Cities Index.
Agenda packet

Audit Committee
November 30, 2022

Document
Agenda packet
Meeting
November 30, 2022
Body
Audit Committee
Pages
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Original file
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Text extracted from the city's file for reading and search. Open the original on santaclara.legistar.com. That file is the official record.

Potable Water (MGD) 80 80 80 80 80 80 96 87 87 87 Recycled Water (MGD) 15 15 15 15 15 30 14 15 15 15 Note: (1) Data Based on Calendar Year
Source: City of Santa Clara

CITY OF SANTA CLARA

OPERATING INDICATORS BY FUNCTION/ACTIVITY
Last Ten Fiscal Years
Fiscal Year Ending June 30

19. Operating Indicators by Function/Activity – Last Ten Fiscal Years

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CITY OF SANTA CLARA
Table 20
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Culture and Recreation:

Number of community centers 4 4 4 4 4 4 4 4 4 4 Number of parks 44 44 44 39 39 35 34 34 32 32 Park acreage 367 367 353 254 311 330 274 273 273 273 Number of golf courses - - - 1 1 1 1 1 1 1 Number of swimming pools 11 11 11 11 11 11 5 5 5 5 Number of tennis courts 27 27 27 28 28 28 28 28 28 28 Number of lawn bowling greens 1 1 1 1 1 1 1 1 1 1 Number of lighted soccer fields 7 7 7 3 3 3 3 3 3 3 Number of lighted softball fields 4 4 4 7 7 7 7 7 7 7 Number of neighborhood park buildings 10 10 10 8 8 8 8 8 8 8 Number of gymnastic centers 1 1 1 1 1 1 1 1 1 1 Number of skate parks 1 1 1 1 1 1 1 1 1 1 Number of community theaters 1 1 1 1 1 1 1 1 1 1 Number of libraries 3 3 3 3 3 3 3 2 2 2 Cemetery 2 2 2 2 2 2 2 2 2 2 Fire Protection:

Number of stations 10 9 10 10 10 10 10 10 10 10 Police Protection:

Number of stations 1 1 2 2 2 2 2 2 2 2 Electric System:

Number of meters 59,227 58,230 57,066 55,971 55,139 54,942 53,824 53,360 52,775 52,957 Miles of high voltage lines 622 618 616 613 612 608 605 591 590 586 Number of substations 29 29 29 28 27 27 27 27 26 26 Sewerage and Storm Drain System:

Miles of sanitary sewers 288 288 288 288 288 288 288 288 288 288 Number of sanitary sewer pump stations 6 6 6 6 6 6 6 6 6 6 Miles of storm sewers 194 196 195 195 195 195 195 195 - 141 Number of treatment plants 1 1 1 Tertiary 1 Tertiary 1 Tertiary 1 Tertiary 1 Tertiary 1 Tertiary 1 Tertiary 1 Tertiary Number of storm drain pump stations 22 22 22 22 22 22 22 22 22 21 Water System:

Miles of water mains 306 306 306 335 335 335 310 335 335 335 Number of fire hydrants 3,437 3,248 3,429 3,404 3,382 3,501 3,383 3,315 3,315 3,315 Miles of recycled watermains 34 34 34 33 33 33 33 33 33 33 Streets:

Miles of Streets 252 252 252 252 252 252 252 252 249 249 Number of Street Lights 8,429 8,404 8,235 8,187 8,118 8,112 8,103 8,097 8,054 8,077 Number of Traffic Signals 186 183 182 207 207 207 206 200 196 191 Source: City of Santa Clara

CAPITAL ASSETS STATISTICS BY FUNCTION
Last Ten Fiscal Years
Fiscal Year Ending June 30

20. Capital Assets Statistics by Function – Last Ten Fiscal Years

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Table 21

INSURANCE ANNUAL TERM EXPIRATION
TYPE OF POLICY COMPANY LIMITS (1) PREMIUM (3)
YEARS DATE (2)
Liability
Comprehensive General Self-insured (Since 1987) $3 million n/a - Ongoing Excess Liability PRISM $50 million $1,240,130 1 7/1/2022 and various other carriers
Workers' Compensation Self-insured (since 1973) $750 thousand n/a - Ongoing Excess Workers' PRISM $5 million $1,050,621 1 7/1/2022 Compensation
Property Coverage
All Risks, including flood, Alliant Property Insurance
excluding earthquake Program (APIP) $800 million $1,091,131 1 7/1/2022 Various excess carriers
Boiler and Machinery Alliant Property Insurance $100 million not available 1 7/1/2022 Program (APIP)
Various excess carriers
Financial Loss Bonds
Crime Coverage Bond PRISM $10 million $12,391 1 6/30/2022 Notes:
(1) Limits are per occurrence
(2) All policies have been renewed
(3) Boiler and Machinery APIP premium is included in All Risks premium, $1,091,131. Breakdown is unavailable.

Source: City of Santa Clara

CITY OF SANTA CLARA

STATEMENT OF INSURANCE COVERAGE
June 30, 2022

21. Statement of Insurance Coverage

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SUCCESSOR AGENCY CITY OF SANTA CLARA

STATISTICAL SECTION
This part of the City of Santa Clara’s Annual Comprehensive Report provides detailed information to better understand the data presented within the financial statements, note disclosures, and required supplementary information.

TABLES
REVENUE CAPACITY 1 - 3
Contains information to help the reader assess the Successor Agency’s most significant local revenue source, the property tax.

DEBT CAPACITY 4
Presents information to assess the affordability of the Successor Agency’s current levels of outstanding debts.

Successor Agency
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Table 1
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Real P roperty Value 5,790,301$ 5,708,617$ 5,372,322$ 6,024,538$ 6,136,642$ 5,710,559$ 4,474,495$ 2,504,578$ 2,428,787$ 2,443,683$ Other P roperty Value 33,102 28,733 25,324 22,913 25,857 27,877 796,082 551,425 450,943 468,788 Total P roject Value 5,823,403 5,737,350 5,397,646 6,047,451 6,162,499 5,738,436 5,270,577 3,056,003 2,879,730 2,912,471 Less Base Value (8,838) (8,838) (8,838) (8,838) (8,838) 49,632 49,322 (8,829) (8,838) (8,838) Increment Over Base Value 5,814,565 5,728,512 5,388,808 6,038,613 6,153,661 5,788,068 5,319,899 3,047,174 2,870,892 2,903,633 Redevelopment P roperty
Tax Trust Fund (RP TFF) (1) - - - - - - 5,697 9,365 26,759 13,366 Total Tax Revenue - - - - - - 5,697 9,365 26,759 13,366 Less:

AB 1484 True-Up P ayment (2) - - - - - - - - (378) Net Tax Revenue -$ -$ -$ -$ -$ -$ 5,697$ 9,365$ 26,759$ 12,988$ Notes:

Source: City of Santa Clara / Santa Clara County Auditor

SUCCESSOR AGENCY OF THE CITY OF SANTA CLARA

BAYSHORE NORTH P ROJECT AREA

HISTORICAL TAX INCREMENT
Las t Ten Fis cal Years
(In Tho us ands )
(1) With the State dissolving all RDAs on 02/01/2012, the structure of Tax Increment Revenue has changed. Starting in fiscal year 2012-13, the County's property tax distribution to the Successor Agency was changed to the Redevelopment P roperty Tax Trust Fund (RP TTF). The RP TTF reported in this table is the amount calculated by the County Auditor-Controller. Under the provisions of the laws dissolving the Redevelopment Agency, the Successor Agency only receives the funds necessary to fulfill its approved obligations. (2) On June 28, 2012, AB 1484 became law which made a number of significant changes to ABXI 26. In particular, the new Health and Safety Code Section 34183.5 required the Santa Clara County Auditor-Controller to conduct a "true-up" of the June 1, 2012 distribution from the RP TTF for each former RDA. In accordance with the new law, the Successor Agency was required to make a "true- up" payment of $378,540.37 by July 12, 2012.

1 . Historical Tax Increment – Last Ten Fiscal Years
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Table 2

ASSESSED ASSESSED

PROPERTY PROPERTY PERCENT

ASSESSEE USE VALUATION OF TOTAL
1 Forty Niners SC Stadium Company LLC Commercial Office Building 785,232,301$ 13.48% 2 SI LLC Commercial Office Building 535,984,549 9.20% 3 Innovation Commons Owner LLC Commercial Office Building 278,772,528 4.79% 4 The Irvine Company Commercial Office Building 231,125,938 3.97% 5 PC Santa Clara Gateway 2 LLC Commercial Office Building 212,537,185 3.65% 6 Apple Inc Commercial Office Building 180,907,491 3.11% 7 STC Ventures LLC Commercial Office Building 171,085,759 2.94% 8 PR II TWRS of GRT America Owner Commercial Office Building 168,790,353 2.90% 9 PR3976 Freedom Circle LLC Commercial Office Building 168,645,693 2.90% 10 RAR2 - Stadium Techcter 123 LLC Commercial Office Building 163,772,824 2.81% TOTAL 2,896,854,621$ 49.75%
TOTAL AGENCY ASSESSED VALUE 5,814,565,313$
Source: HDL Coren & Cone

SUCCESSOR AGENCY OF THE CITY OF SANTA CLARA

BAYSHORE NORTH PROJECT AREA

TEN LARGEST ASSESSEES - TAXABLE VALUE
June 30, 2022

2. Ten Largest Assessees – Taxable Value
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Table 3

HEARING APPLICANT'S

TAX ROLL ASSESSED APPEAL DATE OPINION

NUMBER ASSESSEE VALUATION/ORIGINAL S/U
(1)

NUMBER DEADLINE STATUS VALUATION LAND USE
984-92-103 FORTY NINERS 555,214,000$ S 15.0278 88,000,000$ Commerical 984-92-104 FORTY NINERS 555,214,000 S 15.0279 88,000,000 Commerical 984-92-103 FORTY NINERS 555,214,000 S 15.028 88,000,000 Commerical 984-92-104 FORTY NINERS 555,214,000 S 15.0281 88,000,000 Commerical 984-92-103 FORTY NINERS 554,267,314 S 17.0232 140,000,000 Commerical 984-92-104 FORTY NINERS 554,267,314 S 17.0233 140,000,000 Commerical 984-92-104 FORTY NINERS 548,980,708 S 16.0256 100,000,000 Commerical 984-92-103 FORTY NINERS 548,980,708 S 16.0257 100,000,000 Commerical 984-92-103 FORTY NINERS 253,784,158 S 18.1918 250,500,000 Commerical 21-081107 CEDAR FAIR S 93,154,425 U 21.3482 46,577,214 N/A 21-081108 CEDAR FAIR S 86,769,758 U 21.3483 42,989,135 N/A 21-081109 CEDAR FAIR S 62,482,975 U 21.3484 35,620,612 N/A 21-081110 CEDAR FAIR S 59,777,200 U 21.3485 29,888,601 N/A 17-018611 CEDAR FAIR S 59,280,246 U 17.1041 58,852,511 N/A 18-018278 CEDAR FAIR S 58,493,748 U 18.0594 50,547,232 N/A 104-50-025 COHERENT INC 46,023,273 U 15.0256 15,251,322 N/A 10-037856 SAVVIS COMMU 45,935,890 U 10.5814 40,000,000 N/A 14-032002 SAVVIS COMMU 44,195,581 U 14.171 22,000,000 N/A 20-012639 APPLE INC 41,718,286 U 20.1073 3,100,001 N/A 15-032178 SAVVIS COMMU 41,532,802 U 15.1129 20,750,000 N/A 5,320,500,386$ 1,448,076,628$
Note:
(1) S=secured roll, U=unsecured roll
Source: Santa Clara County Assessor's Office

SUCCESSOR AGENCY OF THE CITY OF SANTA CLARA

BAYSHORE NORTH PROJECT AREA
ASSESSMENT APPEAL ACTIVITY OF TOP 20 ASSESSEES
2021-22 Impacts

3. Assessment Appeal Activity of Top 20 Assessees
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Table 4
2021-22 Assessed Valuation: 5,823,403,269$
Base Year Valuation: (8,837,956)
Incremental Valuation: 5,814,565,313$
Total Debt Project Area’s Share of
6/30/2022
%
Applicable(1) Debt 6/30/22
OVERLAPPING TAX AND ASSESSMENT DEBT:

Santa Clara Unified School District 956,350,000$ 7.715% 73,782,403$ West Valley-Mission Community College District 732,500,000 3.531% 25,864,575 Santa Clara County 1,130,850,000 1.010% 11,421,585
Santa Clara Valley Water District Benefit Assessment District 48,150,000 1.010% 486,315 El Camino Hospital District 111,240,000 0.008% 8,899 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 111,563,777$
OVERLAPPING GENERAL FUND DEBT:

Santa Clara County General Fund Obligations 1,210,694,365$ 1.010% 12,228,013$ Santa Clara County Pension Obligations 335,638,470 1.010% 3,389,949 Santa Clara County Board of Education Certificates of Participation 1,820,000 1.010% 18,382 West Valley-Mission Community College District General Fund Obligations 12,000,000 3.531% 423,720 Santa Clara Unified School District Certificates of Participation 13,325,000 7.715% 1,028,024 City of Santa Clara General Fund Obligations 11,065,000 11.142% 1,232,862 Santa Clara County Vector Control District Certificates of Participation 1,505,000 1.010% 15,201 TOTAL OVERLAPPING GENERAL FUND DEBT 18,336,151$
Less: Santa Clara County supported obligations (182,595) COMBINED TOTAL DIRECT AND OVERLAPPING DEBT 129,899,928$ (2) TOTAL NET DIRECT AND OVERLAPPING BONDED DEBT 129,717,333$ (1) Percentage of overlapping agency's assessed valuation located within boundaries of the project area (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations Ratios to 2021-22 Assessed Valuation :

Combined Total Direct and Overlapping Debt 2.23%
Net Combined Total Direct and Overlapping Debt 2.23%

SUCCESSOR AGENCY OF THE CITY OF SANTA CLARA

BAYSHORE NORTH PROJECT AREA

COMPUTATION OF DIRECT AND OVERLAPPING BONDED DEBT
June 30, 2022

4. Computation of Direct and Overlapping Bonded Debt
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FOR THE YEAR ENDED JUNE 30, 2022

WITH COMPARATIVE TOTALS
AS OF JUNE 30, 2021

CITY OF SANTA CLARA, CALIFORNIA
150
0 WARBURTON AVENUE
SANTA CLARA, CA 95050-3796

CITY OF SANTA CLARA

ELECTRIC UTILITY ENTERPRISE FUND
(SIL

ICON VALLEY POWER)

FINANCIAL STATEMENTS
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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

TABLE OF CONTENTS

Page
INDEPENDENT AUDITOR'S REPORT ................................................................................... 1 Management’s Discussion and Analysis ..................................................................................... 3 Basic Fund Financial Statements
Statements of Net Position ...................................................................................................... 9 Statements of Revenue, Expenses and Changes in Net Position .......................................... 11 Statements of Cash Flows ..................................................................................................... 12 Notes to Financial Statements ............................................................................................... 13 Required Supplementary Information
Schedule of Proportionate Share of the Net Pension Liability .............................................. 66 Schedule of Contributions (Pension Plan) ............................................................................ 68 Schedule of Propzortionate Share of the Net OPEB Liability and Related Ratios ............... 70 Schedule of Proportionate Share of the Contributions (OPEB Plan) .................................... 72

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1 INDEPENDENT AUDITOR'S REPORT

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2 DRAFT

3 Management’s Discussion and Analysis
The management’s discussion and analysis of the Silicon Valley Power (SVP) provides an overall review of the SVP’s financial activities for the fiscal years ended June 30, 2022. The intent of this discussion and analysis is to look at SVP’s financial performance as a whole.

Readers should review the discussion and analysis in conjunction with the Basic Financial Statements, including the notes to the basic financial statements to enhance their understanding of SVP’s financial performance.

SVP is a separate enterprise fund of the City of Santa Clara (City) and was established to account for the electric power transactions of the City. SVP owns power generation facilities, has investments in joint ventures that produce electric power, and trades power on the open market.

These efforts are directed toward ensuring its retail customers—the citizens, organizations and businesses of the City—have a reliable source of electric power at reasonable rates.

SVP has been affected by the deregulation of the electric power industry in California, as discussed in detail in Note 9 to the financial statements.

FINANCIAL HIGHLIGHTS
Key financial highlights for the fiscal year ended June 30, 2022 are as follows:
• The assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources by $970.8 million. This is an increase of $55.4 million, from $915.4 million to $970.8 million, in the net position. This is mainly due to increases in capital assets of $31.4 million and accounts receivable of $21.7 million. • Operating revenues increased by $57.3 million or 11.2%, from $509.7 million to $567.0 million. This is primarily due to increases in consumption and the implementation of a 3% rate increase in January 2022.
• Operating expenses increased by $100.0 million or 22.2%, from $450.4 million to $550.4 million. The increase is a result of higher costs for purchased resources. • SVP’s total outstanding long-term debt decreased by $13.7 million, from $156.5 million to $142.8 million, during the current fiscal year.

OVERVIEW OF SVP’S BASIC FINANCIAL STATEMENTS
This annual report consists of a series of financial statements and the notes to those statements.

These statements are organized so the reader can understand SVP as a financial whole. The Basic Financial Statements are in two parts:

1. Management’s Discussion and Analysis (this part),

2. The Basic Financial Statements, along with the Notes to these Basic Financial Statements.

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4 The
Basic Financial Statements provide both a short-term and a long-term view of SVP’s financial activities and financial position.

The Basic Financial Statements are comprised of the Statements of Net Position, the Statements of Revenues, Expenses, and Changes in Net Position, and the Statements of Cash Flows. The Statements of Net Position provide information about the financial position of SVP as a whole, including all its long-term liabilities on the full accrual basis. The Statements of Revenues, Expenses, and Changes in Net Position provide information about all SVP’s revenues and all its expenses, also on full accrual basis, with the emphasis on measuring net revenues and expenses of the program. The Statements of Cash Flows provide information about cash activities for the fiscal year.

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5 FISC
AL YEAR 2021-22 FINANCIAL HIGHLIGHTS
The following is summarized financial information from the Statements of Net Position (Table1) and the Statements of Revenues, Expenses, and Changes in Net Position (Table 2).

Description 2022 2021 Amount % 2020
Pooled cash and investments 417.6 $ 434.9 $ (17.3) $ -4.0% 382.8 $ Other assets 265.6 179.5 86.1 48.0% 160.3 Capital assets 633.1 601.7 31.4 5.2% 587.0 Total Assets 1,316.3 1,216.1 100.2 8.2% 1,130.1 Deferred outflows on derivative instruments 0.2 - 0.2 NA 0.3 Deferred outflows on refunding 6.2 7.1 (0.9) -12.7% 7.9

14.2 15.4 (1.2) -7.8% 12.8 Total Deferred Outflows of Resources 20.6 22.5 (1.9) -8.4% 21.0 Long-term liabilities outstanding
(including current portion) 142.8 156.5 (13.7) -8.8% 171.7 Net OPEB liability 13.1 11.9 1.2 10.1% 12.1 Net pension liabilities 73.5 98.4 (24.9) -25.3% 92.0 Other liabilities 71.1 39.6 31.5 79.5% 28.2 Total Liabilities 300.5 306.4 (5.9) -1.9% 304.0 Deferred inflows on derivative instruments 42.2 13.0 29.2 224.6% 0.8 Deferred inflows on refunding 1.5 1.8 (0.3) -16.7% 2.0 Deferred inflows on lease revenue 2.6 - 2.6 NA - Deferred inflows on pension related items 18.4 0.2 18.2 9100.0% 1.7 Deferred inflows on OPEB related items 0.9 1.8 (0.9) -50.0% 1.7 Total Deferred Inflows of Resources 65.6 16.8 48.8 290.5% 6.2 Net Position:

Net investment in capital assets 512.0 463.7 48.3 10.4% 435.1 Restricted for contractual obligation 6.1 6.8 (0.7) -10.3% 5.2 Unrestricted 452.7 444.9 7.8 1.8% 400.6 Total Net Position 970.8$ 915.4$ 55.4$ 6.1% 840.9$ Deferred outflows on pension and OPEB
related items
Table 1
Net Position
(in millions)
Increase (Decrease)
June 30, 2022, 2021, and 2020

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6 Description 2022 2021 Amount % 2020
Revenues:

Retail 497.9 $ 453.3 $ 44.6 $ 9.8% 433.9 $ Wholesale 36.0 22.3 13.7 61.4% 24.8 Interest Revenue 6.1 6.8 (0.7) -10.3% 7.5 Net increase (decrease) in fair value of investments (21.0) (4.8) (16.2) -337.5% 8.4 Rents and royalties 3.9 3.8 0.1 2.6% 3.6 Renewable energy credits 2.0 1.9 0.1 5.3% 4.3 Mandated program receipts 14.2 13.0 1.2 9.2% 12.3 Other 72.1 32.2 39.9 123.9% 28.6 - Total Revenues 611.2 528.5 82.7 15.6% 523.4 Expenses:

Retail 526.5 432.3 94.2 21.8% 408.8 Wholesale 18.4 12.3 6.1 49.6% 30.0 Interest on long term debt and swap termination
payment 3.1 3.8 (0.7) -18.4% 6.9 Mandated program disbursement 5.5 5.8 (0.3) -5.2% 6.9 Total Expenses 553.5 454.2 99.3 21.9% 452.6 Increase (decrease) in net position before transfers 57.7 74.3 (16.6) -22.3% 70.8 Contribution 1.9 (1.9) - - Transfers in (out) (2.3) (1.7) (0.6) -35.3% (0.4) Increase (decrease) in net position 55.4 74.5 (19.1) -25.6% 70.4 Net Position - July 1 915.4 840.9 74.5 8.9% 770.5 Net Position - June 30 970.8$ 915.4$ 55.4$ 6.1% 840.9$ Table 2
Revenues, Expenses, and Changes in Net Position
(in millions)
Increase (Decrease)
For the years ended June 30, 2022, 2021 and 2020

SVP retail operating revenues were $497.9 million in fiscal year 2021-22, $453.3 million in fiscal year 2020-21, and $433.9 million in fiscal year 2019-20, reflecting increases of approximately 9.8% and 4.5% from fiscal years 2020-21 and 2019-20, respectively. The main reason for the increase in fiscal year 2021-22 was a 3% rate increase effective January 1, 2022 and consumption increases.

Retail operating expenses were $526.5 million in fiscal year 2021-22, $432.3 million in fiscal year 2020-21, and $408.8 million in fiscal year 2019-20, reflecting an increase of $94.2 million and $23.5 million or 21.8% and 5.7% from fiscal years 2020-21 and 2019-20, respectively. The retail operating expenses for fiscal year 2021-22 were higher primarily due to additional market purchases to supply the increasing load demand and 26.6% increases in transmission access charge.

Revenues of wholesale resources (include gas and power) sales were $36.0 million in fiscal year 2021-22, $22.3 million in fiscal year 2020-21, and $24.8 million in fiscal year 2019-20.

Concurrently, the cost of wholesale resources purchases was $18.3 million in fiscal year 2021- DRAFT

7 22,
$12.3 million in fiscal year 2020-21, and $30 million in fiscal year 2019-20. The increase in wholesale power purchases in fiscal year 2021-22 was due to the overall high-priced resource market.

Interest income was $6.1million in fiscal year 2021-22, $6.8 million in fiscal year 2020-21, and $7.5 million in fiscal year 2019-20. The decrease in the current fiscal year was primarily the result of lower interest rate environment. Interest expense was $3.1 million in fiscal year 2021- 22, $3.8 million in fiscal year 2020-21, and $6.9 million in fiscal year 2019-20. The decrease of interest expenses in fiscal year 2021-22 was due to refunding of Electric Revenue Refunding Bonds, Series 2011A, the callable portion of Electric Revenue Refunding Bonds, Series 2013A, and the Bank of America Loan Agreement, Series 2014 in fiscal year 2019-20. Further detail may be found in Note 5 to the financial statements.

SVP had a net position of $970.8 million at June 30, 2022, an increase of $55.4 million from the prior fiscal year. Of this amount, $48.3 million was an increase in net investment in capital assets, $0.7 million was a decrease of restricted for contractual obligation, and $7.8 million was an increase of unrestricted net position.

CAPITAL ASSETS
At the end of fiscal year 2021-22 SVP had $633.1 million, net of depreciation, invested in capital assets, with a significant amount in power generation facilities and the remainder in transmission and distribution assets. At June 30, 2022, SVP had various projects completed or under construction. In fiscal year 2021-22, the Capital Improvement Projects Budget included appropriations for significant investments in substation improvements in future years.

Further detail may be found in Note 4 to the financial statements.

DEBT ADMINISTRATION
Each of SVP’s debt issues is discussed in detail in Note 5 to the financial statements. At June 30, 2022, SVP’s debt is comprised of two issues of Revenue Bonds and three issues of Subordinate Revenue Bonds totaling of $142.8 million. These bonds are secured by net electric revenues earned by SVP and mature in fiscal years 2023 through 2033.

ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the coming year are discussed in detail in the Letter of Transmittal Section of the City’s Annual Comprehensive Financial Report for the fiscal year ended June 30, 2022.

CONTACTING SVP’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of SVP’s finances. Questions about these Basic Financial DRAFT

8 Sta
tements should be directed to the City of Santa Clara Finance Department, 1500 Warburton Avenue, Santa Clara, CA 95050-3796.

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See accompanying notes to financial statements

9 B
asic Fund Financial Statements
ASSETS 2022 2021
Current Assets:

Pooled cash and investments (Note 3) 417,583,298$ 434,877,562$ Investments with fiscal agent (Note 3) 15,196,469 14,774,682 Leases Receivable (Note 2) 239,156 -
Receivables (net of allowances)
Accounts 98,415,474 76,744,991
Interest 1,614,768 1,470,576
Derivative instrument (Note 5G) 15,462,094 1,604,352 Due from the City of Santa Clara (Note 2E) 2,686,894 2,603,215 Inventory of materials and supplies (Note 2F) 13,804,838 12,136,795 Total Current Assets 565,002,991 544,212,173
Noncurrent Assets:

Capital assets (Note 4)
Land 14,371,743 14,371,743
Construction in progress 63,161,131 99,971,096
Buildings, improvements and infrastructure 1,065,938,843 974,506,146 Equipment 9,941,798 9,698,465
Accumulated depreciation (520,317,069) (496,816,889) Total Capital Assets (Net of Accumulated
Depreciation) 633,096,446 601,730,561
Other Noncurrent Assets:

Restricted investments (Note 3) 6,146,358 6,808,996 Derivative instrument (Note 5G) 26,724,615 11,427,770 Investments in joint ventures (Note 6) 57,312,242 42,673,081 Investments with fiscal agent (Note 3) 3,906,331 3,721,334 Deposits (Note 3) 19,518,954 5,522,664
Leases receivable (Note 2) 2,365,415 -
Right-to-use leased assets, net of amortization (Note 4) 2,243,556 - Total Other Noncurrent Assets 118,217,471 70,153,845 Total Noncurrent Assets 751,313,917 671,884,406
Total Assets 1,316,316,908 1,216,096,579

DEFERRED OUTFLOWS OF RESOURCES
Accumulated decrease in fair value of hedging instruments 164,564 - Deferred outflow on refunding of debt 6,192,411 7,051,125 Deferred outflows on OPEB related items (Note 8) 1,217,486 464,425 Deferred outflows on pension related items (Note 7) 13,021,377 14,951,393 Total Deferred Outflows of Resources 20,595,838 22,466,943 June 30, 2022

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

STATEMENTS OF NET POSITION
with Comparative Totals as of June 30, 2021

Statements of Net Position
Statement of Net Position
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See accompanying notes to financial statements

1 0

LIABILITIES 2022 2021
Current Liabilities:

Accrued liabilities 60,306,912 31,729,971
Interest payable 1,618,146 1,672,931
Accrued compensated absences 774,797 705,530 Current portion of long-term debt (Note 5) 13,580,000 13,005,000 Current portion derivative financial instruments (Note 5G) 164,564 - Current portion of leases obligation (Note 5J) 654,044 - Total Current Liabilities 77,098,463 47,113,432 Noncurrent Liabilities:

Long-term portion accrued compensated absences 5,995,836 5,462,387 Net pension liability (Note 7) 73,533,480 98,396,395 Net OPEB liability (Note 8) 13,057,945 11,860,957 Long-term leases obligation (Note 5J) 1,632,622 - Long-term debt (Note 5) 129,196,165 143,529,398
Total Noncurrent Liabilities 223,416,048 259,249,137 Total Liabilities 300,514,511 306,362,569

DEFERRED INFLOWS OF RESOURCES
Accumulated increase in fair value of hedging instruments (Note 5I) 42,186,709 13,032,122
Deferred inflow on refunding of debt 1,537,064 1,793,331 Deferred inflow - leases related (Note 2) 2,571,068 - Deferred inflows pension related items (Note 7) 18,343,263 148,855 Deferred inflows OPEB related items (Note 8) 929,326 1,811,678 Total Deferred Inflows of Resources 65,567,430 16,785,986

NET POSITION
Net investment in capital assets 511,984,541 463,692,179 Restricted 6,146,358 6,808,996
Unrestricted 452,699,906 444,913,792
Total Net Position 970,830,805$ 915,414,967$
with Comparative Totals as of June 30, 2021
(SILICON VALLEY POWER)

STATEMENTS OF NET POSITION
June 30, 2022

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND

DRAFT

See accompanying notes to financial statements

1 1

2022 2021
Operating Revenues:

Residential sales 33,275,452$ 35,440,461$
Commercial sales 16,394,519 16,489,095
Industrial sales 448,256,676 399,940,409
Renewable energy credits 2,024,100 1,901,898
Wholesale resource sales (Note 9) 36,048,240 22,324,165 Mandated program receipts 14,223,250 12,952,572
Other operating revenues 16,802,355 20,614,578
Total Operating Revenues 567,024,592 509,663,178
Operating Expenses:

Operations 91,250,838 80,459,901
Maintenance 24,972,897 22,049,243
Purchased resource 386,053,317 308,443,776
Wholesale resource purchases (Note 9) 18,370,965 12,282,782 Mandated program disbursement 5,533,938 5,821,317 Amortization 673,067 -
Depreciation 23,547,718 21,359,932
Total Operating Expenses 550,402,740 450,416,951
Operating Income 16,621,852 59,246,227
Nonoperating Revenues (Expenses):

Interest revenue 6,065,834 6,823,316
Net changes in the fair value of investments (21,010,694) (4,791,168) Interest expense (3,117,699) (3,744,098)
Equity in income (losses) of joint ventures 14,639,161 1,678,371 Rents and royalties 3,898,215 3,767,123
Other revenues 40,626,292 11,379,050
Total Nonoperating Revenues, net 41,101,109 15,112,594 Income Before Transfers 57,722,961 74,358,821
Contributions - 1,900,000
Transfers from the City of Santa Clara 330,000 166,540 Transfers to the City of Santa Clara (2,637,123) (1,902,975) Net Income 55,415,838 74,522,386
Net Position, Beginning of Year 915,414,967 840,892,581 Net Position, End of Year 970,830,805$ 915,414,967$

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION For the Year Ended June 30, 2022
with Comparative Totals for the Year Ended June 30, 2021

Statement of Revenue, Expenses and Changes in Net Position Statements of Revenue, Expenses and Changes in Net Position

DRAFT

See accompanying notes to financial statements

1 2

2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers $ 494,683,368 $ 476,627,250 Payments to suppliers (438,473,513) (353,242,680) Payments to employees for salaries and benefits (45,739,420) (43,598,710) Rents and royalties received 3,823,785 2,972,934 Resource energy trading escrow (13,996,290) (2,296,122) Wholesale resource sales 36,048,240 22,324,165 Wholesale resource purchases (18,370,965) (12,282,782) Renewable energy credits 2,024,100 1,901,898 Other receipts 48,415,239 17,536,223
Net Cash provided by Operating Activities 68,414,544 109,942,176

CASH FLOWS FROM NONCAPITAL FINANCING

ACTIVITIES
Increase (decrease) in due from other funds (83,679) (601,248) Changes in restricted investments (662,638) 1,643,104 Transfers in 330,000 166,540
Transfers out (2,637,123) (1,902,975)
Net Cash (used in) Noncapital Financing Activities (3,053,440) (694,579)

CASH FLOWS FROM CAPITAL AND RELATED

FINANCING ACTIVITIES
Acquisition and construction of capital assets, net (50,687,039) (40,389,333) Principal payments on debt (13,632,958) (9,580,000) Interest paid on debt (3,325,270) (3,991,726) Net Cash (used in) Capital and Related Financing Activities (67,645,267) (53,961,059)

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

STATEMENTS OF CASH FLOWS
with Comparative Totals for the Year Ended June 30, 2021 For the Year Ended June 30, 2022

Statements of Cash Flows

Statement of Cash Flow

DRAFT

See accompanying notes to financial statements

1 3

2022 2021

CASH FLOWS FROM INVESTING ACTIVITIES
Interest and dividends 5,944,739 6,766,041
Net increase (decrease) in the fair value of investments (21,010,694) (4,791,168) Payments made by fiscal agent 16,294,079 13,538,574 Deposits made with fiscal agent (16,900,863) (17,030,693) Net Cash (used in) Investing Activities (15,672,739) (1,517,246) Net Increase (Decrease) in Cash and Cash Equivalents (17,956,902) 53,769,292 Cash and cash equivalent at Beginning of Period 441,686,558 387,917,266 Cash and cash equivalent at End of Period 423,729,656$ 441,686,558$ Reconciliation of Operating Gain (Loss) to Net Cash
Provided (Used) by Operating activities:

Operating income 16,621,852$ 59,246,227$
Adjustments to reconcile operating income to net cash
provided (used) by operating activities:
(Decrease) Increase in due to OPEB system (438,425) (578,377) (Decrease) Increase in due to retirement system (4,738,491) 2,739,064 (Decrease) Increase in due to lease obligation 616,466 - Depreciation 23,547,718 21,359,932
Change in assets and liabilities:

Receivable, net (21,670,483) 4,315,664
Inventory (1,668,043) (1,431,601)
Accrued liabilities 24,350,379 12,360,873
Restricted cash 662,638 (1,643,104)
Compensated absences 602,716 723,447
Other receipts 44,524,507 15,146,173
Resource trading escrow (13,996,290) (2,296,122) Net Cash Provided by Operating Activities 68,414,544$ 109,942,176$ NONCASH TRANSACTIONS:

Joint Ventures
Nonoperating Income (Expense) 14,639,161$ 1,678,371$ (SILICON VALLEY POWER)

STATEMENTS OF CASH FLOWS
with Comparative Totals for the Year Ended June 30, 2021

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
For the Year Ended June 30, 2022

Notes to Financial Statements
DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

14 NOTE 1 – DEFINITION OF THE REPORTING ENTITY
The
City of Santa Clara (the City), California’s Electric Utility Enterprise Fund, which began operating as Silicon Valley Power (SVP) in 1997, commenced operations over 100 years ago in 1896. Originally, SVP constructed a lighting plant consisting of forty-six 2000 candlepower direct current lamps and a dynamo (a type of electric generator) which entered into service in October 1896. In late 1903, SVP invested $5,000 to convert the system to alternating current and abandoned the small generating plant. Wholesale power was purchased from United Gas and Electric Company of San Jose.

Between 1903 and 1965, SVP purchased all of its electric power requirements from investor- owned utilities. In 1965, it received an allocation of power from the Federal Central Valley Project and began to diversify its resources. SVP became a charter member of the Northern California Power Agency (NCPA) in June 1968. Throughout the 1970’s, SVP and NCPA worked on behalf of all municipal electric utilities in Northern California to gain access to wholesale transmission markets and to jointly develop cost-effective electric generation resources.

In 1980, SVP became a generating utility for the first time in 73 years with the start of operations of the 6-Megawatt Cogen No. 1 power plant. In 1983, the 110 Megawatt NCPA Geothermal Project, the first municipally owned and operated geothermal power plant in the United States, entered service with SVP as lead partner holding a 55% participation share. Subsequently, SVP participated in further jointly owned power generation projects including hydroelectric, natural gas and coal fired generation. In 2005, SVP placed the 147 Megawatt Don Von Raesfeld Power Plant into service.

Today, SVP has grown to approximately 8,429 streetlights and serves approximately 58,118 electric customers. As SVP looks to the future, it continues to be responsive to the electric market development by increasing its renewable power resources, reducing its greenhouse gas (GHG) footprint, and working with its customers to enhance the value they receive from municipal ownership of their electric utility.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
SVP’s Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

15 Government Accounting Standards Board (GASB) is the acknowledged standard setting body for
establishing accounting and financial reporting standards followed by governmental entities in the United States of America. The electric enterprise fund is included in the City’s Annual Comprehensive Financial Report, and therefore, these financial statements do not purport to represent the financial position and changes in financial position of the City.

B. Basis of Accounting
SVP reports its activities as a proprietary fund type (Enterprise Fund) which is maintained on the accrual basis of accounting wherein revenues are recognized in the accounting period in which they are earned regardless of whether they are received, and expenses are recognized in the period in which the related liabilities are incurred. Certain indirect costs are included in program expenses reported for individual functions and activities.

During the year ended June 30, 2022, SVP implemented the following GASB Statement:

The GASB issued Statement No. 87 "Leases.” The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. To be consistent with the Citywide implementation, the provisions of this Statement were implemented during fiscal year 2022.

The GASB issued Statement No. 89 "Accounting for Interest Cost Incurred Before the End of a Construction Period.” The objectives of this Statement are to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and to simplify accounting for certain interest costs. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in the financial statements. The provisions of this Statement were implemented during fiscal year 2022. The implementation had no effect on the financial statements.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

16 The GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The primary obje
ctive of this Statement is to address accounting and financial reporting implications that result from the replacement of an interbank offered rate (IBOR). The provisions of this Statement were implemented during fiscal year 2022. The implementation had no effect on the financial statements.

The GASB issued Statement No. 97 “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans-An Amendment of GASB Statements No.14 and No. 84, and a Supersession of GASB Statement No. 32.” The objectives of this statement are to (1) increase consistency and comparability related to reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. This statement becomes effective for periods beginning after June 15, 2021. The implementation had no effect on the financial statements.

The GASB issued Statement No. 99, Omnibus 2022. The primary objective of this Statement is to enhance comparability in reporting and improve the consistency of authoritative literature by addressing practice issues identified during implementation and application of certain GASB statements. The provisions of this Statement related to LIBOR, SNAP, and Leases, were implemented during fiscal year 2022.

SVP is analyzing the effects of the following pronouncements and plans to adopt them by the effective dates:

The GASB issued Statement No. 91 “Conduit Debt Obligation.” The objective of this statement is to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practices. This statement becomes effective for periods beginning after December 15, 2021. SVP is currently evaluating the impact on the financial statements.

The GASB issued Statement No. 92 “Omnibus 2020.” The objective of this statement is to enhance comparability in reporting and improve the consistency of authoritative literature by addressing practice issues identified during implantation of certain GASB statements. This statement becomes effective upon issuance for requirements related to GASB 87. For GASB 73, DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

17 GASB 74, and GASB 84 as well as measurement of liabilities associated with asset retirement obli
gations, the requirements become effective for reporting periods beginning after June 15, 2021. SVP is currently evaluating the impact on the financial statements.

The GASB issued Statement No. 94 “Public-Private and Public-Public Partnerships and Availability Payment Arrangements.” The objective of this statement is to address issues related to public-private and public-public partnership arrangements and to provide guidance for accounting and financial reporting for availability payment arrangements. This statement becomes effective for periods beginning after June 15, 2022. SVP is currently evaluating the impact on the financial statements.

The GASB issued Statement No. 96 “Subscription-Based Information Technology Arrangements.” The objective of this statement is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users. This statement becomes effective for periods beginning after June 15, 2022. SVP is currently evaluating the impact on the financial statements.

The GASB issued Statement No. 100 “Accounting Changes and Errors Corrections". The objective of this statement is to establish accounting and financial reporting requirements for (a) accounting changes and (b) the correction of an error in previously issued financial statements.

This statement becomes effective for periods beginning after June 15, 2023. SVP is currently evaluating the impact on the financial statements.

The GASB issued Statement No. 101 “Compensated Absences". The objective of this statement is to amend the existing requirements for the recognition of compensated absences liability. This statement becomes effective for periods beginning after December 15, 2023. SVP is currently evaluating the impact on the financial statements.

C. Measurement Focus
Enterprise funds are accounted for on a cost of services or economic resources measurement focus, which means that all liabilities associated with the activity are included on their Statement of Net Position. Enterprise fund type operating statements present increases (revenues) and decreases (expenses) in total net position. Reported net position is segregated into three categories – net investment in capital assets, restricted, and unrestricted.

D. Cash and Investments
SVP’s cash and investments pool is maintained by the City except for fiscal agent cash and investments.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

18 While maintaining safety and liquidity, the City maximizes investment return by pooling its ava
ilable cash for investment purposes. Unless there are specific legal or contractual requirements to do otherwise, interest earnings are apportioned among funds according to average monthly cash and investment balances. It is generally the City's intention to hold investments until maturity. City investments are stated at fair value (see Note 3).

Cash and cash equivalents for purposes of the statement of cash flows include pooled cash and investments and cash designated for construction. Transactions with City-wide cash management pools are similar to those with external investment pools; therefore, since pooled cash and investments have the same characteristics as demand deposits in that the City's individual funds and component units may withdraw additional monies at any time without prior notice or penalty, pooled cash and investments are considered essentially demand deposit accounts.

Cash and investments with fiscal agent, a bond reserve investment pool, and amounts classified as deposits are not considered cash and cash equivalents.

E. Due from City of Santa Clara
During the course of operations, transactions occur between SVP and the City for goods provided or services rendered. The related receivables, net, are classified as “Due from the City of Santa Clara” on the accompanying statement of net position.

F. Inventory of Materials and Supplies
Inventory of materials and supplies is accounted for using the consumption method and is stated at average cost. Inventory consists of expendable supplies held for consumption by the electric utility.

G. Capital Assets
All capital equipment and right-to-use equipment with a value of $5,000 and buildings, improvements and infrastructure, right-to-use building with costs exceeding $20,000 or more with useful lives exceeding two years are capitalized. These assets are valued at historical cost or estimated historical cost if actual historical cost is not available except for intangible right -to- use lease assets, the measurement of which discussed in Note 2R below. Contributed capital assets are valued at their estimated acquisition value on the date contributed. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (buildings and improvements: 20 to 50 years; and equipment: 3 to 25 years) and is charged as an expense against operations. Accumulated depreciation is reported on the statement of net position.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

19 The cost of normal maintenance and repairs that do not add to the value of the asset or materially ext
end asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets.

Capital assets and the related obligations under lease/purchase agreements are capitalized and accounted for in accordance with Accounting Standards Codification (ASC) Topic 840. Interest is capitalized on construction in progress in accordance with ASC Topic 835, Capitalization of Interest Cost in Situations Involving Certain Tax-Exempt Borrowings, and Certain Gifts and Grants. Accordingly, interest capitalized is the total interest cost for the date of the borrowings net of any interest earned on temporary investments of the borrowed proceeds until the specified asset is ready for its intended use. There was no interest capitalized for the fiscal years ended June 30, 2021 or 2022.

H. Joint Ventures
SVP participates in several joint ventures in accordance with GAAP. If SVP’s equity in net losses of a joint venture exceeds its investments, use of the equity method is suspended except to the extent that SVP is obligated to provide further support or has guaranteed obligations of the joint venture.

SVP advances funds to certain of its joint ventures in the form of refundable advances, project advances, and operating and maintenance advances. Refundable advances accrue interest at rates stated in the related agreements. Operating, maintenance, and project advances are charged to operations when incurred.

Capitalized project costs are charged to operations in the event that a project is determined to be not economically feasible.

I. Compensated Absences
Amounts of vested or accumulated vacation leave and certain benefits that are not expected to be liquidated with expendable available financial resources are reported in the SVP financial statements as an expense and liability.

In accordance with GAAP, Accounting for Compensated Absences, a liability for sick leave and benefits is accrued using the vesting method. The vesting method provides that a governmental entity estimate its accrued sick leave liability based on the sick leave accumulated at the statement of net position date by those employees who currently are eligible to receive termination payments as well as other employees who are expected to become eligible in the future to receive such payments. Estimated sick leave payments are recorded as an expense and liability by SVP.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

20 J. Risk Management
SV
P is covered under the City’s self-insurance programs via Internal Service Funds. There were no significant reductions in insurance coverage from the prior year by major categories of risk and the amount of settlements did not exceed insurance coverage for the past four fiscal years.

Additional information with respect to the City’s self-insurance programs can be found in the City’s Annual Comprehensive Financial Report.

K. Electric Power Purchased
SVP purchases power from various suppliers and agencies (including joint powers agencies) for resale to its customers (see Note 10). SVP also engages in numerous wholesale power transactions with the objective of reducing its overall cost of purchased power. Gross wholesale power sales and wholesale power purchases are recorded as operating revenue and expense, respectively (see Note 9).

L. Bond Discounts/Issuance Costs
Bond discounts are presented as a reduction of the face amount of bonds payable, whereas issuance costs are recognized in the current period.

M. Revenue Recognition
Operating revenues are recognized based on cycle billings periodically rendered to customers.

Operating revenues for services provided, but not billed at the end of the fiscal year, are recognized and accrued based on estimated consumption. Operating revenues primarily include the sales of electric power to residential, commercial, industrial, and municipal customers.

Non-operating revenues primarily represent wholesale resources sales, interest income, public benefit charge revenues, grants, rents, and other non-recurring miscellaneous income.

N. Taxes on Income
As an agency of the City, SVP falls under the review of the Internal Revenue Code Section 115 and corresponding California Revenue and Taxation Code provisions. As such, it is not subject to federal income or state franchise taxes.

O. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of financial position includes a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net assets that DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

21 applies to a future period(s) and so will not be recognized as an outflow of resources (exp
ense/expenditure) until then. SVP has three items that qualify for reporting in this category:
deferred outflow related to the refunding, pension and OPEB.

In addition to liabilities, the statement of financial position includes a separate section for deferred inflows of resources. Deferred inflows of resources represent an acquisition of net assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. In the government‐wide financial statements SVP reports deferred amounts related to derivative instruments, refunding, leases and deferred amounts related to pension and OPEB.

P. Net Position and Fund Equity
SVP may fund certain programs with a combination of restricted and unrestricted net position.

The policy is to first apply restricted net position followed by unrestricted net position if necessary.

Q. Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

R. Lease Agreements
A lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment.

Lessee - SVP is a lessee for noncancellable lease of buildings. SVP recognizes a lease liability with an initial, and individual value of $2,916,623 and an intangible right‐to‐use lease asset (lease asset) in the statement of net position financial statements.

At the commencement of a lease, SVP initially measures the lease liability at the present value of payments expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as the initial amount of the lease liability, adjusted for lease payments made at or before the lease DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

22 commencement date, plus certain initial direct costs. Subsequently, the lease asset is amortized on a
straight‐line basis over its useful life.

Key estimates and judgments related to leases include how SVP determines (1) the discount rate it uses to discount the expected lease payments to present value, (2) lease term, and (3) lease payments as follows:
 SVP uses the interest rate charged by the lessor as the discount rate. When the interest rate charged by the lessor is not provided, the City generally uses its estimated incremental borrowing rate as the discount rate for leases.  The lease term includes the noncancellable period of the lease.  Lease payments included in the measurement of the lease liability are composed of fixed payments and purchase option price that SVP is reasonably certain to exercise.

SVP monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease liability.

Lease assets are reported with other capital assets and lease liabilities are reported with long-term debt on the statement of net position.

Lessor - SVP is a lessor for noncancellable leases of land and building. SVP recognizes a lease receivable and a deferred inflow of resources in the financial statements.

At the commencement of a lease, SVP initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term.

Key estimates and judgments include how SVP determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts as follows:
 SVP uses its estimated incremental borrowing rate as the discount rate for leases.  The lease term includes the noncancellable period of the lease.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 2- SUMMARY OF SIGNIIFICANT ACCOUNTING POLICIES (continued)

23  Lease receipts included in the measurement of the lease receivable is composed of fixed pa
yments from the lessee.

SVP monitors changes in circumstances that would require a remeasurement of its lease, and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable.

NOTE 3 – CASH AND INVESTMENTS
SVP’s cash and investments pool is maintained by the City except for fiscal agent cash and investments. A full description of the City’s cash and investment policy is in Note 7 of its Annual Financial Report.

A. Investments Authorized by the California Government Code and the City’s Investment Policy
The City’s Investment Policy and the California Government Code allow the City to invest in certain types of investments, provided the credit ratings of the issuers are acceptable to the City.

The table below also identifies certain provisions of the City’s Investment Policy and the California Government Code that address interest rate risk, credit risk, and concentration of credit risk.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

24 Minimum Maximum Maximum
Maximum Credit Percentage Investment
Authorized Investment Type Maturity Quality or Portfolio In One Issuer U.S. Treasury Obligations 7 years N/A 100% 100%
U.S. Agency Securities
(1) 7 years Top three ratings
cat
egories
80%
(2) 40%
Neg
otiable Certificates of Deposit 5 years A/A1 30% 5%
Bankers Acceptances 180 days N/A 25% 5%
Commercial Paper 270 days A1 / P1 25% 5%
(3)
California Local Agency Investment
Fund
N/A N/A None $75M Per
A/C
Repurchase Agreements 60 days N/A 50% 20%
Reverse Repurchase Agreements
(requires City Council approval)
92 days N/A 20% 10%
Municipal Obligations 7 years N/A 20% 5%
Medium Term Corporate Notes 5 years Top three ratings
categories
20% 5%
Mutual Funds / Money Market Funds N/A Top rating category 20% 10% Joint Power Authority Investment N/A Top rating category 100% 100% Supranational Obligations 5 years AA 20% 10%
Asset-Backed Securities 5 years AA 10% 5%
Non-Negotiable Certificates of
Deposit 5 years N/A 10% 5%
Mortgage-Backed Securities 12 years
(4) AA 15%
5%
(1)
Securities issued by the Federal Farm Credit Bank (FFCB), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), local agencies and other U.S. government sponsored enterprises.

B. Investments Authorized by Debt Agreements
The City invests bond proceeds restricted for construction in instruments that are stated in the Investment Policy and in various return-guaranteed investment agreements. These investments are invested in accordance with bond indentures and the maturities of each investment should not exceed the final maturity of each bond. Bond proceed investments are reported monthly to the City Council.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

25 SVP also maintains required amounts of cash and investments with trustees or fiscal agents und
er the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if SVP fails to meet its obligations under these debt issues. The California Government Code 53601 (L) allows these funds to be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, other agreements, or certificates of participation in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance.

C. Pension Rate Stabilization Program
In February 2017, the City Council approved a Pension Rate Stabilization Program, (PRSP) Trust administered by Public Agency Retirement Services (PARS). The PRSP is an irrevocable trust and qualifies as an Internal Revenue Section 115 trust. This trust will assist the City in mitigating the CalPERS contribution rate volatility. Investments of funds held in Pension Rate Stabilization Program (PRSP) are governed by the Investment Guideline Document for the investment account and by the agreement for administrative services with the Public Agency Retirement Services (PARS), rather than the general provisions of the California Government code or the City’s investment policy. The City elected a discretionary investment approach which allows the City to maintain oversight of the investment management, control on target yield and the portfolio’ risk tolerance. The assets in this program will eventually be used to fund Pension Plan obligations.

As part of the year-end process for fiscal year 2016-17, the City Council approved SVP to designate and make an initial deposit of $3.5 million in fiscal year 2018 towards pre-funding the City’s pension obligations. As of June 30, 2022, the balance in the pension rate stabilization program trust was $6.1 million.

D. Credit and Interest Rate Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligations to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.

Interest rate risk is the risk that changes in market interest rate will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment is the greater the sensitivity of its fair value to changes in market interest rates to be.

Information about the sensitivity of the fair values of SVP’s investments to market interest rate fluctuations is provided by the following table that shows the distribution to SVP’s investment by maturity.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

26 2022 2021
Credit Under 180 181 - 365 1 - 3 3 - 5 Fair Fair
Type of Investment Rating Days Days Years Years Value Value Cash and Investments
- City Treasury:

Cash N/A 75,462,582$ - $ -$ - $ 75,462,582$ 68,251,715$ U.S. Treasury notes Aaa 2,685,313 33,518,682 74,690,438 41,574,840 152,469,273 171,790,670 Federal Farm Credit Bank Aaa 2,908,873 2,134,688 25,989,982 3,958,083 34,991,626 45,478,812 Federal Home Loan Bank Aaa - - 10,624,125 - 10,624,125 31,764,216 Federal National Mortgage
Association Aaa 2,133,770 - 17,529,986 729,096 20,392,852 29,136,334 Federal Home Loan Mortgage
Corporation Aaa - 2,089,366 5,854,073 3,677,511 11,620,950 16,126,375 Corporate notes Aaa - - 4,249,522 1,968,901 6,218,423 4,586,331 Corporate notes Aa - - 10,681,116 6,254,944 16,936,060 6,640,391 Corporate notes A - - 26,903,494 17,414,716 44,318,210 14,943,037 Supranational Aaa - 3,064,725 4,464,513 - 7,529,238 3,255,588 Asset-Backed Securities Aaa - - - 4,707,312 4,707,312 1,758,039 California Municipal Bonds Aaa - - - 1,068,661 1,068,661 1,199,332 California Municipal Bonds Not Rated - 599,091 - - 599,091 648,456 Certificates of Deposit A-1 - 4,637,466 - - 4,637,466 8,171,859 Wells Fargo Money Market Fund Not Rated 420,314 - - - 420,314 90,363 State Investment Pool (LAIF) Not Rated 25,587,116 - - - 25,587,116 31,036,044 Cash and Investments
- City Treasury 109,197,968 46,044,018 180,987,249 81,354,064 417,583,299 434,877,562 Cash and Investments
- Other:

Cash (Debt Fund) N/A 6,085,210 - - - 6,085,210 91,549 Mutual Fund - Goldman FS
- Money Market Funds
(Debt Funds) Aaam 8,473,195 - - - 8,473,195 14,055,910 Mutual Fund - JP Morgan
- Money Market Funds
(Debt Funds) Aaam 4,544,394 - - - 4,544,394 4,348,557 Pension Rate Stabilization
Investment
(Cash and Equivalents) Not Rated 62,426 - - - 62,426 69,156 Pension Rate Stabilization
Investment
(Mutual Fund - Equity) Not Rated 1,927,138 - - - 1,927,138 2,134,902 Pension Rate Stabilization
Investment
(Mutual Fund - Fixed Income) Not Rated 4,156,794 - - - 4,156,794 4,604,938 Collateral Obligations
(Archer Daniels Midland and
CAISO) Not Rated 19,518,954 - - - 19,518,954 5,522,664 Investments - Other 44,768,111 - - - 44,768,111 30,827,676 Total Cash and Investments 153,966,079$ 46,044,018$ 180,987,249$ ########## 462,351,410$ 465,705,238$ Maturity
DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

27 The
City is a voluntary participant in the Local Agency Investment Fund (LAIF). LAIF is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. LAIF’s investment portfolio mainly consists of Treasuries, loans, Federal Agency securities, and collateralized mortgage obligations. Each regular LAIF account is permitted to have up to 15 transactions per month, with a minimum transaction amount of $5,000, a maximum transaction amount of $75 million and at least 24 hours advance notice for withdrawals of $10 million or more. Bond proceeds accounts are subject to one time deposit with no cap and are set up with a monthly draw down schedule. The carrying value of LAIF approximates fair value.

Mutual funds are available for withdrawal on demand. See City’s Annual Financial Report Note 7 to the financial statements for additional detail on the fiscal year 2021-22 investment portfolio.

E. Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Under California Government Code Section 53651, depending on specific types of eligible securities, a bank must deposit eligible securities posted as collateral with its Agent having a fair value of 105% to 150% of the City’s cash on deposit. All of the City’s deposits are either insured by the Federal Depository Insurance Corporation (FDIC) or collateralized with pledged securities held in the trust department of the financial institutions.

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, the City will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit risk by requiring that all security transactions entered into by the City, including collateral for repurchase agreements, be conducted on a delivery-versus-payment basis. Securities are to be held by a third party custodian.

F. Fair Value Hierarchy
SVP categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation input used to measure the fair value of asset.

Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

28 significant other observable inputs; Level 3 inputs are significant unobservable inputs. See Cit
y’s Annual Financial Report Note 7 to the financial statements for more detailed information.

Fair Value Measurements Using
Derivative
Instruments
Measured at Fair
Quoted Prices in
Active Markets for
Identical Assets
Other
Observable
Inputs
6/30/2022 Level 1 Level 2 Exempt
(1)
Investments by Fair Value Level
Sh
ort Term Investments
US Treasury Notes 152,469,273$ 152,469,273$ -$ $ - Federal Farm Credit Banks 34,991,626 - 34,991,626 - Federal Home Loan Banks 10,624,125 - 10,624,125 - Federal National Mortgage Association 20,392,852 - 20,392,852 - Federal Home Loan Mortgage Corp 11,620,950 - 11,620,950 - Corporate notes 67,472,693 - 67,472,693 - Supranational 7,529,238 - 7,529,238 - Asset-Backed Securities 4,707,312 - 4,707,312 - California Municipal Bonds 1,667,752 - 1,667,752 - Certificates of Deposit 4,637,466 - 4,637,466 - Wells Fargo Money Market Fund 420,314 - - 420,314 Total Short Term Investments 316,533,601 152,469,273 163,644,014 420,314 Debt Securities and Other
Mutual Fund - Goldman FS
-
Money Market Funds (Debt Funds) 8,473,195 - - 8,473,195 Mutual Fund - JP Morgan
-
Money Market Funds (Debt Funds) 4,544,394 - - 4,544,394 Pension Rate Stabilization Investment
(Cash and Equivalents) 62,426 62,426 - - Pension Rate Stabilization Investment
(Mutual Fund - Equity) 1,927,138 1,927,138 - - Pension Rate Stabilization Investment 4,156,794 3,245,091 911,703 - Collateral Obligations
(Archer Daniels Midland and CAISO) 19,518,954 - - 19,518,954 Total Debt Securities and Other 38,682,901 5,234,655 911,703 32,536,543 Total Investment by Fair Value Level 355,216,502 $ 157,703,928 $ 164,555,717 32,956,857 Investments Measured at the Amortized Cost
State Investment Pool (LAIF) 25,587,116 - - 25,587,116 Total Investments 380,803,618 $ 157,703,928 $ 164,555,717 $ 58,543,973 Cash in Banks 81,547,792
Total Cash and Investment 462,351,410$
Investments Derivative Instruments
Open contract power trading - current assets 15,462,094$ 15,462,094$ Open contract gas trading - non-current assets 26,724,615 26,724,615 Total Investment Derivative Instruments 42,186,709$ 42,186,709$ (1) Accounts in exempt column are Mutual Fund-Money Market, Collateral Obligation and LAIF investments which are exempt from fai
r value hierarchy, or reported at amortized cost.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 3 – CASH AND INVESTMENTS (continued)

29 The City utilizes a third party pricing service to determine fair market prices for its individually hel
d investments. Evaluations are based on market information available at the time and generated using proprietary evaluated pricing models and methodologies.

Level 1 investments are valued using a marketable actively traded assets closing price for identical assets. Level 2 investments are determined by using quoted prices for similar assets.

NOTE 4 – CAPITAL ASSETS
A. Capital Assets Summary
Capital asset activity for the years ended June 30, 2022 and 2021 is as follows:

Balance Balance
6/30/2021
(as restated) Additions Retirements Transfers June 30, 2022 Non Depreciable Assets:

Land 14,371,743$ -$ -$ -$ 14,371,743$ Construction In Progress 99,971,096 54,622,732 - (91,432,697) 63,161,131 Total Non Depreciable Assets 114,342,839 54,622,732 - (91,432,697) 77,532,874 Capital assets being depreciated:

Buildings and Improvements 974,506,146 - - 91,432,697 1,065,938,843 Right-to-use leased building 2,916,623 - - - 2,916,623 Machinery & Equipment 9,698,465 290,871 (47,538) - 9,941,798 Total capital assets being
depreciated 984,204,611 290,871 (47,538) 91,432,697 1,078,797,264 Less accumulated depreciation for:

Buildings and Improvements (488,361,127) (23,235,288) - - (511,596,415) Right-to-use leased building - (673,067) - - (673,067) Machinery & Equipment (8,455,762) (312,430) 47,538 - (8,720,654) Total accumulated depreciation (496,816,889) (24,220,785) 47,538 - (520,990,136) Net Depreciable Assets 487,387,722 (23,929,914) - 91,432,697 557,807,128 Enterprise Activity Capital
Assets, Net 601,730,561$ 30,692,818$ -$ -$ 632,423,379$

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 4 – CAPTIAL ASSETS (continued)

30 Balance Balance
June 30, 2020 Additions Retirements Transfers June 30, 2021 Non Depreciable Assets:

Land 14,371,743$ -$ -$ -$ 14,371,743$ Construction In Progress 93,557,073 34,169,303 - (27,755,280) 99,971,096 Total Non Depreciable Assets 107,928,816 34,169,303 - (27,755,280) 114,342,839 Capital assets being depreciated:

Buildings and Improvements 944,850,866 1,900,000 - 27,755,280 974,506,146 Machinery & Equipment 9,852,172 67,107 (220,814) - 9,698,465 Total capital assets being
depreciated 954,703,038 1,967,107 (220,814) 27,755,280 984,204,611 Less accumulated depreciation for:

Buildings and Improvements (467,321,569) (21,039,558) - - (488,361,127) Machinery & Equipment (8,356,202) (320,374) 220,814 - (8,455,762) Total accumulated depreciation (475,677,771) (21,359,932) 220,814 - (496,816,889) Net Depreciable Assets 479,025,267 (19,392,825) - 27,755,280 487,387,722 Enterprise Activity Capital
Assets, Net 586,954,083$ 14,776,478$ -$ -$ 601,730,561$

B. Construction in Progress
Construction in progress as of June 30, 2022 and 2021 consisted of the following in SVP Projects.

Projects as of June 30 , 2022 Authorized Expended Commitments Replace NRS 115/60KV Transformers 9,166,995$ 1,641,462$ 7,525,533$ Sierra Substation 15,969,974 14,618,579 1,351,395 Implementation Advanced Meter Infrastructure 31,502,512 27,641,081 3,861,431 Bucks Creek Relicensing 6,450,261 6,318,577 131,684 Electric Vehicle Charging 2,492,992 1,168,048 1,324,944 San Tomas Junction 5,180,038 931,796 4,248,242 Other Projects 102,044,261 10,841,588 91,202,673 Total 172,807,033$ 63,161,131$ 109,645,902$

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 4 – CAPTIAL ASSETS (continued)

31 Projects as of June 30, 2021 Authorized Expended Commitments Replace NRS 115/60KV Transformers 18,673,045$ 1,279,952$ 17,393,093$ SVP Utility Center 17,413,108 188,173 17,224,935 Serra Substation 18,887,411 7,887,229 11,000,182 Fairview Substation 28,502,108 23,349,610 5,152,498 San Tomas Junction 5,041,285 233,933 4,807,352 Great America Tasman Street Lighting Improvements 4,830,772 767,162 4,063,610 Other Projects 85,261,120 66,265,037 18,996,083 Total 178,608,849$ 99,971,096$ 78,637,753$

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS
Changes in long-term debt for the year ended June 30, 2022, consisted of the following:

Outstanding Debt Additions and Outstanding
Type of Indebtedness as of June 30, Retired / Amortization as of June 30, Current Rate, Issue Date and Maturity 2021 Defeased of Discounts 2022 Portion Obligation Bonds:
2013 Series A Refunding Revenue Bonds
3%-5%, 04/24/13-07/01/22 8,865,000$ 4,320,000$ - $ 4,545,000$ 4,545,000$ 2018 Series A Refunding Revenue Bonds,
5%, 12/18/18 - 07/01/27 40,110,000 4,785,000 - 35,325,000 5,110,000 Unamortized Discount/Premium 4,519,398 - (753,233) 3,766,165 - Subtotal Electric Utility Revenue Bonds 53,494,398 9,105,000 (753,233) 43,636,165 9,655,000 Direct Placement:

Series 2020-1 Revenue Refunding Bonds,

1.74%, 04/10/2020 - 07/01/2032 52,985,000 - - 52,985,000 - Series 2020-2 Revenue Refunding Bonds,

1.31%, 04/10/2020 - 07/01/2028 34,315,000 - - 34,315,000 - Series 2020-3 Revenue Refunding Bonds,

0.58% 04/10/2020 - 07/01/2024 15,740,000 3,900,000 - 11,840,000 3,925,000 Subtotal Electric Utility Revenue Bonds 103,040,000 3,900,000 - 99,140,000 3,925,000 Total Electric Utility Activities - Bonds and Notes from Direct
Borrowing 156,534,398$ 13,005,000 $ (753,233) $ 142,776,165$ 13,580,000$

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

32 A. Electric Revenue Refunding Bonds, Series 2013A
On
April 24, 2013, the City issued $64.380 million of Electric Revenue Refunding Bonds, Series 2013A (Electric 2013A Bonds), to provide funds, together with other available moneys, to refinance outstanding Electric 2003A Bonds. The Electric 2013A Bonds mature annually beginning on July 1, 2014 through July 1, 2028 and bear coupon rates ranging from 3.00% to

5.00%. Debt service on the Electric 2013A Bonds is secured by a pledge of net revenues of SVP.

As of April 1, 2020, $43.705 million of the Electric 2013A Bonds were outstanding and $30.725 million would be callable at par beginning January 1, 2023. With the passage of the Tax Cuts and Jobs Act on December 22, 2017 eliminated tax-exempt advance refunding of tax-exempt bonds beginning January 1, 2018, and therefore tax-exempt advance refunding is no longer a refinancing option.

On April 10, 2020, SVP refinanced $30.725 million callable portion of the outstanding principal amount of Electric 2013 A Bonds through a direct placement with Bank of America, N.A. under a Taxable to Tax-Exempt Conversion structure. The refunding resulted in overall debt service savings of $1,706,384. The net present value of the debt service savings is called an economic gain and after an addition for prior funds on hand of $203, amounted to $1,703,470. See Notes below for Subordinated Electric Revenue Refunding Bonds, Series 2020-2.

As of June 30, 2022, $4.545 million non-callable principal of Electric 2013A Bonds were outstanding. In the event of default, SVP will transfer to the trustee all adjusted net revenues held by it and received thereafter and the trustee will disburse all adjusted net revenues and any other funds then held or thereafter received by the trustee under the provisions of indenture. In the case of default, the trustee will be entitled to declare the bond obligation of all bonds then outstanding to be due and payable immediately.

B. Electric Revenue Refunding Bonds, Series 2018A
On December 18, 2018, SVP issued $48.8 million of Electric Revenue Refunding Bonds, Series 2018A (Electric 2018A Bonds) to refinance $54.58 million outstanding principal amount of Variable Rate Demand Electric Revenue Refunding Bonds, Series 2008B and terminate a related swap agreement. The Electric 2018A Bonds bear a 5% coupon rate, mature annually beginning on July 1, 2019 through July 1, 2027, and were sold at an All-In True Interest Cost of 2.32%.

Debt service on the Electric 2018A Bonds is secured by a pledge of net revenues of SVP.

In the event of default, SVP will transfer to the trustee all adjusted net revenues held by it and received thereafter and the trustee will disburse all adjusted net revenues and any other funds DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

33 then held or thereafter received by the trustee under the provisions of indenture. In the case of def
ault, the trustee will be entitled to declare the bond obligation of all bonds then outstanding to be due and payable immediately.

C. Subordinate Electric Revenue Refunding Bonds, Series 2020-1 As of April 1, 2020, all $54.830 million of the Electric 2011 A Bonds were outstanding and callable at par beginning July 1, 2021. The passage of the Tax Cuts and Jobs Act on December 22, 2017 eliminated tax-exempt advance refunding of tax-exempt bonds beginning January 1, 2018, and therefore tax-exempt advance refunding is no longer a refinancing option.

The City Council determined that it was in the best interests of the City to enter into a credit facility with a bank for the purpose of refunding all outstanding Electric 2011A Bonds; and for the indebtedness created under such credit facility to be evidenced by a subordinate electric revenue bond to be issued by the City and delivered to the bank as authorized by Resolution No. 20-8834 adopted by the City Council on April 7, 2020.

On April 10, 2020, the City entered into a loan agreement with Bank of America, N.A. (the “Bank”) and issued $52.985 million of Subordinate Electric Revenue Refunding Bonds, Series 2020-1 (Electric 2020-1 Bonds) to refinance $54.830 million outstanding principal amount of Electric Series 2011A Bonds under a Taxable to Tax-Exempt Conversion structure. The Electric 2020-1 Bonds bear 1.74% coupon rates, mature annually beginning on July 1, 2028 through July 1, 2032 and were sold at a true interest cost of 1.43% with an average coupon rate of 1.40%.

Electric 2020-1 Bonds were priced at taxable rates and was converted to tax-exempt on April 2, 2021. Both the taxable rate and tax-exempt rate after conversion were fixed at time of issuance.

Starting April 2, 2021, the Bonds will bear interest at the tax exempt rate of 1.360% per annum.

Debt service on the Electric 2020-1 Bonds is secured by a pledge of Available Electric Revenues of SVP on a basis subordinate to outstanding Electric Revenue Bonds, if any.

In the event of default under the loan agreement for the 2020-1 bonds (including a failure by the City to pay principal or interest on the related bonds, a failure by the City to perform or observe its covenants, a default in other specified indebtedness or obligations of the City, certain acts of bankruptcy or insolvency, or other specified events of default), the Bank has the right, upon written notice to the City, to accelerate and declare the City’s obligation to repay the related bonds and all other obligations of the City to the Bank under such loan agreement to be immediately due and payable.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

34 D. Subordinate Electric Revenue Refunding Bonds, Series 2020-2 The
City Council determined that it was in the best interests of the City to enter into a credit facility with a bank for the purpose of refunding a portion of the outstanding Electric 2013A Bonds; and for the indebtedness created under such credit facility to be evidenced by a subordinate electric revenue bond to be issued by the City and delivered to the Bank as authorized by Resolution No. 20-8834 adopted by the City Council on April 7, 2020.

On April 10, 2020, the City entered into a loan agreement with Bank of America, N.A. (the “Bank”) and issued $34.315 million of Subordinate Electric Revenue Refunding Bonds, Series 2020-2 (Electric 2020-2 Bonds) to refinance $30.725 million of the callable portion of the outstanding Electric Revenue Refunding Bonds, Series 2013 A under a Taxable to Tax-Exempt Conversion structure. The Electric 2020-2 Bonds bear 1.31% coupon rates, mature annually beginning on July 1, 2023 through July 1, 2028 and were sold at a true interest cost of 1.21% with an average coupon rate of 1.15%. Electric 2020-2 Bonds were priced at taxable rates and will convert to a tax-exempt rate at the earlier of (i) the call date (1/1/2023) or (ii) the reversal of the advance refunding prohibition. Both the taxable rate and tax-exempt rate at conversion were fixed at the time of issuance, and once converted, the Bonds will bear interest at the tax-exempt rate of 1.02% per annum. Debt service on the Electric 2020-2 Bonds is secured by a pledge of Available Electric Revenues of SVP on a basis subordinate to outstanding Electric Revenue Bonds, if any.

In the event of default under the loan agreement for the 2020-2 Bonds (including a failure by the City to pay principal or interest on the related bonds, a failure by the City to perform or observe its covenants, a default in other specified indebtedness or obligations of the City, certain acts of bankruptcy or insolvency, or other specified events of default), the Bank has the right, upon written notice to the City, to accelerate and declare the City’s obligation to repay the related bonds and all other obligations of the City to the Bank under such loan agreement to be immediately due and payable.

E. Subordinate Electric Revenue Refunding Bonds, Series 2020-3 On June 16, 2014, the City entered into a Tax-Exempt Multiple Draw Term Loan with the Bank of America Preferred Funding Corporation (the “Electric 2014 Loan Agreement”) to fund the phase-shifting transformer project and the acquisition of property for future utility use. The indebtedness created under such credit facility was evidenced by a subordinate electric revenue bond issued by the City - Subordinated Electric Revenue Bond, Series 2014. As of April 1, 2020, $19.413 million principal amount was outstanding and unpaid.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

35 The City Council determined that it was in the best interests of the City to continue the credit fac
ility with the bank for the purpose of refunding of the outstanding Electric 2014 Loan Agreement at lower interest rate; and for the indebtedness created under such credit facility to be evidenced by a subordinate electric revenue bond to be issued by the City and delivered to the Bank as authorized by Resolution No. 20-8834 adopted by the City Council on April 7, 2020.

On April 10, 2020, the City entered into a loan agreement with Bank of America, N.A. (the “Bank” and issued $16.720 million of Subordinate Electric Revenue Refunding Bonds, Series 2020-3 (Electric 2020-3 Bonds) to refinance $19.413 million outstanding principal amount of Subordinated Electric Revenue Bonds, Series 2014. The Electric 2020-3 Bonds bear 0.58% coupon rates mature annually beginning on July 1, 2020 through July 1, 2024 and were sold at a true interest cost of 0.70%. Debt service on the Electric 2020-3 Bonds is secured by a pledge of Available Electric Revenues of SVP on a basis subordinate to outstanding Electric Revenue Bonds, if any.

In the event of default under the loan agreement for the 2020-3 bonds (including a failure by the City to pay principal or interest on the related bonds, a failure by the City to perform or observe its covenants, a default in other specified indebtedness or obligations of the City, certain acts of bankruptcy or insolvency, or other specified events of default), the Bank has the right, upon written notice to the City, to accelerate and declare the City’s obligation to repay the related bonds and all other obligations of the City to the Bank under such loan agreement to be immediately due and payable.

F. Pledge of Future Electric Revenues
The pledge of future Electric Fund revenues ends upon repayment of the $139 million in outstanding principal on the bonds which is scheduled to occur in fiscal year 2032-33. For fiscal year 2021-22, Electric Fund revenues including operating revenues and non-operating interest earnings amounted to $554.2 million and operating costs including operating expenses, but not interest, depreciation or amortization amounted to $492.7 million. Net revenues available for debt service amounted to $61.5 million which represented a coverage ratio of 3.79 on the $16.2 million of debt service.

G. Derivative Instruments
In fiscal year 2009-10, SVP implemented GAAP, which addresses recognition, measurement and disclosures related to derivative instruments to determine whether they meet the definition of derivative instruments, and if so, whether they effectively hedge the expected cash flows associated with the interest rate and energy exposures. Under hedge accounting, the increase DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

36 (decrease) in the fair value of a hedge is reported as a deferred cash flow hedge on the statement of n
et position.

Notional Amounts and Fair Values – Future Derivative Instruments SVP maintains a Market Risk Management Policy, which among other things, sets forth the guidelines for the purchase and sale of certain financial instruments defined as hedge instruments in support of market power purchase and sales transactions. The primary goal of these guidelines is to provide a framework for the operation of an energy price hedging program to better manage SVP’s risk exposure in order to utilize resources, stabilize pricing and costs for the benefit of SVP and its customers.

Consistent with hedge accounting treatment meeting effectiveness tests, changes in fair value are reported as deferred flows of resources on the statement of net position until the contract expiration that occurs in conjunction with the hedged expected energy purchase/sales transaction.

When hedging contracts expire, at the time the purchase/sales transactions occur, the deferred balance is recorded as a component of Purchased Power. For energy derivatives, fair values are estimated by comparing contract prices to forward market prices quoted by third party market participants.

SVP had the following future derivative instruments outstanding at June 30, 2022 with Archer Daniels Midland Company to hedge cash flows on sales of excess resources in CAISO market in the future months.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

37 Notional Amount (MWh)
Long
Shor
t
Effective
Date
Maturity
Date
Average
Price Classification Amount Classification Amount
20,800 6/1/2022 6/30/2022 $57.50 Derivative
Instrument 412,672$ Deferred
inflow 412,672$
10,000 7/1/2022 7/31/2022 98.00 Derivative Instrument (80,500) Deferred
outflow (80,500)
10,800 8/1/2022 8/31/2022 98.00 Derivative Instrument 247,860 Deferred
inflow 247,860
10,000 9/1/2022 9/30/2022 98.00 Derivative Instrument 66,500 Deferred
inflow 66,500
15,200 6/1/2022 6/30/2022 62.75 Derivative Instrument 89,832 Deferred
inflow 89,832
8,600 7/1/2022 7/31/2022 73.00 Derivative Instrument (78,604) Deferred
outflow (78,604)
7,800 8/1/2022 8/31/2022 73.00 Derivative Instrument (5,460) Deferred
outflow (5,460)
8,000 9/1/2022 9/30/2022 73.00 Derivative Instrument 52,400 Deferred
inflow 52,400
704,700$ 704,700$
Notional Amount (MMBtu)
Long
Shor
t
Effective
Date
Maturity
Date
Average
Price Classification Amount Classification Amount
6,245,000 7/1/2020 12/31/2025 $2.42 Derivative
Instrument 13,536,965$ Deferred
inflow 13,536,965$
6,400,000 1/1/2021 12/31/2025 0.56 Derivative Instrument 3,135,450 Deferred
inflow 3,135,450
12,490,000 1/1/2022 12/31/2025 2.64 Derivative Instrument 24,326,130 Deferred
inflow 24,326,130
12,800,000 1/1/2022 12/31/2025 1.03 Derivative Instrument 318,900 Deferred
inflow 318,900
41,317,445$ 41,317,445$
Grand Total 42,022,145$ 42,022,145$
Fair Value Change in Fair Value
Fair Value Change in Fair Value

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

38 Credit Risk
Credit risk is the risk of loss due to a counterparty defaulting on its obligations. SVP is exposed to credit risk if hedging instruments are in asset positions. In order to eliminate counterparty credit risk, SVP has transacted both long term power and gas contracts on the Futures market on Intercontinental Exchange (ICE). As of June 30, 2022, SVP’s open derivative power and gas contracts were in an asset position with positive $42.02 million of Mark-to-Market. The open contract was with ADM Investor Service, Inc., a clearing member of ICE and a subsidiary of Archer Daniels Midland Company who was rated A by Standard & Poor’s as of June 30, 2022.

SVP's policy for requiring collateral on hedging instruments varies based on individual contracts and counterparty credit ratings. Under the brokerage agreements with Archer Daniels Midland Company, the accounts are prefunded by SVP. If the account value falls below zero, margin calls are invoked.

It is also SVP's policy to negotiate netting arrangements whenever it has entered into more than one bilateral transactions with counterparty. Under the terms of these arrangements, should one party become insolvent or otherwise default on its obligations, the non-defaulting party may accelerate and terminate all outstanding transactions and net their fair values so that a single amount will be owed by (or to) the non-defaulting party.

Termination Risk
SVP’s futures contracts are traded over the counter and have no termination risk.

Price Risk
With respect to price risk under power Futures contracts, on purchase contracts (long positions), SVP receives the CAISO NP15 average daily rate at settlement and pays the fixed contracted rate entered into on the trade date; on sales contracts (short positions), SVP pays the CAISO NP15 average daily rate at settlement and receives the fixed contracted rate entered into on the trade date. With respect to price risk under gas Futures contracts, on purchase contracts (long positions), SVP receives PG&E Citygate average daily price at settlement and pays the fixed contracted rate entered into on the trade date; on sales contracts (short positions), SVP pays the PG&E Citygate average daily price at settlement and receives the fixed contracted rate entered into on the trade date. SVP is exposed to risk because the contract prices are different from the settlement prices.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

39 H. Other
Va
rious debt agreements governing SVP’s revenue bonds contain a number of covenants including those that require SVP to maintain and preserve the enterprise in good repair and working order, to maintain certain levels of insurance, and to fix and collect rates, fees, and charges so as to maintain certain debt coverage ratios. SVP is in compliance with these specific covenants and all other material covenants governing the particular revenue bond issues. No event of default as defined in the bond indentures has occurred or was occurring as of the date of this report.

I. Repayment Requirements
As of June 30, 2022, the debt service requirements to maturity for SVP’s long-term debt are as follows:

Year Ending
June 30 Principal Interest Total Principal Interest Total 2023 9,655,000$ 1,752,125$ 11,407,125$ 3,925,000$ 1,203,086$ 5,128,086$ 2024 5,440,000 1,374,750 6,814,750 9,700,000 1,075,725 10,775,725 2025 5,795,000 1,093,875 6,888,875 9,665,000 994,377 10,659,377 2026 6,005,000 798,875 6,803,875 5,910,000 923,678 6,833,678 2027 6,320,000 490,750 6,810,750 5,975,000 863,064 6,838,064 2028-2032 6,655,000 166,375 6,821,375 56,355,000 2,611,030 58,966,030 2033 - - - 7,610,000 51,748 7,661,748 39,870,000$ 5,676,750$ 45,546,750$ 99,140,000$ 7,722,708$ $106,862,708 Senior Revenue Bonds
Future Debt Service Requirements
Subordinate Revenue Bonds from
Direct Placement
Long-term Debt

Reconciliation of Long-term Debt:

Principal Outstanding as of June 30, 2022 139 ,010,000$ Unamortized Discount/Premium - Electric Revenue Bonds 3,766,165 Total Long-term Debt 142,776,165$

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 5 – LONG-TERM DEBT AND DERIVATIVE INSTRUMENTS (continued)

40 J. Lease Liabilities
A
summary of the SVP’s lease transactions for the fiscal year ended June 30, 2022 are as follows:

Balance
June 30, 2021
(As restated) Retirment
Balance
June 30, 2022
Current
portion
Lease liabilities 2,916,624$ (629,957)$ 2,286,667 654,044 Total Lease liabilities 2,916,624$ (629,957)$ 2,286,667$ 654,044$

The future principal and interest lease payments as of June 30, 2022, are as follows:

For the Year
Ending June 30 Principal Interest Total
2023 654,044$ 21,893 $ 675,937$
2024 681,619 14,596 696,215
2025 710,181 6,920 717,101
2026 240,823 553 241,376
Total 2,286,667$ 43,962 $ 2,330,629$

NOTE 6 – PARTICIPATION IN JOINT VENTURES
A. Investment in Joint Ventures
SVP (through the City) participates in significant joint ventures: Northern California Power Agency (NCPA), Transmission Agency of Northern California (TANC), M-S-R Public Power Agency (MSR PPA), M-S-R Energy Authority (MSR EA).

The separately issued financial statements of these joint ventures (as noted below) are available on request.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

41 Date of latest audited
financial statement Joint venture’s address
NCPA 6/30/2021 651 Commerce Dr. Roseville, CA 95678
TANC 6/30/2021 P.O. Box 15129 Sacramento, CA 95851
MSR EA 12/31/2021 P.O. Box 4060 Modesto, CA 95352
MSR PPA 12/31/2021 P.O. Box 4060 Modesto, CA 95352
As described in paragraph (E) below, the carrying value of SVP’s investment in MSR EA is $0.

SVP’s financial statements as of June 30, 2022 and 2021 reflect the following investments in joint ventures:

Participating
percentage Investment
Participating
percentage Investment
Method of
accounting
NCPA
Geothermal 44.39% $43,222,597 44.39% $37,566,136 Equity Hydroelectric 37.02% 37.02%
Combustion Turbine 41.67% 41.67%
Lodi Energy Center 25.75% 25.75%
TANC 9.64% 6,185,241 9.74% 5,106,945 Equity MSR EA 33.40% - 33.40% - Suspended MSR PPA 35.00% 7,904,404 35.00% - Equity *
Total $57,312,242 $42,673,081
*
June 30, 2022 June 30, 2021
The equity method of accounting for investment in MSR PPA was suspended prior to fiscal year ended June 30, 2021. Starting in fiscal year 2022, equity method was used for SVP's investment with MSR PPA.

B. Northern California Power Agency (NCPA)
NCPA was formed in 1968 as a joint powers agency in the State of California. Its membership consists of sixteen public agencies. NCPA is generally empowered to sell, purchase, generate, transmit, manage electrical energy and provide regulatory and legislative advocacy. Members participate in the projects of NCPA on an elective basis. Therefore, the participation percentage varies for each project in which it participates.

A Commission comprised of one representative from each joint venture member governs NCPA.

The Commission is responsible for the general management of the affairs, property, and business of NCPA. Under the direction of the General Manager, the staff of NCPA is responsible for providing various administrative, operating and planning services for NCPA and its associated power corporations.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

42 Project Financing and Construction
NCPA’s project construction and development programs have been individually financed by project revenue bonds collateralized by NCPA’s assignment of all payments, revenues and proceeds associated with its interest in each project. Each project participant has agreed to pay its proportionate share of debt service and other costs of the related project, notwithstanding the suspension, interruption, interference, reduction or curtailment of output from the project for any reason. Certain of the revenue bonds are additionally supported by municipal bond insurance credit enhancements.

Hydroelectric Project
NCPA contracted to finance, manage, construct, and operate Hydroelectric Project Number One for the licensed owner, Calaveras County Water District (CCWD). In exchange, NCPA has the right to the electric output of the project for 50 years from February 1982. NCPA also has an option to purchase power from the project in excess of the CCWD’s requirements for the subsequent 50 years, subject to regulatory approval.

Geothermal Project
The NCPA Geothermal Plants have historically experienced greater than anticipated declines in steam production from the existing geothermal wells. Although initially operated as baseload generation projects at full capability (238MW), NCPA changed its steam field production from baseload to load-following and reduced average annual steam production. Along with other steam field operators in the area, the Agency began implementing various operating strategies to further reduce the rate of decline in steam production. The Agency has modified both steam turbine units and the associated steam collection system to enable generation with lower pressure steam at higher mass-flow rates to optimize the utilization of the available steam resource. In FY 19-20, NCPA began a well-workover program to restore underperforming wells.

Based upon current operation protocols and forecasted operations, NCPA expects average annual generation and peak capacity to decrease further, reaching approximately 68 MW by the year 2040.

Combustion Turbine Project No. 1
NCPA owns five dual (natural gas and fuel oil) combustion turbine units, each of which is nominally rated at 25 MW, which are collectively known as the Combustion Turbine Project No.

1. These units were completed in 1986 and are designed to provide peak power and reserve requirements and emergency support. Each purchaser is responsible under its power sales DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

43 contract for paying entitlement share in Combustion Turbine Project No. 1 of all NCPA’s costs of s
uch project.

Lodi Energy Center
On May 24, 2010, SVP entered into an agreement with NCPA for a 25.75% interest in the Lodi Energy Center, a 280 MW combined cycle natural gas fired power plant, located in Lodi, California. The project received approval from the California Energy Commission in April 2010 and was placed into operation in November 2012. In January 2020, the Lodi Energy Center suffered a catastrophic turbine failure. NCPA replaced the turbine with a newer state-of-the-art turbine which could use hydrogen as a cleaner fuel source. The majority of the replacement cost was covered by NCPA’s insurance resulting in relatively minimal financial impact to project participants.

C. Transmission Agency of Northern California (TANC)
TANC was organized under the California Government Code pursuant to a joint powers agreement entered into by 15 Northern California utilities. The purpose of TANC is to provide electric transmission and other facilities for the use of its members through its authority to plan, acquire, construct, finance, operate and maintain facilities for electric power transmission. The joint powers agreement provides that the costs of TANC’s activities can be financed or recovered through assessment of its members or from user charges through transmission contracts with its members. Each TANC member has agreed to pay a pro-rata share of the costs to operate TANC and for payment of debt service, and has the right to participate in future project agreements.

The joint powers agreement remains in effect until all debt obligations and interest thereon have been paid, unless otherwise extended by the members.

California-Oregon Transmission Project
TANC is a participant and also the Project Manager of the California-Oregon Transmission Project (Project), a 340 mile long, 500 kilovolt alternating current transmission project between Southern Oregon and Central California. As Project Manager, TANC is responsible for the overall direction and coordination of all Project operations and maintenance, additions and betterments, and for general and administrative support.

The Project was declared commercially operable on March 24, 1993, with a rated transfer capability of 1,600 megawatts and provides a third transmission path between the electric systems of the Pacific Northwest and those in California. The Project has successfully met and completed all major environmental requirements. As of June 30, 2021, the most recent data DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

44 available, TANC’s investment in the Project was $546.5 million, less accumulated depreciation and
amortization of $290.3 million.

In connection with its participation in the Project, TANC has an entitlement balance of the Project’s transfer capability of approximately 1,362 megawatts and is obligated to pay an average of approximately 80 percent of the operating costs associated with the Project. TANC incurred and initially capitalized all costs for project construction since they were expected to be recovered through reimbursement from Project participants and from the successful operations of the Project transmission lines. The Project agreement among the participating members provides that each member agrees to make payments, from its revenues, to TANC for project costs incurred and for payment of debt service.

SVP has historically been obligated to pay 20.45% of TANC’s COTP operating and maintenance expenses and 20.70% of TANC’s COTP debt service and 22.16% of the Vernon acquisition debt.

SVP has also been entitled to 20.4745% of TANC’s share of COTP transfer capability (approximately 278 MW net of third party layoffs of TANC) on an unconditional take-or-pay basis. Starting on July 1, 2014, SVP laid-off 147 MWs of this entitlement to other TANC members under a 25 year agreement. During the term of this agreement the parties taking on the entitlement will pay all associated debt service, operations and maintenance costs, and all administrative and general costs. SVP’s portion of the operating and maintenance expenses and the COTP debt service is 10.004 %.

D. M-S-R Public Power Agency (MSR PPA)
MSR PPA is a joint power agency formed in 1980 by the Modesto Irrigation District, the City of Santa Clara, and the City of Redding, California, to develop or acquire and manage electric power resources for the benefit of the members. The personnel of its members and contract professional staff perform the administrative and management functions of MSR PPA. The member’s income and expenses sharing ratio is as follows: Modesto Irrigation District – 50 percent, City of Santa Clara – 35 percent, and City of Redding – 15 percent.

Prior to fiscal year ended December 31, 2020, SVP’s equity in MSR PPA’s net losses exceeds its investments and, therefore, the equity method of accounting for the investment was suspended.

As of December 31, 2021, the date of the latest available audited financial statements, SVP was in positive equity position of $7.9 million. The equity method of accounting of SVP’s investment in MSR PPA was applied. Under the joint exercise of power agreement, which formed MSR PPA, SVP is responsible for funding up to 35 percent of MSR PPA’s operating cost, to the extent such funding is necessary. During the years ended June 30, 2022 and 2021, SVP made no contributions to fund its share of operating costs. If there were such contributions, they would be included in SVP’s expenses.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

45 MSR PPA’s principal activity is a 28.8% ownership interest in a 507-megawatt unit of a coal- fir
ed electricity generating plant located in New Mexico (San Juan Plant). The San Juan plant was jointly owned by the Public Service Company of New Mexico (PNM) (38.5%), MSR PPA (28.8%) and other municipal power entities (32.7%). On December 31, 2017, MSR PPA divested its ownership interest in the San Juan plant and no longer receives electric energy or capacity from the San Juan Generating Station.

In 2006, MSR PPA entered into a Wholesale Purchase and Sale Agreement and a Shaping and Firming Agreement with Avangrid Renewables, Inc. to provide renewable wind energy to the Members from the Big Horn I Wind Energy Project (Big Horn I Project) with a nominal installed capacity of approximately 199.5 MW. SVP receives the power purchased by MSR PPA from the Big Horn I Project. SVP’s share equates to approximately a 105 MW share of the output at a cost comparable to combined cycle gas-fuel generation. Power deliveries commenced on October 1, 2006 and will continue through September 30, 2026. Through an amendment of the original agreements MSR PPA has an obligation to continue to take the same output through September 30, 2031, or if the Big Horn Project is repowered MSR PPA will have a right of first offer to negotiate a long-term power purchase for such repowered project. The participation in this project is as follows:

Modesto Irrigation District 12.5%
City of Santa Clara 52.5%
City of Redding 35.0%
In 2009, MSR PPA entered into a Power Purchase Agreement and Redelivery Agreement with Avangrid Renewables Inc. to purchase additional wind power energy from the same site, called Big Horn II, with a nominal installed capacity of 50 MW for a twenty-year period. Deliveries of energy under this project began on November 1, 2010. The participation in this project is as follows: Modesto Irrigation District – 65%; City of Santa Clara – 35%.

MSR PPA San Juan
In 2015, the MSR PPA Commission approved a number of agreements (the “San Juan Restructuring Agreements”) to provide for the interests of MSR PPA and certain other San Juan Participants (the “exiting participants”) in the San Juan Generation Station to be transferred to the remaining San Juan Participants effective December 31, 2017. In addition to the ownership divesture, the San Juan Restructuring Agreements provide for, among other things, the allocation of ongoing responsibility for decommissioning costs, mine reclamation costs and any environmental remediation obligations among the exiting participants and the remaining San Juan Participants, and the establishment and funding of mine reclamation and plant DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

46 decommissioning trust funds. The San Juan Restructuring Agreements were subsequently exe
cuted by all nine San Juan Generation Station owners and PNM Resources Development Company (a non-utility affiliate of PNM) and, following receipt of regulatory approvals, became effective on January 31, 2016. Various other implementing agreements and amendments to existing San Juan project agreements to effect the restructuring have also been executed. Closing of the ownership restructuring of the San Juan Generation Station and the divestiture of M-S-R PPA’s interests in San Juan Unit No. 4 was completed on schedule on December 31, 2017.

E. M-S-R Energy Authority (MSR EA)
MSR EA is a joint power agency formed in 2008 by the Modesto Irrigation District, the City of Santa Clara, and the City of Redding, California, to develop or acquire and manage natural gas resources for the benefit of the members. The personnel of its members and contract professional staff perform the administrative and management functions of MSR EA. Each member’s income and expense sharing ratio is as follows: Modesto Irrigation District – 33.3%; City of Santa Clara – 33.4%; and City of Redding – 33.3%.

SVP’s equity in MSR EA’s net losses exceeds its investment and, therefore, the equity method of accounting for the investment has been suspended. As of December 31, 2021, the date of the latest available audited financial statements, SVP’s unrecognized share of member’s deficit of MSR EA was $27.2 million. Under the joint exercise of power agreement, which formed MSR EA, SVP is responsible for funding up to 33.4% of MSR EA’s operating cost, to the extent such funding is necessary. During the years ended June 30, 2022 and 2021, SVP made no contributions to fund its share of operating costs. If there were such contributions, they would be included in SVP’s expenses.

In 2009, the City of Santa Clara, along with the Cities of Modesto and Redding participated in the M-S-R Energy Authority Gas Prepay Project. The Gas Prepay Project provides the City, through a Gas Supply Agreement with MSR EA dated September 10, 2009, a secure and long- term supply of natural gas of 7,500 MM Btu (Million British thermal unit) daily or 2,730,500 MM Btu annually through December 31, 2012, and 12,500 MM Btu daily, or 4,562,500 MM Btu annually thereafter until September 30, 2039. The agreement provides this supply at a discounted price below the spot market price (the Pacific Gas & Electric City gate index) over the next 30 years. As of December 31, 2021, bonds issued by MSR EA to finance the City’s share of the Gas Prepay Project were outstanding in the principal amount of $500,200,000. These bonds were initially sold on August 27, 2009. Under the Gas Supply Agreement, MSR EA will bill the City for actual quantities of natural gas delivered each month on a “take-and-pay” basis.

MSR EA has contracted with Citigroup Energy, Inc. (“CEI”) to use the proceeds of the Gas Prepay bond issue to prepay CEI for natural gas. CEI has guaranteed repayment of the bonds, DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

47 and responsibility for bond repayment is non-recourse to the City. Moreover, any default by the oth
er Gas Prepay Project participants is also non-recourse to the City.

F. Contingent Liability
Under the terms of the various joint venture agreements, SVP is contingently liable for a portion of the long-term debt of the entities under take-or-pay agreements, letters of credit, guarantees or other similar agreements.

Based on the most recent audited financial statements of the individual joint ventures, SVP was contingently liable for long-term debt as of June 30, 2021 as follows:

Total Debt Silicon Valley Power's Silicon Valley Power's Agreements (Principal) Debt Share Contingent Liability
NCPA 06/30/21 597,178,000$ 33.00% 197,083,912$
TANC 06/30/21 169,945,000 9.65% 16,401,681
MSR PPA 12/31/21 26,425,000 35.00% 9,248,750 TOTAL 793,548,000$ 222,734,343$

In addition, SVP would be, under certain conditions, liable to pay a portion of costs associated with the operations of the entities. Under certain circumstances, such as default or bankruptcy of the other participants, SVP may also be liable to pay a portion of the debt of these joint ventures on behalf of those participants and seek reimbursement from those participants.

Take-or-Pay commitments expire upon final maturity of outstanding debt for each project. Final fiscal year debt expirations as of June 30, 2021 are as follows:

Entitlement Debt Service
Project Debt Expiration Share % Share %
NCPA - Geothermal Project (NGP) July-2024 44.3905% 44.3905% NCPA - Hydroelectric Project (NHP) July-2032 37.0200% 37.0200% NCPA - Lodi Energy Center (NLEC)** June-2040 25.7500% 30.9657% TANC - CA-OR Transmission Project (COTP) May-2024 9.7386% 9.6512% MSR PPA -San Juan Plant July-2022 35.0000% 35.0000%
** The SVP's debt service share in NLEC on issue one is 46.1588%, on issue two is 0%.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 6 – PARTICIPATION IN JOINT VENTURES (continued)

48 A summary of SVP’s “Take-or-Pay” contracts and related projects and its contingent liability for the
debt service including principal and interest payments at June 30, 2021 is as follows:

Fiscal Year NGP NHP NLEC COTP MSR PPA Total
2022 2,197,534$ 12,858,730$ 7,566,771$ 1,003,698$ 9,711,100$ 33,337,833$ 2023 2,198,863 12,870,163 7,567,678 1,008,307 23,645,011 2024 1,541,819 14,375,558 7,565,130 1,348,027 - 24,830,534 2025 1,545,765 14,399,154 7,565,513 1,465,120 - 24,975,552 2026 - 7,912,261 7,581,031 1,464,903 - 16,958,195 2027-2031 - 39,516,428 38,615,584 7,324,369 - 85,456,381 2032-2036 - 17,218,945 38,621,715 7,324,877 - 63,165,537 2037-2041 - - 37,973,144 4,394,758 - 42,367,902 Total 7,483,981$ 119,151,239$ 153,056,566$ 25,334,059$ 9,711,100$ 314,736,945$

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, 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.

A. General Information about the Pension Plan
Plan Descriptions
All qualified regular and probationary employees are required to participate in the City’s Miscellaneous Agent Multiple-Employer defined benefit plan administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues a publicly available report that include a full description of the pension plan regarding benefit provisions, assumptions and membership information and can be found on the CalPERS website.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

49 Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members, who must be public employees or beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 5 years of service. The pre-retirement death benefit is the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plan’s provisions and benefits in effect at June 30, 2022, are summarized as follows:

Miscellaneous
Hire date
Prior to
January 1, 2013
On or after
January 1, 2013
Benefit formula 2.7% @ 55 2% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Retirement age 50 - 55 52 - 67
Monthly benefits, as a % of eligible compensation 2.00 - 2.70% 1.00 - 2.50% Required employee contribution rates 8.00% 6.50%
Required employer contribution rates 11.160% 11.160%
Required unfunded liability contribution $7,938,737

Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability.

SVP is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

50 The contributions to the Plan were as follows:

June 30, 2022 June 30, 2021
Contributions - employer $11,026,399 $10,027,454
Miscellaneous

B. Net Pension Liability, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
SVP reported a net pension liability for its proportionate share of the net pension liability of the Plan as follows:

June 30, 2022 June 30, 2021
Miscellaneous 73,533,481$ 98,396,395$
Proportionate Share of Net Pension Liability

SVP’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2021, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. SVP’s proportion of the net pension liability was based on a projection of SVP’s long-term share of contributions to the pension plan relative to the projected contributions of all funds of the City. SVP’s proportionate share of the net pension liability for the Plan as of June 30, 2020 and 2021 was 32.31%.

For the years ended June 30, 2022 and 2021, SVP recognized pension expense of $6,287,910 and $13,041,275 respectively. At June 30, 2022 and 2021, SVP reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

51 Miscellaneous Plan:

Deferred Outflows Deferred Inflows
June 30, 2022 of Resources of Resources
Pension contributions subsequent to measurement date 11,026,399$ -$ Differences between expected and actual experience 1,994,978 - Net differences between projected and actual earnings
on plan investments - (18,343,263)
Total 13,021,377$ (18,343,263)$

Deferred Outflows Deferred Inflows
June 30, 2021 of Resources of Resources
Pension contributions subsequent to measurement date 10,027,454$ -$ Differences between expected and actual experience - (148,855) Changes in assumptions 3,879,098 -
Net differences between projected and actual earnings
on plan investments 1,044,841 -
Total 14,951,393$ (148,855)$

$11,026,399 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2022 measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Measurement Period Annual Measurement Period Annual
Ended June 30 Amortization Ended June 30 Amortization
2023 (3,284,375)$ 2022 1,330,268 $
2024 (3,704,830) 2023 1,613,389
2025 (4,335,036) 2024 1,192,933
2026 (5,024,044) 2025 638,496
2022 2021

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

52 C. Actuarial Assumptions
Fo
r the measurement period ended June 30, 2021, the total pension liability was determined by rolling forward the June 30, 2020 total pension liability. The June 30, 2020 total pension liability was based on the following actuarial methods and assumptions:

Miscellaneous
Valuation Date June 30, 2020
Measurement Date June 30, 2021
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:

Discount Rate 7.15%
Inflation 2.50%
Payroll Growth 2.75%
Projected Salary Increase Varies by Entry-Age and Service Investment Rate of Return 7.15%
(1)
Post Retirement Benefit Increase The lesser of Contract COLA or 2.5% until Purchasing Power Protection applies, 2.5%
thereafter
Mortality
(2) Derived using CalPERS' Membership Data
for all Funds
(1)
Net of pension plan investment and administrative expenses; including inflation. (2)
The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. For more details on this table, please refer to the CalPERS' December 2017 experience study report available on CalPERS' website.

The underlying mortality assumptions and all other actual assumptions used in the June 30, 2020 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2015. Further details of the Experience Study can be found on the CalPERS website.

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

53 Discount Rate
The discount rate used to measure the total pension liability for the Plan was 7.15%. The projection of cash flows used to determine the discount rate for the Plan assumed that contributions from all plan members in the Public Employees Retirement Fund (PERF) will be made at the current member contribution rates and that contributions from employers will be made statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members for all plans in the PERF. Therefore, the long-term expected rate of return on plan investments was applied to all period of projected benefit payments to determine the total pension liability for the Plan.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows.

Using historical returns of all the funds’ assets classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The table below reflects the long-term expected real rate of return by asset class.

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

54 Asset Class
(a)
Current Target
All
ocation
Real Return
Years 1 - 10
(b)
Real Return
Yea
rs 11+
(c)
Global Equity 50. 0% 4.80% 5.98%
Fixed Income 28.0% 1.00% 2.62%
Inflation Assets - 0.77% 1.81%
Private Equity 8.0% 6.30% 7.23%
Real Assets 13.0% 3.75% 4.93%
Liquidity 1.0% - -0.92%
Total 100%
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period. (a) In the CalPERS Annual Comprehensive Financial Report, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate
The following presents SVP’s proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what SVP’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

June 30, 2022 June 30, 2021
1% Decrease 6.15% 6.15%
Net Pension Liability 106,409,645$ 130,318,500$
Current Discount Rate 7.15% 7.15%
Net Pension Liability 73,533,481$ 98,396,395$
1% Increase 8.15% 8.15%
Net Pension Liability 46,131,125$ 71,794,130$
Miscellaneous

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 7 – RETIREMENT PLAN – DEFINED BENEFIT PENSION PLAN (continued)

55 Pension Plan Fiduciary Net Position
Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial report.

D. Reduction of CalPERS Discount Rate
In July 2021, CalPERS reported a preliminary 21.3% net return on investments for the 12-month period that ended June 30, 2021. Under the Funding Risk Mitigation Policy, approved by the CalPERS Board of Administration in 2015, the 21.3% net return will trigger a reduction in the discount rate used to calculate employer and Public Employees' Pension Reform Act (PEPRA) member contributions. The Funding Risk Mitigation Policy seeks to reduce CalPERS funding risk over time, in which CalPERS investment performance that significantly outperforms the discount rate will trigger adjustments to the discount rate, expected investment return, and strategic asset allocation targets. This is the first time it has been triggered. The discount rate, or assumed rate of return, will drop to 6.8%, from its current level of 7%.

Based on these preliminary fiscal year returns, the CalPERS has announced the funded status of the overall Public Employees Retirement Fund (PERF) is an estimated 82%. This estimate is based on a 7% discount rate. Under the new 6.8% discount rate, however, CalPERS indicated the funded status of the overall PERF drops to 80%. This is because existing assets are assumed to grow at a slightly slower rate annually into the future. As intended under the Funding Risk Mitigation Policy, the lower discount rate increases the likelihood that CalPERS can reach its target over the longer term. The CalPERS Board of Administration will continue to review the discount rate through its Asset Liability Management process during the rest of the calendar year.

CalPERS' final fiscal year 2021 investment performance will be calculated based on audited figures and will be reflected in contribution levels for contracting cities, counties, and special districts in fiscal year 2024.

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS
A. Plan Description
The City’s agent multiple-employer defined benefit Other Post Employment Benefit (OPEB) Plan, which was established by City Council in fiscal year 2007-08 in accordance with GAAP, provides reimbursements to retirees for qualified expenses. Employees who have retired from the City with at least ten years of service and meet certain criterion based upon retirement date, household income in the most recent calendar year and age are entitled to reimbursements for DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

56 qualified expenses. Annual maximum reimbursement amounts differ depending on when an emp
loyee retired from City service. The majority of retirees may be eligible for a maximum of $4,626 in annual reimbursements. Amendments to benefit provisions are negotiated by the various bargaining units at the City and must be approved by Council. In fiscal year 2007-08, the City established an irrevocable exclusive agent multiple-employer defined benefit trust which is administered by Public Agency Retirement Services (PARS). The City is the Plan administrator, and PARS administers the investment trust for the City’s Plan. The trust is used to accumulate and invest assets necessary to reimburse retirees. Separate financial reports are issued by PARS for the OPEB Plan Trust. The report can be obtained by writing to PARS at 4350 Von Karman Avenue, Suite 100, Newport Beach, CA 92660, or by calling 1-800-540- 6369.

For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the OPEB plan and additions to and deduction from the OPEB’s fiduciary net position have been determined on the same bases. For this purpose OPEB benefit payments are recognized when currently due and payable in accordance with the benefits terms. Investments are report at fair value.

Generally accepted accounting principles require that the reporting results must pertain to liability and asset information within certain defined timeframes. For the fiscal year 2020-21 the following time frames were used.

Measurement Date June 30, 2022
Measurement Period July 1, 2021 to June 30, 2022
Actuarial valuation date
(1)
June 30, 2020
(1) Update procedures were used to roll forward the Total OPEB Liability from the valuation date to the measurement date.

B. Contributions
The OPEB Plan trust annual contributions are based upon actuarial determine contributions. The contribution requirements are established and may be amended by the City Council. Plan members do not make contributions to the plan; the plan is funded entirely by employer contributions. For the fiscal year ending June 30, 2022, SVP contributed $753 thousand.

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

57 C. Actuarial Assumptions
The
June 30, 2022 total OPEB liability was based on the following actuarial methods and assumptions:

Significant Actuarial Assumptions Used in Total OPEB Liability Actuarial Assumption June 30, 2022 Measurement Date
Actuarial valuation date June 30, 2020
Discount rate 4.75% at June 30, 2022
Crossover analysis showed benefit payments always fully funded by plan assets
Inflation 2.75%
Salary increases Aggregate 3%
Investment rate of return 5.25% at June 30, 2020
Funding policy Full pre-funding to PARS trust
PARS portfolio: Moderately Conservative
Mortality, Disability,
Termination, and Retirement
CalPERS 1997-2015 Experience Study
Mortality Improvement Mortality projected fully generational with Scale MP-2020 Healthcare cost trend rates Non-Medicare - 7% for 2022 scaling down to 4.0% for year 2076 Medicare(Non-Kaiser)- 6.1% for 2022 scaling down to 4.0% for year 2076
Healthcare participation for future
retirees - Cash subsidy Currently covered: 80%
Waived: 40%
Healthcare participation for future
retirees - PEMHCA implied subsidy Currently covered: 80% Waived: 25%

D. Net OPEB Liability, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB
SVP’s net OPEB liability for the Plan is measured as the proportionate share of the City’s net OPEB liability as of June 30, 2022, and the total OPEB liability for the Plan used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2020, rolled forward to June 30, 2022 using standard actuarial methods, based on actuarial methods and assumptions.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

58 SVP’s proportion of the net OPEB liability was based on a projection of SVP’s long-term share of
contributions to the OPEB plan relative to the projected contributions of all funds of the City.

SVP’s proportionate share of the net OPEB liability for the Plan as of June 30, 2021 and 2022 was 32.31%.

For the year ended June 30, 2022, SVP reported a net OPEB liability of $13,058 thousand and recognized OPEB expense of $753 thousand. At June 30, 2022, SVP reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources (in thousands):

June 30, 2022
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Changes of assumptions 377$ 669$
Differences between expected and actual experience - 260 Net differences between projected and actual earnings
on OPEB plan investments 841 -
Total 1,218$ 929$

June 30, 2021
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Changes of assumptions 464$ 973$
Differences between expected and actual experience - 363 Net differences between projected and actual earnings
on OPEB plan investments - 476
Total 464$ 1,812$

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

59 Other amounts reported as deferred outflows of resources related to OPEB will be recognized as expe
nse as follows:

Annual Annual
Measurement Period Amortization Measurement Period Amortization Ended June 30 (in thousands) Ended June 30 (in thousands) 2023 (157)$ 2022 (436)$
2024 (135) 2023 (458)
2025 189 2024 (435)
2026 371 2025 (111)
2027 21 2026 71
2022 2021

E. Discount Rate
The discount rate used to measure the total OPEB liability was 4.75% as of June 30, 2022. The projection of cash flows used to determine the discount rate assumed that City contributions will be made at rate equal to the actuarially determined contributions rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

Asset Class
Target
Allocation
Long-Term Expected
Real Rate of Return
Mutual Funds - Equity 29% 4.82%
Mutual Funds - Fixed Income 65% 1.47%
REITS 1% 3.76%
Cash and equivalent 5% 0.06%
100%
Expected Inflation 2.75%
Discount Rate 4.75%
2022

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

60 Asset Class
Target
Allocation
Long-Term Expected
Real Rate of Return
Mutual Funds - Equity 29% 4.57%
Mutual Funds - Fixed Income 65% 0.72%
REITS 1% 3.96%
Cash and equivalent 5% 0.06%
100%
Expected Inflation 2.75%
Discount Rate 4.75%
2021

F. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following table presents the net OPEB liability of the Plan as of June 30 calculated using the discount rate of 4.75%, as well as what the plan’s net OPEB liability would be if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate.

June 30, 2022
(In Thousands)
June 30, 2021
(In Thousands)
1% Decrease 3.75% 3.75%
Net OPEB Liability 15,941$ 14,655$
Current Discount Rate 4.75% 4.75%
Net OPEB Liability 13,058$ 11,861$
1% Increase 5.75% 5.75%
Net OPEB Liability 10,688$ 9,564$
G. Sensitivity of the Net OPEB Liability to Healthcare Cost Trend Rates The following table presents the net OPEB liability of the City, as of June 30, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1% point lower or 1% point higher than the current rate.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 8 – OTHER POST EMPLOYMENT BENEFITS (continued)

61 June 30, 2022
(In Thousands)
June 30, 2021
(In Thousands)
1% Decrease 6% Non-Medicare
4% Medicare decreasing to 3.0%
6% Non-Medicare
4% Medicare decreasing to 3.0%
Net OPEB Liability $10,046 $9,133
Current Rate
7% Non-Medicare
5% Medicare decreasing to 4.0%
7% Non-Medicare
5% Medicare decreasing to 4.0%
Net OPEB Liability $13,058 $11,861
1% Increase 8% Non-Medicare
6% Medicare decreasing to 5.0%
8% Non-Medicare
6% Medicare decreasing to 5.0%
Net OPEB Liability $16,821 $15,255

NOTE 9 – WHOLESALE ACTIVITIES
A. Long-term Power Purchase Contracts
SVP purchases wholesale electric power from various participants of the Western Systems Power Pool (WSPP), NCPA, MSR Public Power Agency (Note 6), Western Area Power Administration, and other sources to supply the power requirements of Silicon Valley Power’s electric utility customers under long-term power purchase agreements (PPAs). SVP actively manages the financial risks inherent in these PPAs, including the risks arising from the changing spot market prices that move above and below the contract prices and from contract disputes that may arise from time to time. The cost of power under PPAs is included in materials, services and supplies expense and excluded from wholesale resources purchases.

B. Energy Wholesale Trading and Risk Management
SVP participates in the wholesale gas and power market and the CAISO’s centralized market.

Since CAISO’s Market Redesign and Technology Upgrade (MRTU), CAISO has become the ultimate buyer and seller in the California day ahead market. Therefore, SVP engages in the trading of commodity forward contracts (gas and electric energy contracts) to secure fuel supply and hedge daily power purchase/sales from/to CAISO. Activities during the fiscal year were substantially considered hedging transactions and, as such, have been accounted for using the DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 9 – WHOLESALE ACTIVITIES (continued)

62 settlement method of accounting. Accordingly, related gross sales and purchases totaling $36.0 mil
lion and $18.4 million, respectively, for fiscal year ended June 30, 2022, have been separately reported on the statement of revenues, expenses and changes in net position.

The restructured electric wholesale market exposes SVP to various risks including market, credit and operational risks. Active and effective management of these risks associated with the power trading activity is critical to its continued success and contribution to the entire utility. A Risk Management Committee administers and monitors compliance with the Council approved risk policies and the related procedures on a regular basis. The City and SVP believe that it has the resource commitment, effective policies and procedures, and is continuing to improve the control structure and oversight for evaluating and managing the market and credit risks to which it is exposed.

Credit Arrangements
SVP has risk policies, regulations, and procedures that help mitigate credit risk and minimize overall credit risk exposure. The policies include transacting only with investment grade counterparties, evaluating of potential counterparties’ financial condition and assigning credit limits as applicable. These credit limits are established based on risk and return considerations under terms customarily available in the industry. For counterparties below investment grade or lack of solid financial records, SVP requires collateral in the form of parental guarantee, surety bonds, letter of credit, or cash prepayment. Additionally, The City is a signatory to the WSPP netting agreement supplement and otherwise, enters into master netting arrangements whenever possible and, where appropriate, obtains collateral prior to trade execution. Master netting agreements incorporate rights of setoff that provide for the net settlement of subject contracts with the same counterparty in the event of default.

NOTE 10 – MAJOR SUPPLIERS
SVP purchases wholesale electric energy through its participation in the NCPA and M-S-R Public Power Agency joint powers agencies, from the Western Area Power Administration, from the market via the California Independent System Operator (CAISO), and from other sources to supply its retail electric utility customers. Additionally, SVP purchases transmission services through its participation in the TANC and from the CAISO.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 10 – MAJOR SUPPLIERS (continued)

63 The purchases of energy and transmission services that represent 5% or more of the total pur
chased power costs are shown in the table below:

Supplier Power Purchased
% of the Total
Purchased Power
NCPA 205,500,630$ 50.81%
M-S-R Public Power Agency 37,406,667 9.25% M-S-R Energy Authority 28,856,522 7.14%
Tri-Dam Project 28,602,808 7.07%

NOTE 11 – COMMITMENTS AND CONTINGENCIES
Commitments and contingencies, undeterminable in amount, include normal recurring pending claims and litigation. In the opinion of management, based upon discussion with legal counsel, there is no pending litigation, which is likely to have a material adverse effect on the financial position of the fund.

SVP has future commitments under construction projects as stated in Construction in Progress in Notes to Financial Statements 4B.

NOTE 12 – NET POSITION AND STABILIZATION AGREEMENTS
A. Net Position
Net Position is the excess of all SVP’s assets and deferred outflow of resources over all its liabilities and deferred inflow of resources. Net Position is divided into three categories that are described below:

Net investment in capital assets describes the portion of Net Position which is represented by the current net book value of SVP’s capital assets, less the outstanding balance of any debt issued to finance these assets.

Restricted for other agreements describes the portion of Net Position which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which SVP cannot unilaterally alter.

Unrestricted describes the portion of Net Position which is not restricted as to use.

DRAFT

CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

NOTES TO FINANCIAL STATEMENTS

For the years ended June 30, 2022 and 2021

NOTE 12 – NET POSITION AND STABILIZATION AGREEMENTS (continued)

64 SVP reported net position at June 30 as follows:
2022 2021
Net investment in capital assets: 511,984,541$ 463,692,179$ Restricted:

Pension benefits 6,146,358 6,808,996
Unrestricted:

Capital projects 126,114,987 125,362,902
Rate stabilization 167,542,169 157,736,368
Operations 159,042,750 161,814,522
Total Unrestricted 452,699,906 444,913,792
Total Net Position 970,830,805$ 915,414,967$

B. Stabilization Agreements
Rate Stabilization Fund
In 1996, SVP established the Rate Stabilization Fund and Cost Reduction Fund to assure that the rates were set properly with sufficient operating cash as well as cost reduction and financial stability of the Electric Utility. In December 2010, Council approved to transfer the Cost Reduction Fund as a subaccount to the Rate Stabilization Fund and continued to be used to offset Electric Utility costs in essentially the same manner. As of June 30, 2022, the balance of the Rate Stabilization Fund was $167,542,169.

Pension Stabilization Fund
In fiscal year 2016-17, the City established an irrevocable pension trust as a way to address unfunded pension liabilities. As part of the year-end process for 2016-17, City Council approved SVP to designate and make an initial deposit of $3.5 million in fiscal year 2018 toward prefunding pension obligations. As of June 30, 2022, the balance of the Pension Stabilization Fund was $6,146,358.

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CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)

REQUIRED SUPPLEMENTARY INFORMATION

65 This
part of the City of Santa Clara Electric Utility Enterprise Fund Financial Statements provides detailed information to better understand the data presented within the financial statements and note disclosures.

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY AND

RELATED RATIOS
Discloses the proportionate share of the net pension liability and related ratios, including the proportionate share of fiduciary net position as a percentage of the total pension liability, and proportionate share of the net pension liability as a percentage of covered payroll.

SCHEDULE OF CONTRIBUTIONS – PENSION PLAN
Contains information of the employer’s contractually required contribution rates, contributions to the pension plan and related ratios.

SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY AND

RELATED RATIOS
Discloses the proportionate share of the net OPEB liability and related ratios, including proportionate share of fiduciary net position as a percentage of the total OPEB liability, and the proportionate share of the net OPEB liability as a percentage of covered employee payroll.

SCHEDULE OF PLAN CONTRIBUTIONS - OPEB PLAN
Contains information of the employer’s contractually required contribution rates, contributions to the OPEB Plan and related ratios.

Required Supplementary Information

DRAFT

66 Measurement Date June 30, 2021 June 30, 2020 June 30, 2019 Plan's Proportion of the Net Position
Liability/(Asset) 32.31% 32.31% 32.31%
Plan's Proportionate Share of the Net Pension
Liability/(Asset) 73,533,481$ 98,396,395 $ 92,007,139$ Plan's Covered Payroll 29,932,874$ 28,888,674$ 26,452,951$ Plan's Proportionate Share of the Net Pension
Liability/(Asset) as a Percentage of it's Covered
Payroll 245.66% 340.61% 347.81%
Plan's Proportionate Share of the Fiduciary Net
Position as a Percentage of the Plan's Total
Pension Liability 72.48% 61.90% 62.72%
Notes to Schedule:

Schedule of Proportionate Share of the Net Pension Liability City of Santa Clara Electric Utility Enterprise Fund Miscellaneous Plan, a Cost-Sharing Defined Benefit Pension Plan
Last Ten Fiscal Years for the Measurement Periods Ended June 30 (1)
(1)
Fiscal year 2014-15 was the first year of implementation.

Schedule of Changes in the Net Pension Liability and Related Ratios Schedule of Proportionate Share of the Net Pension Liability

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67 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014

34.97% 34.97% 34.97% 34.97% 34.97%
94,238,259$ 92,735,319$ 84,615,916$ 74,516,387$ 69,068,338$ 26,407,732$ 24,928,548$ 21,661,244$ 20,300,577$ 20,289,905$ 356.86% 372.00% 390.63% 367.07% 340.41%

62.97% 62.02% 62.18% 65.57% 67.42%
Last Ten Fiscal Years for the Measurement Periods Ended June 30 Schedule of Proportionate Share of the Net Pension Liability City of Santa Clara Electric Utility Enterprise Fund Miscellaneous Plan, a Cost-Sharing Defined Benefit Pension Plan

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68 June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 Act
uarially determined contribution 11,026,400$ 10,027,454 $ 9,365,958 $ 8,258,503$ Contributions in relation to the
actuarially (11,026,400) (10,027,454) (9,365,958) (8,258,503) Contribution deficiency (excess) - $ - $ - $ - $ Covered payroll 29,932,874$ 28,859,863 $ 28,818,319 $ 28,630,755$ Contributions as a percentage of
covered payroll 36.84% 34.75% 32.50% 28.84%
Notes to Schedule
Valuation date 6/30/2019 6/30/2018 6/30/2017 6/30/2016
Methods and assumptions used to determine contribution rates:

Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Inflation
Salary increases
Investment rate of return
Retirement age
Mortality
(1)
Fiscal year 2014-15 was the 1st year of implementation.

The probabilities of mortality are based on CalPERS Experience Study. Pre- retirement and post-retirement mortality rates include 20 years of projected mortality improvement using Scale AA published by the Society of Actuaries for 2015 to 2018. For 2019,2020, 2021 and 2022, pre-retirement and post- retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries.

Level percentage of payroll, closed
25 years as of valuation date
5-year smoothed market

2.75% for 2015 to 2019, and 2.625% for 2020 and 2.50% for 2021 and 2022 Varies by Entry Age and Service

7.5% for 2015 to 2018, 7.375% for 2019, 7.25% for 2020, and 7% for 2021 and 2022, net of pension plan investment expense, including inflation The probabilities of Retirement are based on the CalPERS Experience Study Entry age normal
Schedule of Contributions
City of Santa Clara Electric Utility Enterprise Fund Miscellaneous Plan, a Cost-Sharing Defined Benefit Pension Plan
Last Ten Fiscal Years (1)

Schedule of Contributions (Pension Plan)
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69 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 8,832,105 $ 7,5 58,410 $ 6,484,674 $ 5,335,643 $
(8,832,105) (7,558,410) (6,484,674) (5,335,643) - $ - $ - $ - $
26,407,732 $ 24,928,548 $ 21,661,244 $ 20,300,577 $

33.45% 30.32% 29.94% 26.28%
6/30/2015 6/30/2014 6/30/2013 6/30/2012
Schedule of Contributions
City of Santa Clara Electric Utility Enterprise Fund Miscellaneous Plan, a Cost-Sharing Defined Benefit Pension Plan
Last Ten Fiscal Years

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70 Measurement Date
June 30,
2022
June 30,
2021
June 30,
2020
June 30,
2019
June 30,
2018
Plan's Proportion of the Net Posistion
Liability/(Asset) 32.31% 32.31% 32.31% 34.97% 34.97%
Plan's Proportionate Share of the Net OPEB
Liability/(Asset) 13,058,087$ 11,860,957$ 12,076,500$ 13,339,656$ 16,285,879$ Plan's Covered-employee Payroll 54,801,960$ 52,857,221$ 53,127,656$ 52,963,135$ 47,313,294$ Plan's Proportionate Share of the Net OPEB
Liability/(Asset) as a Percentage of it's Covered-
employee Payroll 23.83% 22.44% 22.73% 25.19% 34.42%
Plan's Proportionate Share of the Fiduciary Net
Position as a Percentage of the Plan's Total
OPEB Liability 40.25% 44.03% 40.11% 37.14% 28.90%
Notes to Schedule:

Schedule of Proportionate Share of the Net OPEB Liability and Related Ratios Cit
y of Santa Clara Electric Utility Enterprise Fund
OPEB Plan, A Cost-Sharing Defined Benefit Plan
Last Ten Fiscal Years Ended June 30 (1)
(1)
Fiscal year 2017-18 was the first year of implementation.

Schedule of Proportionate Share of the Net OPEB Liability and Related Ratios

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71 June 30,
2022
June 30,
2021
June 30,
2020
June 30,
2019
June 30,
2018
Actuarially determined contribution 1,534$ 1,559$ 1,512$ 1,856$ 1,911$ Contributions in relation to the actuarially
determined contributions (1,637) (1,465) (1,518) (1,876) (2,203) Contribution deficiency (excess) (103) $ 94 $ (6) $ (20) $ (292) $ Covered-emplyee payroll 54,802$ 52,857$ 53,128$ 52,963$ 47,313$ Contributions as a percentage of
covered-employee payroll 2.99% 2.77% 2.86% 3.54% 4.66%
Notes to Schedule:
(1)
Fiscal year 2017-18 was the first year of implementation. (In Thousands)
Schedule of Proportionate Share of Contributions
City of Santa Clara Electric Utility Enterprise Fund
OPEB Plan, A Cost-Sharing Defined Benefit Plan
Last Ten Fiscal Years Ended June 30 (1)

Actuarial valuation date June 30, 2020
Actuarial cost method Entry Age Normal, Level Percentage of Payroll Amortization method Level percent of payroll
Unfunded liability amortization
Asset valuation method
Discount rate 5.25%
General inflation 2.75%
Healthcare trend
Mortality CalPERS 1997-2015 Experience Study
Mortality improvement
Notes to Schedule of Employer Contribution (OPEB Plan)
Post-retirement mortality projected fully generational with Scale MP-2020
Methods and Assumptions for 2021-22 Actuarially Determine Contributions 15 years (open period) for method, assumption, plan changes, and gains and losses
Maximum 30-year combined period
Investment gains and losses spread over a 5-year rolling period.

Not less that 80% nor greater than 120% of fair value
Non-Medicare - 7% for 2020, decreasing to an ultimated
rate of 4% in 2076
Medicare (non-Kaiser)- 6.1% for 2020, decreasing to an ultimated rate of 4% in 2076
30 years (closed period) for initial UAAL
(18 Years remaining on June 30, 2021)
20 years (closed period) for implied subsidy on 06/30/2019 (18 years remaining on June 30, 2021)
Medicare (Kaiser)- 5% for 2020, decreasing to an ultimated rate of 4% in 2076
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72 Schedule of Proportionate Share of the Contributions (OPEB Plan)

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CITY

OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL
FOR THE YEAR ENDED JUNE 30, 2022
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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

For the Year Ended June 30, 2022

Table of Contents

Page

Memorandum on Internal Control ...................................................................................................... 1

Schedule of Other Matters .......................................................................................................... 3

Status of Prior Year Other Matters ........................................................................................... 15

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MEMORANDUM ON INTERNAL CONTROL

To the City Council of
the City of Santa Clara, California

We have audited the basic financial statements of the City of Santa Clara for the year ended June 30, 2022 and have issued our report thereon dated Novemb er 30, 2022. Our opinions on the basic financial statements and this report, insofar as they relate to the component unit of the Santa Clara Stadium Authority, and the Investments in Joint Ventures of the Northern California Power Agency (NCPA), the Transmission Agency of Northern California (TANC) and the San Jose-Santa Clara Regional Wastewater Facility and Clean Water Financing Authority (SJSC), ar e based solely on the reports of other auditors.

In planning and performing our audit of the basic fina ncial statements of the City as of and for the year ended June 30, 2022, in accordance with auditing standards generally accepted in the United States of America, we considered the City’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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

A deficiency in internal control exists when th e design or operation of a control does not allow management or employees, in the normal course of performing their assigned func tions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control was for the lim ited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. Given these limitations during our audit, we did not identify any defici encies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe are opportunities for strengthening internal controls and operating efficiency.

Government Auditing Standards require the auditor to perform lim ited procedures on the City’s response to the findings identified in our audit and described in the accompanying Schedule of Other Matters. The City’s response was not subjected to the other auditi ng procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response.

This communication is intended solely for the inform ation and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with Government Auditing Standards, and is not intended to be and should not be used by anyone other than these specified parties.

Pleasant Hill, California
November 30, 2022

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

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EFFECTIVE FISCAL YEARS 2022, 2023 and 2024:

GASB 99 – Omnibus 2022

The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of author itative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB Statements and (2) accounting and financial reporting for financial guarantees. The practice issues addressed by this Statement are as follows:

 Classification and reporting of deri vative instruments within th e scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment derivative instrument or a hedging derivative instrument

 Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a s hort term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives

 Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public-private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset

 Clarification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the subscription-based information technology arrangement (SBITA) term, classification of a SBITA as a short term SBITA, and recognition and measurement of a subscription liability

 Extension of the period during which the London In terbank Offered Rate (L IBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt

 Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP)

 Disclosures related to nonmonetary transactions

 Pledges of future revenues when resources are not received by the pledging government

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GASB 99 – Omnibus 2022 (Continued)

 Clarification of provisions in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, related to the focus of the government-wide financial statements

 Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position

 Terminology used in Statement 53 to refer to resource flows statements.

The Requirements of this Statement are Effective as Follows:

The requirements in paragraphs 26–32 related to ex tension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transacti ons, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34, as amended, and terminology updates related to Statement 53 and Statement 63 are effective upon issuance.

The requirements in paragraphs 11 –25 related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.

The requirements in paragraphs 4– 10 related to financial guarantees and the classification and reporting of derivative instruments within the scope of Stat ement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

Earlier application is encouraged and is permitted by individual topic.

How the Changes in This Statement Will Improve Financial Reporting

The requirements of this Statement will enhance co mparability in the application of accounting and financial reporting requirements a nd will improve the consistency of authoritative literature. Consistent authoritative literature enables governments and other stakeholders to more easily locate and apply the correct accounting and financial reporting provisions , which improves the consistency with which such provisions are applied. The comparability of financia l statements also will improve as a result of this Statement. Better consistency and comparability improve the usefulness of information for users of state and local government financial statements.

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EFFECTIVE FISCAL YEAR 2022/23:

GASB 91 – Conduit Debt Obligations

The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commi tments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures.

A conduit debt obligation is defined as a debt instrument having all of the following characteristics:

 There are at least three parties involved:
(1) an issuer
(2) a third-party obligor, and
(3) a debt holder or a debt trustee.

 The issuer and the third-party obligor are not within the same financial reporting entity.

 The debt obligation is not a parity bond of the issu er, nor is it cross-collateralized with other debt of the issuer.

 The third-party obligor or its ag ent, not the issuer, ultimately receives the proceeds from the debt issuance.

 The third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation (debt service payments).

All conduit debt obligations involve the issuer making a limited commitment. Some issuers extend additional commitments or voluntary commitments to support debt service in the event the third party is, or will be, unable to do so.

An issuer should not recognize a conduit debt oblig ation as a liability. However, an issuer should recognize a liability associated with an additional commitment or a voluntary commitment to support debt service if certain recognition criteria are met. As long as a conduit debt obligation is outstanding, an issuer that has made an additional commitment should evaluate at least annually whether those criteria are met. An issuer that has made only a limited commit ment should evaluate whether those criteria are met when an event occurs that causes the issuer to reevaluate its w illingness or ability to support the obligor’s debt service through a voluntary commitment.

This Statement also addresses arrangements—often characterized as leases—that are associated with conduit debt obligations. In those arrangements, ca pital assets are constructed or acquired with the proceeds of a conduit debt obligation and used by th ird-party obligors in the course of their activities.

Payments from third-party obligors are intended to cover and coincide with debt service payments.

During those arrangements, issuers retain the titles to the capital assets. Those titles may or may not pass to the obligors at the end of the arrangements.

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GASB 91 – Conduit Debt Obligations (Continued)
Issuers
should not report those arrangements as leases, nor should they recognize a liability for the related conduit debt obligations or a receivable for the paymen ts related to those arrangements. In addition, the following provisions apply:
 If the title passes to the third-party obligor at th e end of the arrangement, an issuer should not recognize a capital asset.
 If the title does not pass to the third-party obligor and the third party has exclusive use of the entire capital asset during the arrangement, the issuer should not recognize a capital asset until the arrangement ends.
 If the title does not pass to the third-party obligor and the third party has exclusive use of only portions of
the capital asset during the arrangement, the issuer, at the inception of the arrangement, should recognize the entire capital as set and a deferred inflow of resources. The deferred inflow of resour
ces should be reduced, a nd an infl ow recognized, in a systematic and rational manner over the term of the arrangement.

This Statement requires issuers to disclose genera l information about their conduit debt obligations,
organized by type of commitment, including the ag gregate outstanding principal amount of the issuers’ conduit debt obligations and a description of each ty pe of commitment. Issuers that recognize liabilities related to supporting the debt service of conduit debt obligations also should disclose information about the amount recognized and how the liabilities changed during the reporting period.

How the Changes in this Statement will Improve Financial Reporting The requirements of this Statement will improve fina ncial reporting by eliminating the existing option for issuers to report conduit debt obligations as their own liabilities, thereby ending significant diversity in practice. The clarified definition will resolve stakeholders’ uncertainty as to whether a given financing is, in fact, a conduit debt obligation. Requiring issuer s to recognize liabilities associated with additional commitments extended by issuers and to recognize assets and deferred inflows of resources related to certain arrangements associated with conduit debt obligations also will eliminate diversity, thereby improving comparability in reporting by issuers. Revised disclosure requirements will provide financial statement users with better information regarding the commitments i ssuers extend and the likelihood that they will fulfill those commitments. That information will inform users of the potential impact of such commitments on the financial resources of issuers a nd help users assess issuers’ roles in conduit debt obligations.

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GASB 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 part nership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide p ublic services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provi de, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

This Statement also provides guidance for accounti ng and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services th at may include designing, constructi ng, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction.

PPPs - This Statement requires that PPPs that meet the definition of a lease apply the guidance in Statement No. 87, Leases, as amended, if existing assets of the transferor that are not required to be improved by the operator as part of the PPP arrangement are the only underlying PPP assets and the PPP does not meet the definition of an SCA. This St atement provides accounting and financial reporting requirements for all other PPPs: those that either (1) m eet the definition of an SCA or (2) are not within the scope of Statement 87, as amended (as clarified by this Statement). The PPP term is defined as the period during which an operator has a noncancellabl e right to use an underlying PPP asset, plus, if applicable, certain periods if it is reasonably certain, based on all relevant factors, that the transferor or the operator either will exercise an option to extend the PPP or will not exercise an option to terminate the PPP.

A transferor generally should recognize an underl ying PPP asset as an asset in financial statements prepared using the economic resources measurement focus. However, in the case of an underlying PPP asset that is not owned by the transferor or is not the underlying asset of an SCA, a transferor should recognize a receivable measured based on the operator’s estimated carrying value of the underlying PPP asset as of the expected date of the transfer in ownership. In addition, a transferor should recognize a receivable for installment payments, if any, to be received from the operator in relation to the PPP.

Measurement of a receivable for installment payments should be at the present value of the payments expected to be received during the PPP term. A tran sferor also should recognize a deferred inflow of resources for the consideration received or to be received by the transfer or as part of the PPP. Revenue should be recognized by a transferor in a systematic and rational manner over the PPP term.

This Statement requires a transferor to recognize a receivable for installment payments and a deferred inflow of resources to account for a PPP in financia l statements prepared using the current financial resources measurement focus. Governmental fund reve nue would be recognized in a systematic and rational manner over the PPP term.

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GASB 94 – Public-Private and Public-Public Partnership s and Availability Payment Arrangements (Continued)

This Statement also provides specific guidance in financial statements prepared using the economic resources measurement focus for a government that is an operator in a PPP that either (1) meets the definition of an SCA or (2) is not within the scope of Statement 87, as amended (as clarified in this Statement). An operator should report an intangible right-to-use asset related to an underlying PPP asset that either is owned by the transferor or is the underlying asset of an SCA. Measurement of the right-to- use asset should be the amount of consideration to be provided to the transferor, plus any payments made to the transferor at or before the commencement of the PPP term, and certain direct costs. For an underlying PPP asset that is not owned by the transfer or and is not the underlying asset of an SCA, an operator should recognize a liability measured based on the estimated carrying value of the underlying PPP asset as of the expected date of the transfer in ownership. In addition, an operator should recognize a liability for installment payments, if any, to be made to the transferor in relation to the PPP. Measurement of a liability for installment payments should be at the present value of the payments expected to be made during the PPP term. An operator also should r ecognize a deferred outflow of resources for the consideration provided or to be provided to th e transferor as part of the PPP. Expense should be recognized by an operator in a systematic and rational manner over the PPP term.

This Statement also requires a government to account for PPP and non-PPP components of a PPP as separate contracts. If a PPP involves multiple underlying assets, a transferor and an operator in certain cases should account for each underlying PPP asset as a sep arate PPP. To allocate the contract price to different components, a transferor and an operator should use contract prices for individual components as long as they do not appear to be unreasonabl e based on professional judgment or use professional judgment to determine their best estimate if there are no stated prices or if stated prices appear to be unreasonable. If determining the best estimate is not practicable, multiple components in a PPP should be accounted for as a single PPP.

This Statement also requires an amendment to a PPP to be considered a PPP modification, unless the operator’s right to use the underlying PPP asset decreases, in which case it should be considered a partial or full PPP termination. A PPP termination should be accounted for by a transferor by reducing, as applicable, any receivable for installment payments or any receivable related to the transfer of ownership of the underlying PPP asset and by reducing the related deferred inflow of resources. An operator should account for a termination by reducing the carrying value of the right-to-use asset and, as applicable, any liability for installment payments or liability to transfer ownership of the underlying PPP asset. A PPP modification that does not qualify as a separate PPP should be accounted for by remeasuring PPP assets and liabilities.

APAs - An APA that is related to designing, constructi ng, and financing a nonfinancial asset in which ownership of the asset transfers by the end of the contract should be accounted for by a government as a financed purchase of the underlying nonfinancial asset. This Statement requires a government that engaged in an APA that contains multiple components to recognize each component as a separate arrangement. An APA that is relate d to operating or maintaining a no nfinancial asset should be reported by a government as an outflow of resources in the period to which payments relate.

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GASB 96 – Subscription-Based Information Technology Arrangements

This Statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for gove rnment end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBIT A results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liab ility; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent re levant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended.

A SBITA is defined as a contract that conveys cont rol of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.

The subscription term includes the period during which a government has a noncancelable right to use the underlying IT assets. The subscription term also incl udes periods covered by an option to extend (if it is reasonably certain that the government or SBITA vendor will exercise that option) or to terminate (if it is reasonably certain that the government or SBITA vendor will not exercise that option).

Under this Statement, a government generally should recognize a right-to-use subscription asset—an intangible asset—and a corresponding subscriptio n liability. A government should recognize the subscription liability at the commencement of the subscription term, —which is when the subscription asset is placed into service. The sub scription liability should be initially measured at the present value of subscription payments expected to be made during the subscription term. Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government, which may be implicit, or the government’s incremental borrowing rate if the interest rate is not readily determinable. A government should recognize amortization of the disc ount on the subscription liability as an outflow of resources (for example, interest expense) in subsequent financial reporting periods.

The subscription asset should be initially measured as the sum of (1) the in itial subscription liability amount, (2) payments made to the SBITA vendor before commencement of the subscription term, and (3) capitalizable implementation costs, less any incentives received from the SBITA vendor at or before the commencement of the subscription term. A government should recognize amortization of the subscription asset as an outflow of resources over the subscription term.

Activities associated with a SBITA, other than making subscription payments, should be grouped into the following three stages, and their costs should be accounted for accordingly:

 Preliminary Project Stage, including activities such as evaluating alternatives, determining needed technology, and selecting a SBITA vendor. Outlays in this stage should be expensed as incurred.  Initial Implementation Stage, including all anc illary charges necessary to place the subscription asset into service. Outlays in this stage genera lly should be capitalized as an addition to the subscription asset.

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GASB 96 – Subscription-Based Information Technology Arrangements (Continued)

 Operation and Additional Implementation Stag e, including activities such as subsequent implementation activities, maintenance, a nd other activities for a government’s ongoing operations related to a SBITA. Outlays in this stage should be expensed as incurred unless they meet specific capitalization criteria.

In classifying certain outlays into the appropriate stage, the nature of the activity should be the determining factor. Training costs should be expensed as incurred, regardless of the stage in which they are incurred.

If a SBITA contract contains multiple components, a government should account for each component as a separate SBITA or nonsubscription component and allocate the contract price to the different components. If it is not practicable to determine a best estimate for price allocation for some or all components in the contract, a government should account for those components as a single SBITA.

This Statement provides an exception for short-te rm SBITAs. Short-term SBITAs have a maximum possible term under the SBITA contract of 12 mont hs (or less), including any options to extend, regardless of their probability of being exercised. Subscription payments for short-term SBITAs should be recognized as outflows of resources.

This Statement requires a government to disclose descriptive information about its SBITAs other than short-term SBITAs, such as the amount of the s ubscription asset, accumulated amortization, other payments not included in the measurement of a subscr iption liability, principal and interest requirements for the subscription liability, and other essential information.

How the Changes in this Statement will Improve Financial Reporting

The requirements of this Statement will improve financial reporting by establishing a definition for SBITAs and providing uniform guidance for accounting and financial reporting for transactions that meet that definition. That definition and uniform guidan ce will result in greater consistency in practice.

Establishing the capitalization criteria for implementa tion costs also will reduce diversity and improve comparability in financial reporting by governments. Th is Statement also will e nhance the relevance and reliability of a government’s financial statements by requiring a government to report a subscription asset and subscription liability for a SBITA and to disclo se essential information about the arrangement. The disclosures will allow users to understand the scal e and important aspects of a government’s SBITA activities and evaluate a government’s obligations and assets resulting from SBITAs.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS

EFFECTIVE FISCAL YEAR 2023/24:

GASB 100 – Accounting for Changes and Error Corrections

The primary objective of this Statement is to enha nce accounting and financial reporting requirements for accounting changes and error corrections to provide mo re understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability

This Statement defines accounting changes as changes in accounting prin ciples, changes in accounting estimates, and changes to or within the financial re porting entity and describes the transactions or other events that constitute those changes. As part of those descriptions, for (1) cer tain changes in accounting principles and (2) certain changes in accounting estim ates that result from a change in measurement methodology, a new principle or methodology should be justified on the basis that it is preferable to the principle or methodology used before the change. That preferability should be based on the qualitative characteristics of financial reporting—understandability, reliability, rele vance, timeliness, consistency, and comparability. This Statement al so addresses corrections of errors in previously issued financial statements.

This Statement prescribes the accounting and financia l reporting for (1) each type of accounting change and (2) error corrections. This Statement requires th at (a) changes in accounting principles and error corrections be reported retroactively by restating pr ior periods, (b) changes to or within the financial reporting entity be reported by adju sting beginning balances of the curre nt period, and (c) changes in accounting estimates be reported prospectively by recognizing the change in the current period. The requirements of this Statement for changes in accoun ting principles apply to the implementation of a new pronouncement in absence of specific transition provisions in the new pronouncement. This Statement also requires that the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, be displayed by reporting unit in the financial statements.

This Statement requires disclosure in notes to fina ncial statements of descriptive information about accounting changes and error corrections, such as th eir nature. In addition, information about the quantitative effects on beginning balances of each acc ounting change and error correction should be disclosed by reporting unit in a tabular format to re concile beginning balances as previously reported to beginning balances as restated.

Furthermore, this Statement addresses how informa tion that is affected by a change in accounting principle or error correction should be presented in required supplementary information (RSI) and supplementary information (SI). For periods that ar e earlier than those included in the basic financial statements, information presented in RSI or SI should be restated for error corrections, if practicable, but not for changes in accounting principles.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS

EFFECTIVE FISCAL YEAR 2024/25:

GASB 101 – Compensated Absences

The objective of this Statement is to better meet th e information needs of financial statement users by updating the recognition and measurement guidance for compensated absen ces. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures.

Recognition And Measurement

This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cas h or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a gove rnment should consider relevant factors such as employment policies related to co mpensated absences and historical information about the use or payment of compensated absences. Ho wever, leave that is more likel y than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences.

This Statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave co mmences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used.

This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial st atements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-relate d payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities.

With respect to financial statements prepared usin g the current financial r esources measurement focus, this Statement requires that expenditures be recognize d for the amount that normally would be liquidated with expendable available financial resources.

Notes To Financial Statements

This Statement amends the existing requirement to disclose the gross increases and decreases in a liability for compensated absences to allow governments to disclose only the net change in the liability (as long as they identify it as a net change). In addition, governments are no longer required to disclose which governmental funds typically have been used to liquidate the liability for compensated absences.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS

GASB 101 – Compensated Absences (Continued)

How the Changes in this Statement Will Improve Financial Reporting

The unified recognition and measurement model in this Statement will r esult in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. In addition, the model can be applied consistently to any type of co mpensated absence and will eliminate potential comparability issues between governments that offer different types of leave.

The model also will result in a more robust estim ate of the amount of compensated absences that a government will pay or settle, which will enhance the relevance and reliability of information about the liability for compensated absences.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS

2021-01 Timely Submission of Purchase Ca rd Supporting Documentation to Finance

Purchase card statement reviews and reconciliations are an important element of the City’s internal control. In order to be an effective control, the City should co mplete the review of purch ase card transactions and statement reconciliations as soon as possible after each mo nth-end, usually within thirty to forty-five days of receipt of statements, and the reconciliations should s ubsequently be reviewed fo r accuracy. Errors and un- reconciled differences should be researched, understood and corrected immediately, so as to prevent additional errors and a decrease in efficiency. The City’s policies require that department supervisors and managers reconcile and verify the purchase card charges against the employee-submitted receipts, and once everything is attached and approved, that information is then submitted to the Finance Department for final review.

We originally selected the months of September 2020 and January 2021, to test for timely reconciliation and proper approval of the purchase card statements and reconciliations. However, as of March 24, 2021, the January 2021 reconciliation was still in process, so we selected another month for testing, December 2020, but the Principal Accountant mentioned that it was still in process. Therefor e, we tested the September 2020 and November 2020 purchase card statements and noted that there was a total of 20 statements that were reviewed 30-45 days after month end, but there were fourteen September 2020 statements that were not reviewed timely, with dates ranging from December 11, 2020 to March 30 ,2021, and there were six November 2020 statements that were not reviewed until March 17, 2021.

We understand the review and reconciliation of the purchase card statements was delayed due to documentation not being provided timely by employees to support the purchases, which in turn delayed the department supervisor and manager reviews and submission to the Finance Department.

Update for June 30, 2022:

We selected the months of August 2021 and December 2021, to test for timely reconciliation and proper approval of the purchase card statements and reconciliations. We noted that the August 2021 purchase card statements and reconciliations were reviewed and approved with dates ranging from March 4, 2022 to March 8, 2022, and as of March 29, 2022, the December 2021 statements and reconciliations had not been reviewed by the City Auditor’s office.

We understand the review and reconciliation of the purchase card statements was delayed due to documentation not being provided timely by employees to support the purchases, which in turn delayed the department supervisor and manager reviews and submission to the Finance Department.

If the review of purchase card statements is not pe rformed timely, potential er rors and/or unauthorized transactions may not be detected and remedied in a timely manner. In a ddition, if errors and/or unauthorized transactions are not identified timely, the City may lose the ability to contest the items with the bank due to the limit on the length of time the City can do so.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS

2021-01 Timely Submission of Purchase Card Sup porting Documentation to Finance (Continued)

The City should communicate to al l employees with purchase cards the importance of remitting supporting documentation in a timely manner to the department supe rvisors and managers to en sure that purchase card reconciliations can be completed and submitted to the Finance Department for review in a timely manner.

Current Status:

The City agrees with the recommendation that it should remind employees the importance of remitting complete supporting documentation in a timely manner for the Finance Department to finish their review in a timely manner. The City plans to provide citywide training to all staff to emphasize the importance of complete and timely submission of supporting documentation.

The City is also in the process of updating the Purchase Card Policy to include a more formalized process to enforce late report submissions. This is anticipated to be completed in the Spring of 2023.

2021-02 Developing Funding Plan for Net Position Deficit

The fund balance or net position of funds should be m onitored to ensure that all balances are positive and that plans are developed to eliminate any deficits that may develop. And, cost recovery funds, such as the internal service funds, should set charges for services sufficient to cover costs incurred by the fund.

As of June 30, 2021, the Special Liability Insurance Cl aims Internal Service Fund had deficit net position of $2.7 million.

During fiscal year 2021, we understand unanticipated claims activity led to the deficit net position in the Fund.

The City must develop plans for fund ing the deficit to ensure it does not increase and is eliminated in a reasonable period of time.

Update for June 30, 2022:

The net position deficit for the Special Liability Insura nce Claims Internal Serv ice Fund decreased to $781 thousand as of June 30, 2022.

Current Status:

Implemented - The City normally transfers funds to eliminate the deficit in the Special Liability Insurance Claims Internal Service Fund in the final Monthly Financial Report in December. Evaluation of the remaining deficit will continue to be addressed during the budget process.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS

2017-02 Developing Funding Plans for Fund Balance/Net Position Deficits

At June 30, 2017, three of the City’s funds reporte d unrestricted net position deficits. The City should develop funding plans for the deficits as noted below:

A. Cemetery Enterprise Fund Net Position Deficit

The Cemetery Enterprise Fund unrestricted net posit ion deficit grew to $5.3 million at June 30, 2017. The fund records the receipt and use of monies for services provided at the Mission City Memorial Park. The Fund received a long-term advance from the General Fund that grew from $4.9 million as of June 30, 2016 to $5.2 million as of June 30, 2017, that is to be repaid when funds become available. The fiscal year 2018 bu dget does indicate revenues that equal expenses for the Fund, but does not provide for funds to be available to reduce the deficit or for repayment of any portion of the advance.

The City should perform a review of rates and co sts in the Fund to determine if costs can be reduced or rates adjusted to work to elimin ate the net position deficit and provide funds for repayment of the interfund borrowing. If the advance is not expected to be repaid within a reasonable period of time, Generally Accepted A ccounting Principles require that the interfund balance be reduced and the amount that is not expected to be repaid should be reported as a transfer from the fund that made the loan to the fund that received the loan.

B. Workers’ Compensation Insurance Claims Internal Service Fund Net Position Deficit

The Workers’ Compensat ion Insurance Claims Internal Service Fund reports a net position deficit of $16.8 million as of June 30, 2017, which was an improvement of $2.1 million from the prior fiscal year. The majority of the decrease in the deficit is due to the change in uninsured claims payable which decreased $1.5 million during the fiscal year. The City must develop plans for funding the deficit to ensure cash is available when the claims come due.

Update for June 30, 2018:

The net position deficits for the Cemetery Enterprise Fund and the Workers’ Compensation Insurance Claims Internal Service Fund increased to $3.2 million and $16.7 million, respectively as of June 30, 2018.

Update for June 30, 2019:

The net position deficits for the Cemetery Enterprise Fund increased to $3.9 million and the Workers’ Compensation Insurance Claims Inte rnal Service Fund decreased to $16.1 million as of June 30, 2019. In addition, the General Fund’s advance to the Cemetery Enterprise Fund increased to $5.7 million.

Update for June 30, 2020:

The net position deficits for the Cemetery Enterprise Fund increased to $4.9 million and the Workers’ Compensation Insurance Claims Inte rnal Service Fund decreased to $15.5 million as of June 30, 2020. In addition, the General Fund’s advance to the Cemetery Enterprise Fund increased to $6.3 million.

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CITY OF SANTA CLARA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS

2017-02 Developing Funding Plans for Fund Balance/Net Position Deficits (Continued)

Update for June 30, 2021:

The net position deficit for the Cemetery Enterprise Fu nd increased to $5.1 milli on and the deficit in the Workers’ Compensation Insurance Claims Internal Service Fund decrea sed to $13.7 million as of June 30, 2021. In addition, the General Fund’s advance to the Cemetery Enterprise Fund increased to $7.1 million.

Update for June 30, 2022:

The net position deficit for the Cemetery Enterprise Fund was eliminated, as the General Fund’s advance to the Fund was forgiven during the fiscal year. The deficit in the Work ers’ Compensation Insurance Claims Internal Service Fund decreased to $11.6 million as of June 30, 2022.

Current Status:

Cemetery – Implemented.

Workers’ Compensation Insurance Claims Internal Service Fund – Implemented - The City normally transfers funds to eliminate the current deficit in the Workers’ Compensation Insurance Claims Internal Service Fund in the final Monthly Financial Report in December. However, the long term deficit in the Fund that is the resu lt of recording the estimate of the long-term claims liabilities will continue to be monitored and addressed during the budget process, as needed.

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