 1,487 Less accumulated amortization: — (530) — — (530) Total subscription IT assets, net $ 1,422 (465) — — 957 *GASB 96 implementation - restatement for subscription assets

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

55 (Continued)

A summary of changes in the related subscription liabilities during the year ended June 30, 2023 and June 30, 2022 is as follows:

Future annual subscription payments as of June 30, 2023 and 2022 are as follows:

(11) 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, in formation about the fiduciary net position of the SFERS Plan, and additions to/deductions from the SFERS Plan’s fiduciary net position have been Amounts
Balance Balance Due Within
July 1, 2022 Additions Remeasurements Deductions June 30, 2023 One Year SBITA IT liabilities $ 944 — — (515) 429 243 Total $ 944 — — (515) 429 243 Balance Amounts
Balance June 30, 2022 Due Within
July 1, 2021, Additions Remeasurements Deductions as restated* One Year SBITA IT liabilities $ 1,422 — — (478) 944 515 Total $ 1,422 — — (478) 944 515 *GASB 96 implementation - restatement for subscription liabilities Principal Interest
Year ending June 30: amount amount Total
2024 $ 243 4 247
2025 93 2 95
2026 93 1 94
429 7 436
Less: Current portion (243)
Long-term portion as of June 30, 2023 $ 186
Principal Interest
Year ending June 30: amount amount Total
2023 $ 515 8 523
2024 243 4 247
2025 93 2 95
2026 93 1 94
944 15 959
Less: Current portion (515)
Long-term portion as of June 30, 2022 $ 429

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

56 (Continued)

determined on the same basis as they are reported by the SFERS Plan. Benefit payments (including refunds of emp loyee 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 94.87% as of June 30, 2022 (measurement date), and 94.64% as of June 30, 2021 (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 2022 and 2021. The Enterprise’s net pension liability/(asset), 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 1.99% as of June 30, 2022 and as of June 30, 2021 (measurement dates).

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 conti nuation 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 p ublicly 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.

Valuation Date (VD) June 30, 2021 updated to June 30, 2022 Measurement Date (MD) June 30, 2022
Measurement Period (MP) July 1, 2021 to June 30, 2022
Valuation Date (VD) June 30, 2020 updated to June 30, 2021 Measurement Date (MD) June 30, 2021
Measurement Period (MP) July 1, 2020 to June 30, 2021
Fiscal Year 2023
Fiscal Year 2022

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

57 (Continued)

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, 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 t o 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 il lness 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 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 provisions of this voter-approved proposition were challenged in the Courts. A decision by the Cali fornia 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 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, 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 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.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

58 (Continued)

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

7.5% to 12.0% and 7.5% to 13.0% as a percentage of gross covered salary in fiscal years 2023 and 2022. Most employee groups agreed through collective bargaining for employees to contribute the full amount of the employee contributions on a pretax basis. The Enterprise is required to contribute at an actuarially determined rate. Based on the July 1, 2021 actuarial report, the required employer contribution rate for fiscal year 20 23 was 17.85% to 21.35%. Based on the July 1, 20 20 actuarial report, the required employer contribution rate for fiscal year 2022 was 19.91% to 24.41%.

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 years ended June 30, 2022 and 2021 (measurement periods) were $729,578 and $791,736, respectively. The Enterprise’s allocation of employer contributions for fiscal year 2022 and 2021 were $14,543 and $16,083, respectively.

Pension Liabilities /(Assets), Pension Expenses, Deferred Outflows , and Inflows of Resources Related to Pensions
Fiscal Year 2023
As of June 30, 2023, the City reported net pension liability (NPL) for its proportionate share of the net pension liability of the SFERS Plan of $2,552,996. The City’s NPL/net pension assets (NPA) for each of its cost-sharing plans is measured as a proportionate share of the plans’ NPL/(NPA). The net pension liability of the SFERS Plan is measured as of June 30, 2022 (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, 2021 rolled forward to June 30, 202 2 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 of the pension plan relative to the projected contributions of all participat ing 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, 2023 was $49,549.

For the year ended June 30, 2023, the City’s recognized pension expense was $1,771, which includes Retirement Benefit Plan pension expense of $14,967. The Enterprise’s allocation of pension expense including amortization of deferred outflows/inflows related pension items was ($1,167).

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

59 (Continued)

As of June 30, 2023, the Enterprise reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Fiscal Year 2022
As of June 30, 2022, the City reported net pension assets (NPA) for its proportionate share of the net pension (asset) of the SFE RS Plan of $2, 446,564. The City’s net pension asset for the SFERS Plan is measured as the proportionate share of the net pension asset. The net pension asset of the SFERS Plan is measured as of June 30, 2021 (measurement date), and the total pension (asset) for the SFERS Plan used to calculate the net pension (asset) was determined by an actuarial valuation as of June 30, 20 20 rolled forward to June 30, 202 1 using standard update procedures. The City’s proportion of the net pension (asset) for the SFERS Plan was based on a projection of the City’s long- term share of con tributions 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 (asset) for the SFERS Plan as of June 30, 202 2 was ($48,770).

For the year ended June 30, 202 2, the City’s recognized pension (benefit) was ($922,979), which includes Retirement Benefit Plan pension expense of $28,735. The Enterprise’s allocation of pension (benefit) including amortization of deferred outflows/inflows related pension items was ($20,601).

Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to measurement date $ 12,383 — Differences between expected and actual experience 4,523 — Changes in assumptions 12,874 3,864 Net difference between projected and actual earnings on pension plan investments — 6,159
Change in employer's proportion 2,812 —
Total $ 32,592 10,023
Fiscal Year 2023 Schedule of Deferred Outflows and Inflows of Resources Fiscal years
Deferred
Outflows/(Inflows)
of Resources
2024 $ (1,574)
2025 (2,830)
2026 (6,905)
2027 21,495
Total $ 10,186

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

60 (Continued)

As of June 30, 2022, the Enterprise 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 $ 14,543 — Differences between expected and actual experience 4,479 160 Changes in assumptions 3,300 8,562 Net difference between projected and actual earnings on pension plan investments — 105,948
Change in employer's proportion 3,047 — Total $ 25,369 114,670
Fiscal Year 2022 Schedule of Deferred Outflows and Inflows of Resources Fiscal years
Deferred
Outflows/(Inflows)
of Resources
2023 $ (26,134)
2024 (23,662)
2025 (24,937)
2026 (29,111)
Total $ (103,844)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

61 (Continued)

Actuarial Assumptions
Fiscal Year 2023
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability as of June 30, 2022 (measurement period) is provided below, including any assumptions that differ from those used in the July 1, 2021 actuarial valuation. Refer to July 1, 2021 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 health Miscellaneous members were based upon adjusted PubG -2010 Employee and Retiree tables for non -annuitants and retirees, respectively. Mortality rates were then projected generationally from the base year using the MP-2019 projection scale.

Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability/(Asset) as of June 30, 202 1 (measurement period) is provided below, including any assumptions that differ from those used in the July 1, 20 20 actuarial valuation. Refer to the July 1, 2020 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, 2021 updated to June 30, 2022
Measurement Date June 30, 2022
Actuarial Cost Method Entry-Age Normal Cost
Expected Rate of Return 7.20% net of investment expenses Municipal Bond Yield 2.16% as of June 30, 2021

3.54% as of June 30, 2022
Bond Buyer 20-Bond GO Index, June 24, 2021 and June 30, 2022 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based on employee classification and years of service Discount Rate 7.40% as of June 30, 2021

7.20% as of June 30, 2022
Administrative Expenses 0.60% of payroll as of June 30, 2021

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

62 (Continued)

Mortality rates for health Miscellaneous members were based upon adjusted PubG -2010 Employee and Retiree tables for non -annuitants and retirees, respectively. Mortality rates were then projected generationally from the base year using the MP-2019 projection scale.

The ac tuarial assumptions used at the June 30, 202 1 measurement date was based upon the result of a demographic experience study for the period July 1, 2014 through June 30, 2019 and an economic experience as of July 1, 2020.

Discount Rate
Fiscal Year 2023
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. 20% as of the June 30, 2022 (measurement date) and 7.40% as of June 30, 2021 (measurement date).

The discount rate used to measure the total pension liability as of June 30, 202 2 was 7.20%. 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, 202 1 actuarial valuation. That policy includes contributions equal to the employer portion of the Entry Age normal co sts 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.

2.16% as of June 30, 2021
Bond Buyer 20-Bond GO Index, June 25, 2020 and June 24, 2021 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based on employee classification and years of service Discount Rate 7.40% as of June 30, 2020

7.40% as of June 30, 2021
Administrative Expenses 0.60% of payroll as of June 30, 2020

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

63 (Continued)

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

3.25% each year. The unfunded actuarial liability is based on an actu arial 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 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 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 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 th e current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2022 for the probability and amount of Supplemental COLA for each future year. A full Supplement COLA will be paid to all retired members, and t heir beneficiaries, who were retired effective July 1, 2022. 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 futu re years.

Projected benefit payments are discounted at the long -term expected return on assets of 7. 20% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 3.54% to the extent they are not available. The single equivalent rate used to determine the total pension liability as of June 30, 2022 was 7.20%.

Assumed Supplemental COLA for Members with a 2.00% Basic COLA Fiscal years
2024 0.75 % 0.70 %
2025 0.75 0.60
2026 0.75 0.60
2027+ 0.75 0.50
96 - Prop C
Before 11/6/96
or After Prop C

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

64 (Continued)

The long -term expected rate of return on pension plan investments was 7. 20%. It was set by the Retirement Board after consideration of both expected fu ture 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 cla ss. 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 2022
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, 2021 (measurement date) and June 30, 2020 (measurement date).

The discount rate used to measure the total pension liability as of June 30, 20 21 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, 2020 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 so urce.

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 o ver 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 Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 37.0 % 4.8 %
Private Equity 23.0 7.9
Private Credit 10.0 5.8
Real Assets 10.0 4.7
Hedge Funds/Absolute Returns 10.0 3.4
Treasuries 8.0 0.6
Liquid Credit 5.0 3.5
Leverage -3.0 0.6
Total 100.0
Long-Term Expected Real Rates of Return

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

65 (Continued)

amortization schedules are established as a level percentage of payroll so payments increase

3.25% 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.

While the contributions and measure of actuarial liability in the fund ing 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 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 o n the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2021 for the probability and amount of Supplemental COLA for each future year. A full Supplemental COLA will be paid to all retired members, and their beneficiaries, who were retired effective July 1, 2021. 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 dis count 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.

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 2.16% to the extent they are not available. Th e single equivalent rate used to determine the total pension liability as of June 30, 2021 was 7.40%.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

66 (Continued)

building-block method in which best -estimate ranges of expected future real rates of return were developed for each majo r 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 estimate s 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 (NPL)/Net Pens ion Asset (NPA) to Changes in the Discount Rate – The following presents the Enterprise’s allocation of the employer’s proportionate share of the net pension liability /(asset) for the SFERS Plan, calculated using the discount rate, as well as what the Ente rprise’s allocation of the employer’s proportionate share of the net pension liability/(asset) would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate.

Fiscal Year 2023

Fiscal Year 2022

(b) Other Post-Employment Benefits
The Enterprise participates in the City’s 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 . 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 respective bargaining units. The City does not issue a separate report on its other post - employment benefit plan.

Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 37.0 % 4.2 %
Private Equity 23.0 7.9
Private Credit 10.0 5.1
Real Assets 10.0 5.1
Hedge Funds/Absolute Returns 10.0 2.9
Treasuries 8.0 0.0
Liquid Credit 5.0 2.3
Leverage -3.0 0.1
Total 100.0
Long-Term Expected Real Rates of Return
Employer
1% Decrease Share
of NPL @ 6.20%
Share of NPL
@ 7.20%
1% Increase Share of
NPL @ 8.20%
Wastewater 135,684$ 49,549 (21,459) June 30, 2022 (measurement period)
Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPA
@ 7.40%
1% Increase Share of
NPA @ 8.40%
Wastewater 32,504$ (48,770) (115,868) June 30, 2021 (measurement period)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

67 (Continued)

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, 20 22. The Enterprise’s net OPEB liability, deferred outflows/inflows of resources related to OPEB, amor tization 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, 2022 and 2021 was 1.31% and 1.33%, respectively.

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 65 for Miscellaneous members hired on or after January 7, 2012, under charter Section 8.603. 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 – Blue Shield (self-insured) and UHC Medicare Advantage (fully insured) HMO – Kaiser (fully-insured) and Blue Shield (flex-funded) and Health Net (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, 2022
Measurement Date (MD) June 30, 2022
Measurement Period (MP) July 1, 2021 to June 30, 2022
Valuation Date (VD) June 30, 2020, updated to June 30, 2021 Measurement Date (MD) June 30, 2021
Measurement Period (MP) July 1, 2020 to June 30, 2021
San Francisco Health Service System Retiree Plan - Single Employer Fiscal Year 2023
Fiscal Year 2022

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

68 (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 co mmenced 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 employ ees 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 1 st 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 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 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 year s ending June 30, 20 23 and 2022, the City’s funding was based on “pay -as-you- go” plus a contribution of $45,241 and $41,841 to the Retiree Healthcare Trust Fund , respectively.

The “pay-as-you-go” portion paid by the City was $215,408 for a total contribution of $ 260,649 for the fiscal year ending June 30, 20 23, and $ 211,025 for a total contribution of $252,866 for the fiscal year ending June 30, 2022. The Enterprise’s proportionate share of the City’s contributions for fiscal year 2023 was $3,412, and for fiscal year 2022 was $3,365.

OPEB Liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB Fiscal Year 2023
As of June 30, 2023, the City reported net OPEB liabilities related to the Plan of $3,746,270. The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2023 was $49,035.

For the year ended June 30, 2023, the City’s recognized OPEB expense was $256,974. 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 $4,374.

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

69 (Continued)

As of June 30, 202 3, the Enterprise reported its proportionate share of the City’s deferred outflows and inflows of resources related to OPEB from the following sources:

Fiscal Year 2022
As of June 30, 2022, the City reported net OPEB liabilities related to the Plan of $3,691,122. The Enterprise’s proportionate share of the City’s net OPEB liability as of June 30, 2022 was $49,123.

For the year ended June 30, 2022, the City’s recognized OPEB expense was $272,001. 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 $5,364.

Wastewater #REF!
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 3,412$ -$ Differences between expected and actual experience 1,089 8,164 Changes in assumptions 2,093 -
Net difference between projected and actual earnings
on plan investments 789 -
Change in proportion 4,110 122
Total 11,493$ 8,286$
Year ended June 30:
2024 (137) $
2025 (124)
2026 369
2027 236
Thereafter (549)
Total (205) $

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

70 (Continued)

As of June 30, 2022, the Enterprise reported its pro portionate share of the City’s deferred outflows and inflows of resources related to OPEB from the following sources:

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

Wastewater #REF!
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date 3,365$ -$ Differences between expected and actual experience 1,476 7,564 Changes in assumptions 2,076 -
Net difference between projected and actual earnings
on plan investments - 930
Change in proportion 5,981 146
Total 12,898$ 8,640$
Year ended June 30:
2023 291$
2024 288
2025 301
2026 231
2027 95
Thereafter (313)
Total 893$

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

71 (Continued)

Actuarial Assumptions
Fiscal Year 2023
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2022 (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, 2022
Measurement Date June 30, 2022
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 7.74% trending down to ultimate rate of 3.93% in 2076 Medicare trend starts at 7.74% trending down to ultimate rate of 3.94% in 2076 10-County average trend starts at 5.00% trending down to ultimate rate of 3.94% in 2076 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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

72 (Continued)

Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2021 (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, updated to June 30, 2021
Measurement Date June 30, 2021
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 6.74% trending down to ultimate rate of 4.04% in 2075 Medicare trend starts at 7.24% trending down to ultimate rate of 4.04% in 2075 10-County average trend starts at 5.50% 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):

Adjustment Factor
Adjustment Factor
Adjustment Factor
Adjustment Factor

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

73 (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 2023
The discount rate used to measure the Total OPEB Liability as of June 30, 2022 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 proje cted 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.

Fiscal Year 2023
Employer -1.00% Healthcare Trend 1.00%
Wastewater $ 41,948 $ 49,035 $ 57,824 Fiscal Year 2022
Employer -1.00% Healthcare Trend 1.00%
Wastewater $ 41,812 $ 49,123 $ 58,236

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

74 (Continued)

The long -term expected rate of return on OPEB plan investmen ts 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 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:

Asset Class
Equities
U.S. Large Cap 28.0% 6.8%
U.S. Small Cap 3.0% 7.4%
Developed Market Equity (non-U.S.) 15.0% 7.5%
Emerging Market Equity 13.0% 8.4%
Credit
Bank Loans 3.0% 4.0%
High Yield Bonds 3.0% 4.4%
Emerging Market Bonds 3.0% 4.2%
Rate Securities
Investment Grade Bonds 9.0% 2.4%
Long-term Government Bonds 4.0% 2.8%
Short-term Treasury Inflation Protected Securities 4.0% 1.9% Private Markets
Private Equity 5.0% 10.0%
Core Private Real Estate 5.0% 6.1%
Risk Mitigating Strategies
Global Macro 5.0% 5.0%
Total 100.0%
Long-term
Expected Real
Rate of Return
Target
Allocation
Employer
1% Decrease Share
of NOL @ 6.00%
Discount Rate @

7.00%
1% Increase Share
of NOL @ 8.00%
Wastewater 57,086$ 49,035$ 42,429$ June 30, 2022 (measurement period)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

75 (Continued)

Fiscal Year 2022
The discount rate used to measure the Total OPEB Liability as of June 30, 202 1 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 o f 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:

Asset Class
Equities
U.S. Large Cap 28.0% 8.2%
U.S. Small Cap 3.0% 9.5%
Developed Market Equity (non-U.S.) 15.0% 8.9%
Emerging Market Equity 13.0% 11.0%
Credit
Bank Loans 3.0% 4.4%
High Yield Bonds 3.0% 4.4%
Emerging Market Bonds 3.0% 4.3%
Rate Securities
Investment Grade Bonds 9.0% 1.9%
Long-term Government Bonds 4.0% 3.2%
Short-term Treasury Inflation Protected Securities 4.0% 1.5% Private Markets
Private Equity 5.0% 13.0%
Core Private Real Estate 5.0% 6.2%
Risk Mitigating Strategies
Global Macro 5.0% 4.4%
Total 100.0%
Long-term
Expected Real
Rate of Return
Target
Allocation
Employer
1% Decrease Share
of NOL @ 6.00%
Discount Rate @

7.00%
1% Increase Share
of NOL @ 8.00%
Wastewater 57,442$ 49,123$ 42,328$ June 30, 2021 (measurement period)

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

76 (Continued)

The City issues a publicl y 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, Off ice of the Controller, 1 Dr. Carlton B. Goodlett Place, Room 316, San Francisco, California 94102, or by calling (415) 554-7500.
(12) Related Parties
Various common costs incurred by the Commission are allocated among the Enterprise, Hetch Hetchy Water and Powe r 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 available. The administrative costs of $32,909 or

28.8%, which included COVID -19 Project expenses , and $32,212 or 3 0.0% were allocated to the Enterprise for the years ended June 30, 2023 and 2022, respectively.

The Enterprise purchases electricity from Hetch Hetchy Power at market rates. This amount, totaling $14,876 and $11,887 for the years ended June 30, 2023 and 2022, 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 $1,552 and $1,819 for the years ended June 30, 2023 and 2022, 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 $9,156 and $13,099 for the years ended June 30, 2023 and 2022, 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 $15,414 and $12,840 for the years ended June 30, 2023 and 20 22, respectively, have been included in services provided by other departments in the accompanying financial statements.

As of June 30, 2023 and 2022, the Enterprise has payables in the amount of $2,102 and $0, respectively, to MTA related to Walsh settlement and $518 and $629, respectively, which is associated with the SFPUC Headquarters Living Machine system. As of June 30, 2023 and 2022, the Enterprise has payable of $0 to the City Attorney’s Office for legal services provided.

As of June 30, 202 3, the Enterprise has interfund receivable of $ 128 from DPW for the Mission Bay South custom work project . In fiscal year 202 2, the Enterprise has interfund receivable of $2 24,

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

77 (Continued)

consisting of $118 from the DPW for custom work projects and $106 from the Academy of Sciences for sewer charges.

As of June 30, 2023, the Enterprise has no receivable due from the City’s component unit. In fiscal year 2022, the Enterprise has receivables due from the City’s component unit consisting of $1,014 from the Treasure Island Development Authority for capacity charges and $1 from the Office of Community Investment and Infrastructure (OCII) for the Candlestick Point Project.

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, 20 23, the Enterprise’s allocable shares of expenses and prepayment were $21 and $1,124, respectively, and as of June 30, 2022 were $22 and $1,145, 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 reconstructio n 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, 2023, the Enterprise’s expenses and prepayment were $17 and $421, respectively, and as of June 30, 2022 were $17 and $438, respectively.
(13) 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. 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 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 fi nancing covenants, the Enterprise obtains commercial insurance. At least annually, the City 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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

78 (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 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, 2023 and 2022 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 si ze 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 implement improved programs, 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 paid and End of
Fiscal years year Claims changes in estimates year
2023 12,045 $ 2,716 (10,411) 4,350 2022 16,713 8,812 (13,480) 12,045

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

79 (Continued)

The changes in the liabilities for workers’ compensation for the years ended June 30, 20 23 and 2022 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, while ensuring the full scope of work be covered with satisfactory levels to limit the Enterprise’s risk exposure. Once construction is complete, the Enterprise p erforms 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 various 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
2023 7,546$ 2,976 (2,524) 7,998 2022 6,582 3,207 (2,243) 7,546

SAN FRANCISCO WASTEWATER ENTERPRISE

Notes to Financial Statements
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

80 (j) Errors and Omissions
Errors and omissions , also known as Professional 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 scope of construction or professional service contracts.

Examples of such contracts a re 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 const ruction projects for the full value of construction.

(14) Commitments and Litigation
(a) Commitments
As of June 30, 2023 and 2022, the Enterprise has outstanding commitments with third parties of $762,085 and $1,037,607, 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 , 202 3, and 20 22, the Enterprise recorded $7,800 and $8,060 in pollution remediation liability , respectively . The decrease of $260 in pollution remediation liability in fiscal year 2023 is due to payments of violation penalties of $240 at the Southeast Plant for the discharge of secondary treated and disinfected wastewater and $20 at the Oceanside Plant for failure to meet the District permit condition-imposed standards relating to gas released into the atmosphere from digesters. As of June 30, 202 3, the pollution remediation liability of $ 7,800 was for the Yosemite Creek toxic sediments. In fiscal year 2022, the pollution remediation liability of $8,060 consisted of $7,800 for the Yosemite Creek toxic sediments and $260 aggregate violation fines at the Southeast Plant and Oceanside Plant.
www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA94596
81 Independent Auditor’s 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
Honorable Mayor and the 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 contai ned in Government Auditing Standards issued by the Comptroller General of the United States ( Government Auditing Standards ), the financial statements of the San Francisco Wastewater Enterprise (the Enterprise), an enterprise fund of the City and County of San Francisco (City), as of and for the year ended Ju ne 30, 2023, and the related notes to the financial statements, and have issued our report thereon dated December 26, 2023.

Accordingly, we do not express an opinion on the effectiveness of the Enterprise’s internal control.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Ent erprise’s financial statements are free from material misstatement, we performed tests of its complianc e 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 tests disclosed no instances of noncompliance or other matters that a re required to be reported under Government Auditing Standards.
82 Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. A ccordingly, this communication is not suitable for any other purpose.

Walnut Creek, California
December 26, 2023

44 (Continued)

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 4
Basic Financial Statements:

Statements of Net Position 34
Statements of Revenues, Expenses, and Changes in Net Position 36 Statements of Cash Flows 37
Notes to Financial Statements 39
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 100

www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA94596
1 Independent Auditor’s Report
Honorable Mayor and the Board of Supervisors
City and County of San Francisco, California
Opinions
We have audited the financial statements of each major fund of Hetch Hetchy Water and Power and CleanPowerSF (Hetch Hetchy), an enterprise fund of the City and County of San Francisco (City), as of and for the year ended June 30, 2023, and the related notes to the financial statements, as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Hetch Hetchy as of June 30, 2023, and the changes in financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Hetch Hetchy, and to meet our other ethical respo nsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Emphasis of Matters
As discussed in Note 1, the financial statements present only Hetch Hetchy and do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2023 and 2022, the changes in its financial position, or, where applicable, its cash flows for th e years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

As discussed in Note 2 to the financial statements, effective J uly 1, 2021, Hetch Hetchy adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription- Based Information Technology Arrangements. Our opinion is not modified with respect to this matter.

Other Matter
The financial statements of Hetch Hetchy as of and for the year ended June 30, 2022, were audited by another auditor, who expressed an unmodified opinion on those statements on January 27, 2023.

Responsibilities of Management for the Financial Statements Hetch Hetchy’s management is responsible for the preparation an d fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.
2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
 Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purp ose of expressing an opinion on the effectiveness of Hetch Hetchy’s internal control. Accordingly, no such opinion is expressed.  Evaluate the appropriateness of acc ounting policies used and the reasonableness of significant accounting estimates made by m anagement, as well as evaluate the overall presentation of the financial statements.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis , as listed in the table of contents, be presented to supplement the financial statements. Such information is the responsibility of management and, although not a part of the financial statements, is required by the Governmental Accounting Standard s Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, 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 financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assuran ce on the information because the limited procedures do not provide us with sufficient evidence t o 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 December 26, 2023 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 other matters. The purpose of that report is solely to desc ribe 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 3 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.

Walnut Creek, California
December 26, 2023

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

4 (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, 2023 and 2022. Management’s Discussion and Analysis (MDA) is intended to serve as an introduction to the Enterprise’s financial state ments. 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.

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 Nat ional Park and the Stanislaus National Forest during extremely dry years. As the snow melts, it collects in the SFPUC’s storage reservoirs , then flows by gravity through over 150 miles of pipelines and tunnels, it turns the turbines in three hydroelectric powerhouses, generating approximately 1.3 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 61% of the electricity generated by Hetchy Power was used to provide electric service to the City’s municipal customers (including the San Francisco Municipal Transportation Agency (SFMTA), 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 Water and Wastewater Enter prises). The remaining 39% of electricity generated was 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 s tand-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

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

5 (Continued)

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 meeting 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 power facilities, smaller dams and reservoirs, water transmission systems, power generation 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 additional renewables, distributed generation, 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

A portion of Hetch Hetchy’s operating budget , capital program, 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.

CleanPowerSF

CleanPowerSF is a community choice aggregation (CCA) program made possible by the 2002 passage of California Assembly Bill 117, enabling communities to purchase power on behalf of their residents and businesses and creating competition in power generation since May 2016. The core business is to provide greener electricity generation to residential and commercial consumers that are retail distribution customers of Pacific Gas and Electric Company (PG&E) in San Francisco. 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.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

6 (Continued)

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. The program serves more than 380,000 customer accounts and provides San Francisco with an electricity supply from its default “Green” product that is at least 50% California State Renewables Portfolio Standard (RPS)-eligible.

Additionally, CleanPowerSF offers “SuperGreen”, a 100% RPS-eligible electricity supply, that is available to customers for a small additional cost. On June 1, 2022, CleanPowerSF opened enrollment for its “SuperGreen Saver” product, which provides eligible low -income ratepayers residing in neighborhoods t hat meet the State of California’s criteria as Disadvantaged Communities with 100% RPS-eligible electricity at a 20% bill discount.

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 nature 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 recov ered its costs through 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 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 c hanges 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 ev ent 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.

Financial Analysis

Financial Highlights for Fiscal Year 2023

Hetch Hetchy

• Total assets of Hetch Hetchy exceeded total liabilities by $901,552.

• Net position increased by $82,798 or 10.0% during the fiscal year.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

7 (Continued)

• Capital assets, net of accumulated depreciation and amortization, increased by $80,057 or 10.2% to $866,700.

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $103,030 or 21.4% to $583,477.

• Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $65,584 or 13.9% to $536,343.

Hetchy Water

• Total assets of Hetchy Water exceeded total liabilities by $269,248.

• Net position increased by $24,946 or 10.0% during the fiscal year.

• Capital assets, net of accumulated depreciation and amortization, increased by $ 18,747 or 9.3% to $219,754.

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $3,385 or 6.9% to $52,697.

• Operating expenses, excluding other non -operating expenses, decreased by $2,288 or 4.4% to $50,011.

Hetchy Power

• Total assets of Hetchy Power exceeded total liabilities by $512,386.

• Net position increased by $24,171 or 4.9% during the fiscal year.

• Capital assets, net of accumulated depreciation and amortization, increased by $61,310 or 10.5% to $646,946.

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $30,761 or 17.8% to $204,003.

• Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $35,209 or 22.5% to $191,552.

CleanPowerSF

• Total assets of CleanPowerSF exceeded total liabilities by $119,918.

• Net position increased by $33,681 or 39.9% during the fiscal year.

• CleanPowerSF had no capital assets, net of accumulated depreciation and amortization as of June 30, 2023.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

8 (Continued)

• Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $68,884 or 26.7% to $326,777.

• Operating expenses, excluding interest expenses increased by $32,663 or 12.5% to $294,780.

Financial Highlights for Fiscal Year 2022

Hetch Hetchy

• Total assets of Hetch Hetchy exceeded total liabilities by $893,580.

• Net position increased by $43,483 or 5.5% during the fiscal year.

• Capital assets, net of accumulated depreciation and amortization, increased by $ 117,106 or 17.5% to $786,643.

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $89,276 or 22.8% to $480,447.

• Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $61,889 or 15.1% to $470,759.

Hetchy Water

• Total assets of Hetchy Water exceeded total liabilities by $276,425.

• Net position increased by $24,521 or 10.9% during the fiscal year.

• Capital assets, net of accumulated depreciation and amortization, increased by $23,526 or 13.3% to $201,007.

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $2,222 or 4.7% to $49,312.

• Operating expenses, excluding other non -operating expenses, in creased by $1,780 or 3.5% to $52,299.

Hetchy Power

• Total assets of Hetchy Power exceeded total liabilities by $527,477.

• Net position increased by $21,719 or 4.6% during the fiscal year.

• Capital assets, net of accumulated depreciation and amortization, increased by $93,580 or 19.0% to $585,636.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

9 (Continued)

• Operating revenues, excluding interest and investment income, and other non -operating revenues, increased by $36,859 or 27.0% to $173,242.

• Operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $10,703 or 7.3% to $156,343

CleanPowerSF

• Total assets of CleanPowerSF exceeded total liabilities by $89,678.

• Net position decreased by $2,757 or 3.2% during the fiscal year.

• CleanPowerSF had no capital assets, net of accumulated depreciation and amortization as of June 30, 2022.

• Operating revenues, excluding interest and investment income, and other non-operating revenues, increased by $50,195 or 24.2% to $257,893.

• Operating expenses, excluding interest expenses increased by $49,406 or 23.2% to $262,117.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

10 (Continued)

Financial Position

The following tables summarize Hetch Hetchy’s changes in net position:

*Restated per Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription -Based Information Technology Arrangements (SBITAs).

Restated 2023-2022 2022-2021
2023 2022* 2021 Change Change
Total assets:

Current and other assets $ 543,346 500,800 469,507 42,546 31,293 Capital assets, net of accumulated
depreciation and amortization 866,700 786,643 669,537 80,057 117,106 Total assets 1,410,046 1,287,443 1,139,044 122,603 148,399 Deferred outflows of resources:

Pensions 20,976 15,731 18,133 5,245 (2,402) Other post-employment benefits 8,226 8,069 8,719 157 (650) Total deferred outflows of resources 29,202 23,800 26,852 5,402 (3,052) Liabilities:

Current liabilities:

Bonds 1,590 1,966 1,928 (376) 38 Certificates of participation 445 427 405 18 22 Commercial paper — 40,019 114,671 (40,019) (74,652) Other liabilities 104,704 94,902 83,058 9,802 11,844 Subtotal current liabilities 106,739 137,314 200,062 (30,575) (62,748) Long-term liabilities:

Bonds 189,342 192,520 44,384 (3,178) 148,136 Certificates of participation 12,148 12,593 13,026 (445) (433) Commercial paper 116,352 — — 116,352 —
Other liabilities 83,913 51,436 114,392 32,477 (62,956) Subtotal long-term liabilities 401,755 256,549 171,802 145,206 84,747 Total liabilities:

Bonds 190,932 194,486 46,312 (3,554) 148,174 Certificates of participation 12,593 13,020 13,431 (427) (411) Commercial paper 116,352 40,019 114,671 76,333 (74,652) Other liabilities 188,617 146,338 197,450 42,279 (51,112) Total liabilities 508,494 393,863 371,864 114,631 21,999 Deferred inflows of resources:

Related to pensions 10,500 82,029 3,288 (71,529) 78,741 Other post-employment benefits 9,775 7,670 6,546 2,105 1,124 Total deferred inflows of resources 20,275 89,699 9,834 (69,424) 79,865 Net position:

Net investment in capital assets 556,035 553,169 500,547 2,866 52,622 Restricted for debt service 56 140 99 (84) 41 Restricted for capital projects 5,233 — — 5,233 — Restricted for other purposes — 32,749 — (32,749) 32,749 Unrestricted 349,155 241,623 283,552 107,532 (41,929) Total net position $ 910,479 827,681 784,198 82,798 43,483 Table 1A - Consolidated Hetch Hetchy
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

11 (Continued)

*Restated per GASB Statement No. 96, SBITAs.

Restated 2023-2022 2022-2021
2023 2022* 2021 Change Change
Total assets:

Current and other assets $ 91,112 110,066 98,225 (18,954) 11,841 Capital assets, net of accumulated
depreciation and amortization 219,754 201,007 177,481 18,747 23,526 Total assets 310,866 311,073 275,706 (207) 35,367 Deferred outflows of resources:

Pensions 8,858 6,696 7,799 2,162 (1,103) Other post-employment benefits 3,248 3,272 3,725 (24) (453) Total deferred outflows of resources 12,106 9,968 11,524 2,138 (1,556) Liabilities:

Current liabilities 9,888 17,553 15,873 (7,665) 1,680 Long-term liabilities 31,730 17,095 43,623 14,635 (26,528) Total liabilities 41,618 34,648 59,496 6,970 (24,848) Deferred inflows of resources:

Related to pensions 4,142 34,477 988 (30,335) 33,489 Other post-employment benefits 3,084 2,734 2,085 350 649 Total deferred inflows of resources 7,226 37,211 3,073 (29,985) 34,138 Net position:

Net investment in capital assets 219,754 201,007 177,481 18,747 23,526 Restricted for capital projects 5,233 — — 5,233 — Restricted for other purposes — 13,912 — (13,912) 13,912 Unrestricted 49,141 34,263 47,180 14,878 (12,917) Total net position $ 274,128 249,182 224,661 24,946 24,521 Table 1B - Hetchy Water
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

12 (Continued)

*Restated per GASB Statement No. 96, SBITAs.

Restated 202 3-2022 2022-2021
2023 2022* 202 1 Change Change
Total assets:

Current and other assets $ 294,298 260,816 249,365 33, 482 11,451 Capital assets, net of accumulated
depreciation and amortization 646,946 585,636 492,056 61, 310 93,580 Total assets 941,244 846,452 741,421 94, 792 105,031 Deferred outflows of resources:

Pensions 10,826 8,183 9,531 2,643 (1,348)
Other post-employment benefits 3,969 3,999 4,552 (30) (553) Total deferred outflows of resources 14,795 12,182 14,083 2,613 (1,901) Liabilities:

Current liabilities:

Bonds 1,590 1,966 1,928 (376) 38
Certificates of participation 445 427 405 18 22 Commercial paper — 40,019 114,671 (40,019) (74,652) Other liabilities 63,355 48,688 49,450 14,667 (762) Subtotal current liabilities 65,390 91,100 166,454 (25,710) (75,354) Long-term liabilities:

Bonds 189,342 192,520 44,384 (3,178) 148,136
Certificates of participation 12,148 12,593 13,026 (445) (433) Commercial paper 116,352 — — 116,352 —
Other liabilities 45,626 22,762 55,425 22,864 (32,663) Subtotal long-term liabilities 363,468 227,875 112,835 135,593 115,040 Total liabilities:

Bonds 190,932 194,486 46,312 (3,554) 148,174
Certificates of participation 12,593 13,020 13,431 (427) (411) Commercial paper 116,352 40,019 114,671 76,333 (74,652) Other liabilities 108,981 71,450 104,875 37,531 (33,425) Total liabilities 428,858 318,975 279,289 109, 883 39,686 Deferred inflows of resources:

Related to pensions 5,062 42,138 1,207 (37,076) 40,931 Other post-employment benefits 3,769 3,342 2,548 427 794 Total deferred inflows of resources 8,831 45,480 3,755 (36,649) 41,725 Net position:

Net investment in capital assets 336,281 352,162 323,066 ( 15,881) 29,096 Restricted for debt service 56 140 99 (84) 41 Restricted for other purposes — 17,004 — (17,004) 17,004 Unrestricted 182,013 124,873 149,295 57, 140 (24,422) Total net position $ 518,350 494,179 472,460 24, 171 21,719 Table 1C - Hetchy Power
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

13 (Continued)

*Restated per GASB Statement No. 96, SBITAs.

Net Position, Fiscal Year 2023

Hetch Hetchy

Hetch Hetchy’s net position of $ 910,479 increased by $82,798 or 10.0% from prior year resulting from a n increase of $ 128,005 in total assets and deferred outflows of resources, offset by a net increase of $45,207 in total liabilities and deferred inflows of resources (see Table 1A). Current and other assets were $543,346, a $42, 546 or 8.5% increase from prior year, mainly due to increased cash collections from charges for services f or Hetchy Power and CleanPowerSF. Hetch Hetchy adopted GASB Statement No. 96, SBITAs and recognized subscription assets net of accumulated amortization of $ 281 and liabilities of $286 as of June 30, 2023. See Note 10 for additional information about SBITAs.

Capital assets, net of accumulated depreciation and amortization, increased by $ 80,057 or 10.2% to $866,700 primarily from construction and capital improvement activities for the Moccasin Powerhouse Rewind Project and the Mountain Tunnel Improvement Project. Deferred outflows of resources increased by $5,402 due to increases of $5,245 in pensions and $157 in other post -employment benefits (OPEB) based on actuarial reports.

Total liabilities increased by $114,631 or 29.1% to $508,494. Outstanding debt increased by $72,352 from additional $76,333 commercial paper issuances offset by $3,554 in bonds and $427 in Certificates of Participation. Other liabilities increased by $42,279. Deferred inflows of resources decreased by $69, 424 due to a decrease of $71,529 in relation to pensions offset by an increase of $2,105 in OPEB based on actuarial reports.

Restated 2023-2022 202 2-2021
2023 2022* 2021 Cha nge Change
Total assets:

Current and other assets $ 157,936 129,918 121,917 28,018 8, 001 Total assets 157,936 129,918 121,917 28,018 8,001
Deferred outflows of resources:

Pensions 1,292 852 803 440 49
Other post-employment benefits 1,009 798 442 211 356 Total deferred outflows of resources 2,301 1,650 1,245 651 405 Liab
ilities:

Current liabilities 31,461 28,661 17,735 2, 800 10,926 Long-term liabilities 6,557 11,579 15,344 (5, 022) (3,765) Total liabilities 38,018 40,240 33, 079 (2,222) 7,161 Deferred inflows of resources:

Related to pensions 1,296 5,414 1,093 (4,118) 4,321
Other post-employment benefits 2,922 1,594 1,913 1,328 (319) Total deferred inflows of resources 4,218 7,008 3,006 (2,790) 4,002 Net position:

Restricted for other purposes — 1,833 — (1,833) 1,833 Unrestricted 118,001 82,487 87,077 35,514 (4, 590) Total net position $ 118,001 84,320 87,077 33,681 (2, 757) Table 1D - CleanPowerSF
Comparative Condensed Net Position
June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

14 (Continued)

Hetchy Water

Hetchy Water’s net position of $274,128 increased by $24,946 or 10.0% resulting from a net decrease of $23,015 in total liabilities and deferred inflows of resources and a net increase of $1,931 in total assets and deferred outflows of resources (see Table 1B) . The decrease of $18, 954 in current and other assets was attributed to decreases of $13,912 in restricted net pension assets based on actuarial report, $6,238 in cash and investment with City Treasury mainly from higher cash paid to suppliers and contractors for goods and services , $177 in subscription assets net of accumulated amortization per implementation of GASB Statement No. 96, SBITA s, $129 in p repaid charges, advances, and other receivables due to prepayments made in prior year to California Department of Water Resources for dam fees included fiscal year 2023, and $70 in charges for services receivables due to lower consumption from Lawrence Livermore National Laboratory. These decreases were offset by increases of $1,211 in State grants receivable for the 2018 Moccasin Storm Project related to emergency repairs , $2 55 in interest receivables attributed to improved market value of investments and higher interest rates , $84 in lease right -to-use assets net of accumulated amortization, and $ 22 in inventory due to more purchases than issuances during the fiscal year.

Capital assets, net of accumulated depreciation and amortization, increased by $ 18,747 or 9.3% to $219,754 primarily from construction and capital improvement activities for the Mo untain Tunnel Improvement Project and San Joaquin Pipeline Valve and Safe Entry Improvement Project. Deferred outflows of resources increased by $2,138 due to an increase of $2,162 in pensions offset by a decrease of $24 in OPEB based on actuarial reports.

Hetchy Water’s total liabilities in creased by $6, 970 or 20.1% to $41,618, as explained by in creases of $14,105 in net pension liability based on actuarial estimates, $667 in OPEB obligations based on actuarial assumptions, $242 in employee related benefits due to 5.25% increase in cost of living adjustment (COLA), $76 in lease liability and $73 in general liability based on actuarial estimates. These increases were offset by decreases of $7,421 in unrestricted payables mainly due to lower license and permit fees to the National Park Service, $577 in restricted payables due to lower project spending, $ 170 in subscription liability per implementation of GASB Statement No. 96, SBITAs, $24 in unearned revenues , refunds, and other mainly due to recognition of grant advance as revenue for the Rim Fire project, and $1 in interest payable related to SBITAs (see Note 10).

Deferred inflows of resources decreased by $29,985 due to a decrease of $30,335 in relation to pensions offset by an increase of $350 in OPEB based on actuarial reports.

Hetchy Power

Hetchy Power’s net position of $5 18,350 increased by $24,171 or 4.9% resulting from a n increase of $97,405 in total assets and deferred outflows of resources, offset by a net increase of $73,234 in total liabilities and deferred inflows of resources (see Table 1C). Increase of $ 33,482 in current and other assets was attributed to increases of $47,496 in cash and investments mainly due to higher collections from billings, $2,088 in charges for services receivables mainly due to pending collections from non-work order City departments, $1,302 in interest receivables attributed to improved market value of investments and higher interest rates, $348 increase in State grants receivable mainly for the 2018 Moccasin Stor m Project related to emergency repairs, and $105 in lease right-to-use assets net of accumulated amortization.

These increases were offset by decreases of $17,004 in restricted net pension assets based on actuarial report, $ 318 in due from other City departments mainly due to repayment s from Moscone Renewable Energy Projects, $182 in prepaid charges, advances, and other receivables mainly due to prepayments

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

15 (Continued)

made in prior year to California Department of Water Resources for dam fees included fiscal year 2023, $152 in restricted interest and other receivables mainly due to lower IRS bond interest subsidy accrual , $142 in subscription assets net of accumulated amortization per implementation of GASB Statement No. 96, SBITAs, and $59 in inventory due to more issuances than purchases during the fiscal year.

Capital assets, net of accumulated depreciation and amortization, increased by $ 61,310 or 10.5% to $646,946 primarily from construction and capital improvement activities for the Moccasin Powerhouse Rewind Project and the Bay Corridor Project. Deferred outflows of resources increased by $2,613 due to an increase of $2,643 in pensions offset by a decrease of $30 in OPEB based on actuarial reports.

Hetchy Power’s total liabilities of $ 428,858 increased by $ 109,883 or 34.4%. As of June 30, 2023 , outstanding debt increased by $72,352 due to $76,333 commercial paper issuance for Hetchy Power facilities, offset by $2,397 from bonds and certificates of participation principal repayments and $1,584 in amortization of premium and discount. Other liabilities of $10 8,981, such as payables to vendors, employees, contractors, and other government agencies for goods and services under contractual agreements, increased by $37,531 or 52.5%, mainly due to in creases of $ 17,239 in net pension liability based on actuarial estimates, $ 8,302 in unrestricted payables mainly due to higher power purchases , $5,127 in general liability based on actuarial estimates , $4,060 in restricted payables to vendors and contractors due to higher year-end expense accruals for capital projects mainly for the Winter Storm projects and Moccasin Powerhouse projects, $1,566 in due to other City departments mainly for claim settlement reimbursement to SFMTA, $815 in OPEB obligations based on actuarial assumptions, $4 64 in employee related benefits due to 5.25% increase in COLA, $268 increase in interest payable related to 2021 Series AB revenue bond issued in prior year , and $94 in lease liability. These increases were offset by de creases of $267 in unearned revenues, refunds, and other, and $137 in subscription liability per implementation of GASB Statement No. 96, SBITAs (see Note 10). Decrease of $267 in unearned revenues, refunds, and other was mainly due to $ 436 deposit refund to developer for custom work project at 1064 Mission Street, $126 in refund for Hunter’s Point construction project , and $43 in grant advance due to recognition of Rim Fire State grant revenue, offset by in creases of $170 in prepayments from Distributed Antenna System (DAS) program, and $168 in customer prepayments.

Deferred inflows of resources decreased by $36,649 due to a decr ease of $37,076 in relation to pensions offset by an increase of $427 in OPEB based on actuarial reports.

CleanPowerSF

CleanPowerSF’s net position of $1 18,001 increased by $ 33,681 or 39.9%, resulting from an increase of $28,669 in total assets and deferred outflows of resources and a decrease of $5,012 in total liabilities and deferred inflows of resources (see Table 1D) . Increase in total assets of $ 28,018 was due to increases of $42,423 in cash and investments with City Treasury mainly attributed to higher collections from billings and $498 in interest receivable attributed to improved market value of investments and higher interest rates .

These increases were offset by decrease of $7,078 in charges for services receivables due to $5,485 lower unbilled accrual and $1,593 increase in allowance for uncollectible due to higher aged receivables greater than 120 days . P repaid charges and other receivables decreased by $5,721, of which $5,463 in lower prepaid for power purchases and $4,258 in prepayments required by PG&E in prior year offset by $4,000 in collateral paid to the California Independent System Operator ’s (CAISO ) to satisfy financial security requirements. Restricted net pension assets decreased by $1,833 based on actuarial report, $230 in lease right-to-use assets net of accumulated amortization due to lease termination of 544 Golden Gate , and $41 in subscription assets net of accumulated amortization per implementation of GASB Statement No. 96, SBITAs.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

16 (Continued)

Deferred outflows of resources increased by $ 651 due to increases of $440 in pensions and $211 in OPEB based on actuarial reports.

Total liabilities decreased by $2,222 or 5.5% to $38,018, mainly explained by $9,000 cash collateral returned for power purchase agreement, $232 decrease in lease liability related to the lease termination at 544 Golden Gate, $39 decrease in subscription liability per implementation of GASB Statement No. 96, SBITAs, and $1 decrease in interest payable related to SBITAs (See Note 10). These decreases were offset by increases of $2,124 in net pension liability based on actuarial estimates , $1,950 in unearned revenues, refunds, and other , $1,789 in OPEB obligations based on actuarial assumptions, $818 in payables mainly due to higher power purchases, $367 in employee related benefits due to 5.25% increase in COLA, and $2 in general liability based on actuarial estimates . Increases of $1,950 in unearned revenues, refunds, and other was mainly due to increases of $2,075 received from California Public Utilities Commission (CPUC) for the Community Food Service Energy Efficiency P rogram and Disadvantaged Communities Programs, $64 in customer prepayments, and $5 in energy tax payable , offset by a decrease of $ 194 in net energy metering credits to retail and commercial customers.

Deferred inflows of resources de creased by $2,790 due to a decrease of $4,118 in relation to pensions offset by an increase of $1,328 in OPEB based on actuarial reports.

Net Position, Fiscal Year 2022

Hetch Hetchy

Hetch Hetchy’s net position of $827,681 increased by $43,483 or 5.5% from prior year resulting from a net increase of $145,347 in total assets and deferred outflows of resources, offset by a n increase of $101,864 in total liabilities and deferred inflows of resources (see Table 1A). Current and other assets were $500,800, a $ 31,293 or 6.7% increase from prior year , mainly due to restricted net pension asset s recognized in current year based on actuarial reports . Hetch Hetchy adopted GASB Statement No. 87, Leases and Statement No. 96, SBITAs. R ight-to-use assets net of accumulated amortization was $364 and $369 in lease liabilities. Subscription assets net of accumulated amortization was $641 and $632 in subscription liabilities. See Notes 9 and 10 for additional information about the leases and SBITAs.

Capital assets, net of accumulated depreciation and amortization, increased by $ 117,106 or 17.5% to $786,643 primarily from construction and capital improvement activities for the Bay Corridor Project and the Mountain Tunnel Improvement Project . Deferred outflows of resources decreased by $ 3,052 due to decreases of $2,402 in pensions and $650 in other post -employment benefits (OPEB) based on actuarial reports.

Total liabilities increased by $21,999 or 5.9% to $393,863. The increases included $73,111 in outstanding debt mainly from Power 2021 Series AB revenue bond s and commercial paper issuances offset by a decrease of $ 51,112 in other liabilities. Deferred inflows of resources in creased by $ 79,865 due to increases of $78,741 in relation to pensions and $1,124 in OPEB based on actuarial reports.

Hetchy Water

Hetchy Water’s net position of $ 249,182 increased by $ 24,521 or 10.9% resulting from a net increase of $33,811 in total assets and deferred outflows of resources, offset by a net increase of $ 9,290 in total liabilities and deferred inflows of resources (see Table 1B). The increase of $11,841 in current and other assets was attributed to increases of $13,912 in restricted net pension asset s based on actuarial report , $314 in subscription assets net of accumulated amortization per implementation of GASB Statement No.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

17 (Continued)

96, SBITAs, $33 in charges for services receivables due to higher consumption from Lawrence Livermore National Laboratory, $19 in interest receivables due to higher interest accrual from City’s Treasury, and $8 in inventory due to more purchases than issuances during the fiscal year. The increases were offset by decreases of $2,173 in cash and investment with City Treasury mainly from higher project spending, $192 in prepaid charges, advances, and other receivables mainly due to prepayment to Turlock Irrigation District for relicensing studies, $67 decrease in due from other governments related to State grant reimbursement received for Lower Cherry Aqueduct project, and $13 decrease in lease right -to-use assets net of accumulated amortization per implementation of GASB Statement No. 87, Leases.

Capital assets, net of accumulated depreciation and amortization, increased by $ 23,526 or 13.3% to $201,007 primarily from construction and capital improvement activities for the Mountain Tunnel Improvement Project and San Joaquin Pipeline Valve and Safe Entry Improvement Project. Deferred outflows of resources decreased by $ 1,556 due to decreases of $1,103 in pensions and $ 453 in other post - employment benefits (OPEB) based on actuarial reports.

Hetchy Water’s total liabilities decreased by $24,848 or 41.8% to $ 34,648, as explained by decreases of $26,645 in net pension liability based on actuarial estimates, $2,733 in restricted payables to vendors and contractors mainly due to lower year-end expense accruals for capital projects , $204 in OPEB obligations based on actuarial assumptions , $16 in lease liability per implementation of GASB Statement No. 87, Leases, and $6 in grant advance due to recognition of prior year State grant for the Rim Fire project . These decreases were offset by increases of $4,192 in unrestricted payables mainly for license and permit fees to National Park Service, $309 in subscription liability per implementation of GASB Statement No. 96, SBITAs, $148 in employee related benefits mainly due to increase in workers’ compensation, $102 in general liability based on actuarial estimates , $ 3 in interest payable related to SBITs , and $2 increase in rental deposits and prepaid rent.

Deferred inflows of resources increased by $34,138 due to increases of $33,489 in relation to pensions and $649 in OPEB based on actuarial reports.

Hetchy Power

Hetchy Power’s net position of $494,179 increased by $ 21,719 or 4.6% resulting from a net increase of $103,130 in total assets and deferred outflows of resources, offset by a n increase of $81,411 in total liabilities and deferred inflows of resources (see Table 1C). Increase of $11,451 in current and other assets was attributed to increases of $17,004 in restricted net pension assets based on actuarial report, $7,882 in prepaid charges, advances, and other receivables mainly due to collateral paid to satisfy the CAISO ’s financial security requirements , $3,295 in cash and investment s mainly due to higher collections from billings, $256 in subscription assets net of accumulated amortization per implementation of GASB Statement No. 96, SBITAs, $76 in interest receivables due to higher interest accrual from City’s Treasury, and $31 increase in Federal grants receivable mainly from the Rim Fire Project.

These increases were offset by decreases of $8,835 in charges for services receivables due to completion of billing system implementation in prior year resulting in more timely billings in current year, $7,497 in restricted interest and other receivables mainly due to decrease in vendor prepayment to PG&E for the Bay Corridor Project, $602 in d ue from other City departments mainly from repayment for Sustainable Energy Account, $142 in inventory due to more issuances than purchases during the fiscal year, and $ 17 decrease in lease right-to-use assets net of accumulated amortization per implementation of GASB Statement No. 87, Leases.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

18 (Continued)

Capital assets, net of accumulated depreciation and amortization, increased by $ 93,580 or 19.0% to $585,636 primarily from construction and c apital improvement activities for the Bay Corridor Project and Mountain Tunnel Improvement Project . Deferred outflows of resources decreased by $ 1,901 due to decreases of $1,348 in pensions and $553 in OPEB based on actuarial reports.

Hetchy Power’s total liabilities of $318,975 increased by $39, 686 or 14.2%. As of June 30, 2022 , outstanding debt increased by $ 73,111 due to $124,000 from 2021 Series AB revenue bond issuances, $63,058 from commercial paper issuance for Hetchy Power facilities, and $27,022 in bond premium f rom 2021 Series AB revenue bonds, offset by $ 140,043 in commercial paper, bonds , and certificates of participation principal repayments, and $ 926 in amortization of premium and discount . Other liabilities of $71,450, such as payables to vendors, employees, contractors, and other government agencies for goods and services under contractual agreements, de creased by $33,425 or 31.9%, mainly due to decreases of $32,566 in net pension liability based on actuarial estimates , $6,241 in unrestricted payables mainly from prior year wheeling charges to APX, Inc., $248 in OPEB obligations based on actuarial assumptions, $85 in general liability based on actuarial estimates , and $ 19 decrease in lease liability per implementation of GASB Statement No. 87, Leases. These decreases were offset by increases of $3,666 in restricted payables to vendors and contractors due to higher year -end expense accruals for capital projects , $870 increase in interest payable mainly related to 2021 Series AB revenue bond issuances, $734 in unearned revenues, refunds, and other, $253 in subscription liability per implementation of GASB Statement No. 96, SBITAs , $200 in employee related benefits mainly due to increase in workers’ compensation , and $11 in due to Department of Public Works for painting of light poles. Increase of $734 in unearned revenues, refunds, and other was mainly due to increases of $458 in deposits from custom work projects, $267 in prepay ments from Distributed Antenna System (DAS) program, and $60 in overpayments received from customers, offset by decreases of $48 in grant advance due to recognition of Rim Fire State grant revenue and $3 in deposits received from retail customers.

Deferred inflows of resources increased by $41,725 due to increases of $40,931 in relation to pensions and $794 in OPEB based on actuarial reports.

CleanPowerSF

CleanPowerSF’s net position of $ 84,320 decreased by $2,757 or 3.2%, resulting from an increase of $11,163 in total liabilities and deferred inflows of resources, offset by an increase of $8,406 in total assets and deferred outflows of resources (see Table 1D). Increase in total assets of $8,001 was due to increases of $20,602 in prepaid expenses included $12,236 in collateral paid to satisfy the CAISO’s financial security requirements, $5, 914 from power purchase credits, and $2,452 in prepayments to PG&E for electricity purchases. Other increases included $20,438 in charges for services receivables due to pre -approved rate increases, $1,833 in restricted net pension assets based on actuarial report, $71 in subscription assets net of accumulated amortization per implementation of GASB Statement No. 96, SBITAs , and $6 in interest receivable due to higher interest accrual from City’s Treasury. These increases were offset by decreases of $34,604 in cash and investments with City Treasury mainly attribute d to volatile and increased pricing in power market and $345 decrease in lease right -to-use assets net of accumulated amortization per implementation of GASB Statement No. 87, Leases.

Deferred outflows of resources increased by $405 due to in creases of $356 in OPEB and $49 in pensions based on actuarial reports.

Total liabilities increased by $7,161 or 21.6% to $40,240, mainly explained by $7,667 increase in payables to suppliers for power purchases, $3,168 increase in unearned revenues, refunds, and other due to $2,676 grants received in advance from California P ublic Utilities Commission (CPUC) f or the new Disadvantaged

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

19 (Continued)

Communities Programs (DAC) and the Community Food Service Energy Efficiency program , $503 from net energy metering credits to retail and commercial customers, offset by a decrease of $11 from customer prepayments. Other increases included $228 for employee related benefits including vacation sick leave and accrued payroll mainly due to an extra day in current year -end payroll accrual when compar ed to prior year, $70 in subscription liability pe r implementation of GASB Statement No. 96, SBITAs , $26 in general liability based on actuarial estimates, and $1 in interest payable related to SBITs. The increases were offset by decreases of $3,008 in net pension liability based on actuarial estimates, $645 in OPEB obligations based on actuarial assumptions, and $346 decrease in lease liability and interest payable per implementation of GASB Statement No. 87, Leases.

Deferred inflows of resources increased by $ 4,002 due to an in crease of $4,321 in relation to pensions, offset by a decrease of $319 in OPEB based on actuarial reports.

Results of Operations
The following tables summarize Hetch Hetchy’s revenues, expenses, and changes in net position:

*Restated per GASB Statement No. 96, SBITAs.

Restated 2023-2022 2022-2021
2023 2022* 2021 Change Ch a nge
Revenues:

Charges for services $ 583,194 480,198 390,924 102,996 89,274 Rents and concessions 283 249 247 34 2 Interest and investment income (loss) 4,603 (8,219) (157) 12,822 (8,062) Other non-operating revenues 16,964 19,001 21,552 (2,037) (2,551) Total revenues 605,044 491,229 412,566 113,815 78,663 Expenses:

Operating expenses 536,343 470,759 408,870 65,584 61,889 Interest expenses 9,491 5,636 2,000 3,855 3,636 Amortization of premium, discount, and issuance costs (1,584) 192 (219) (1,776) 411 Non-operating expenses 499 628 965 (129) (337) Total expenses 544,749 477,215 411,616 67,534 65,599 Change in net position before transfers and contributions 60,295 14,014 950 46,281 13,064 Capital contributions 2,535 — — 2,535 — Transfers from the City and County of San Francisco 20,000 30,001 16, 000 (10,001) 14,001 Transfers to the City and County of San Francisco (32) (532) ( 532) 500 — Capital contributions and net transfers 22,503 29,469 15, 468 (6,966) 14,001 Change in net position 82,798 43,483 16,418 39,315 27,065 Net position at beginning of year 827,681 784,198 767,780 43,483 16,418 Net position at end of year $ 910,479 827,681 784,198 82,798 43,483 Table 2A - Consolidated Hetch Hetchy
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

20 (Continued)

*Restated per GASB Statement No. 96, SBITAs.

Restated 2023-2022 2022-2021
2023 2022* 2021 Change Change
Revenues:

Charges for services $ 52,570 49,200 46,979 3,370 2,221 Rents and concessions 127 112 111 15 1 Interest and investment income (loss) 457 (2,932) (232) 3,389 (2,700) Other non-operating revenues 1,861 479 1,352 1,382 (873) Total revenues 55,015 46,859 48,210 8,156 (1,351) Expenses:

Operating expenses 50,011 52,299 50,519 (2,288) 1,780 Interest expenses 4 3 2 1 1 Non-operating expenses 54 37 63 17 (26) Total expenses 50,069 52,339 50,584 (2,270) 1,755 Change in net position before transfers 4,946 (5,480) (2,374) 10,426 (3,106) Transfers from the City and County of San Francisco 20,000 30,001 16,000 (10,001) 14,001 Change in net position 24,946 24,521 13,626 425 10,895 Net position at beginning of year 249,182 224,661 211,035 24,521 13,626 Net position at end of year $ 274,128 249,182 224,661 24,946 24,521 Table 2B - Hetchy Water
Years Ended June 30, 2023, 2022, and 2021
Comparative Condensed Revenues, Expenses, and Changes in Net Position Restated 2023-2022 2022-2021
2023 2022* 2021 Change Cha n ge
Revenues:

Charges for services $ 203,847 173,105 136, 247 30,742 36,858 Rents and concessions 156 137 136 19 1 Interest and investment income (loss) 3,741 (4,001) 24 7,742 (4,025) Other non-operating revenues 13,605 15,763 19,273 (2,158) (3,510) Total revenues 221,349 185,004 155,680 36,345 29,324 Expenses:

Operating expenses 191,552 156,343 145,640 35,209 10,703 Interest expenses 9,486 5,627 1,972 3,859 3,655 Amortization of premium, discount, and issuance costs (1,584) 192 (219) (1,776) 411 Non-operating expenses 227 591 902 (364) (311) Total expenses 199,681 162,753 148,295 36,928 14,458 Change in net position before transfers and contributions 21,668 22,251 7,385 ( 583) 14,866 Capital contributions 2,535 — — 2,535 — Transfers to the City and County of San Francisco (32) (532) (532) 500 — Capital contributions and net transfers 2,503 (532) (532) 3,035 — Change in net position 24,171 21,719 6,853 2,452 14,866 Net position at beginning of year 494,179 472,460 465,607 21,719 6,853 Net position at end of year $ 518,350 494,179 472,460 24,171 21,719 Years Ended June 30, 2023, 2022, and 2021
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, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

21 (Continued)

*Restated per GASB Statement No. 96, SBITAs.

Result of Operations, Fiscal Year 2023

Hetch Hetchy

Hetch Hetchy’s total revenues were $605,044, an increase of $113,815 or 23.2% over prior year (see Table 2A). Charges for services increased by $ 102,996 or 21.4% from prior year’s revenues mainly due to higher billings from CleanPowerSF and Hetchy Power. Total expenses increased by $67,534 or 14.2% primarily from higher energy purchases due to volatile and increased pricing in power market. (See Table 2A).

Hetchy Water

Hetchy Water’s total revenues were $ 55,015, an increase of $8,156 or 17.4% from prior year’s revenues (see Table 2B). Increases included $3,370 in charges for services, $3, 389 in interest and investment income, $1,382 in other non-operating revenues, and $15 in rents and concessions.

Charges for services were $ 52,570, an increase of $3,370 or 6.8% mainly due to increased water assessment fees from the Water Enterprise to fund upcountry water-related costs. Interest and investment income was $457, an increase of $3, 389 mainly due to decrease in unrealized loss in City Treasury pooled investments at tributed to improved market value of investments and higher interest rates . Other non - operating revenues were $1,861, a n increase of $ 1,382 mainly due to increase of $1,177 in State grants revenue for the 2018 Moccasin Storm Project related to emergency repairs , $200 revenue related to labor settlements, and $9 in overhead charges, offset by decreases of $3 in net gain from sale of fixed assets and $1 in miscellaneous revenue. Rents were $ 127, an increase of $ 15 mainly due to higher collections from recreational rentals.

Total operating expenses, excluding interest expenses and other non-operating expenses, were $ 50,011, a decrease of $2,288 or 4.4%. Other operating expenses decreased by $ 7,358 mainly due to lower capital spending on the Mountain Tunnel Improvement Project, offset by increases of $2,7 88 in personnel services due to higher personnel and fringe benefit costs and 5.25% increase in COLA, $1,451 in general and Restated 2023-2022 2022-2021
2023 2022* 2021 Change Change
Revenues:

Charges for services $ 326,777 257,893 207,698 68,884 50,195 Interest and investment income (loss) 405 (1,286) 51 1,691 (1,337) Other non-operating revenues 1,498 2,759 927 (1,261) 1,832 Total revenues 328,680 259,366 208,676 69,314 50,690 Expenses:

Operating expenses 294,780 262,117 212,711 32,663 49,406 Interest expenses 1 6 26 (5) (20) Non-operating expenses 218 — — 218 — Total expenses 294,999 262,123 212,737 32,876 49,386 Change in net position 33,681 (2,757) (4,061) 36,438 1,304 Net position at beginning of year 84,320 87,077 91,138 (2,757) (4,061) Net position at end of year $ 118,001 84,320 87,077 33,681 (2,757) Table 2D - CleanPowerSF
Comparative Condensed Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2023, 2022, and 2021

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

22 (Continued)

administrative expenses due to higher fees, licenses, and permit expenses, $281 in contractual services from increased management consulting services, $263 in services provided by other departments mainly due to higher bureau allocations related to accounting services support from the Controller’s Office, $243 in material and supplies from fuel and minor data processing equipment , and $44 in depreciation and amortization mainly related to additional facilities and improvements placed in service.

Other non-operating expenses were $ 54, an increase of $17 due to higher payments to community -based organization programs. Interest expenses were $4, an increase of $1 mainly due to implementation of GASB Statement No. 96, SBITAs. A transfer in of $ 20,000 was received from the Water Enterprise to fund various Mountain Tunnel projects.

As a result of the above activities, net position for the year ended June 30, 2023 increased by $24,946 or

10.0% compared to prior year.

Hetchy Power

Hetchy Power’s total revenues were $221,349, an increase of $36,345 or 19.6% from prior year’s revenues (see Table 2C). Increases included $30,742 from charges for services, $7,742 from interest and investment income, and $ 19 from rents and concessions, offset by a decrease of $2,158 from other non -operating revenues.

Charges for services were $203,847, an increase of $30,742 or 17.8%, mainly due to increases of $19,450 in wholesale revenue from Congestion Revenue Right (CRR) credits from California Independent System Operator ( CAISO) and $12,159 in billings from non-work order City departments as a result of increased operation due to easing of COVID -19 restrictions, offset by a decrease of $ 867 in resale of capacity to CleanPowerSF. Interest and investment income was $3,741, an increase of $7,742 mainly due to decrease in unrealized loss in City Treasury pooled investments attributed to improved market value of investments and higher interest rates . Rents increased by $ 19 or 13.9% to $ 156 mainly due to higher collections from recreational rentals.

Other non-operating revenues were $13, 605, a decrease of $2, 158 or 13.7%, mainly due to decreases of $3,987 in State and Federal grants revenue from the Rim Fire Project and California Arrearages Payment Program (CAPP) to provide relief for customer unpaid bills, $590 in Low Carbon Fuel Standard credits, $306 Cap and Trade revenue due to decrease of 10,606 allowances sold, $22 in bond interest subsidies from IRS mainly due to lower subsidy for 2015 NCREBs , and $ 6 in net gain from sale of fixed assets , offset by increases of $ 2,084 from the Power System Mitigation Project, $244 in settlement revenue, $220 in Distributed Antenna System and miscellaneous revenue, and $205 in overhead charges.

Total operating expenses, excluding interest expenses, other non-operating expenses, and amortization of premium, discount, and issuance costs, increased by $35,209 or 22.5% to $191,552. Increases included $20,406 in purchased electricity and transmission, distribution, and other power costs attributed to volatile and higher pricing in power market , $ 10,988 in general and administrative expenses due to higher judgements and claims expenses , $4,654 in personnel services due to higher personnel and fringe benefit costs and 5.25% increase in COLA, $2,421 in services provided by other departments mainly due to higher legal service charges from City Attorney’s Office , $1,360 in contractual services for construction contracts, $342 in materials and supplies for electrical supplies and fuel , and $ 108 in depreciation and amortization mainly related to additional facilities and improvements placed in service. These increases were offset by a decrease of $5,0 70 in other operating expenses mainly due to lower capital spending for Bay Corridor Project.

HETCH HETCHY WATER AND POWER AND CLEANPOWERSF
Management’s Discussion and Analysis (Unaudited)
June 30, 2023 and 2022
(Dollars in thousands, unless otherwise stated)

23 (Continued)

Interest expenses increased by $3,859 or 68.6% due to higher outstanding bonds and commercial paper .

Amortization of premium and discount decreased by $1,776 due to higher costs of issuance for 2021 Series AB revenue bonds in prior year.

Other non-operating expenses were $227, a decrease of $ 364 or 61.6% mainly due to lower payments for GoSolarSF Incentive Program. Capital contributions of $2, 535 were from the Sunnydale and Potrero Hope Projects. Transfer out of $32 to the Office of the City’s Administrator was for the Surety Bond Program.

As a result of the above activities, net position for the year ended June 30, 2023 increased by $24,171 or

4.9% compared to prior year.

CleanPowerSF

CleanPowerSF’s total revenues were $328,680, a $ 69,314 or 2 6.7% increase over prior year (see Table 2D). Charges for services increased by $68,884 or 26.7% mainly due to $70,629 in electricity sales to retail and commercial customers from increased consumption of 1.1% or 30,441 MWh, offset by $997 in lower capacity sales to Hetchy Power and $748 increase in allowance for uncollectible attributed to lower assistance received from CAPP for eligible customer account arrearages . Interest and investment income was $ 405, an increase of $1,691 mainly due to decrease in unrealized loss in City Treasury pooled investments attributed to improved market value of investments and higher interest rates . Other non - operating revenue decreased by $1, 261 mainly due to $ 1,251 decrease in Federal grants received from CAPP and $ 330 in liquidated damage compe nsation received from supplier for delay of the Renewable Energy Project in prior year , offset by an increase of $320 in revenue mainly from Disadvantaged Communities (DAC) Programs.

Total operating expenses, excluding interest expenses were $ 294,780, an increase of $32, 663 or 12.5% from prior year. P urchased electricity and transmission, distribution, and other power costs increased by $25,640 due to volatile and increased pricing in power market, and higher resource adequacy capacity purchases related to compliance requirements from the CPUC. Other increases include $6,568 in personnel services due to higher personnel and fringe benefit costs and 5.25% increase in COLA, $681 in services provided by other departments mainly due to higher bureau allocations related to accounting services support from the Controller’s Office , $ 112 in other operating expenses mainly due to higher bureau allocations, and $24 in material and supplies mainly for minor data processing equipment. These increases were offset by decreases of $ 221 in professional and contractual services mainly from lower management consulting and financial services, $115 in depreciation and amortization due to lease termination for 544 Golden Gate, and $26 in general and administrative due to lower bank fees. Other non-operating expenses increased by $218 in solar rebates for the Inverter Replacement Program . Interest expenses were $1, a decrease of $5 related to lease termination.

CleanPowerSF Sfpuc CommissionMarch 12, 2024

CleanPowerSF Sfpuc Commission
March 12, 2024