FOR THE YEAR ENDED JUNE 30, 2022
WITH COMPARATIVE TOTALS
AS OF JUNE 30, 2021
CITY OF SANTA CLARA , CALIFORNIA
1500 WARBURTON AVENUE
SANTA CLARA , CA 95050 -3796
CITY OF SANTA CLARA
ELECTRIC UTILITY ENTERPRISE FUND
(S ILICON VALLEY POWER )
FINANCIAL STATEMENTS
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 ..................................................................................... 5 Statements of Net Position .................................................................................................... 11 Statements of Revenue, Expenses and Changes in Net Position .......................................... 13 Statements of Cash Flows ..................................................................................................... 14 Notes to Financial Statements ............................................................................................... 16 Required Supplementary Information
Schedule of Proportionate Share of the Net Pension Liability .............................................. 70 Schedule of Contributions (Pension Plan) ............................................................................ 72 Schedule of Proportionate Share of the Net OPEB Liability and Related Ratios ................. 74 Schedule of Proportionate Share of the Contributions (OPEB Plan) .................................... 75
I
NDEPENDENT AUDITOR’S REPORT
To the Honorable Members of the City Council
City of Santa Clara, California
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying financial statements of the City of Santa Clara Electrical Utility Enterprise Fund (Silicon Valley Power) of the City of Santa Clara, California, as of and for the year ended June 30, 2022, and the related notes to the financial statements, whic h collectively comprise Silicon Valley Power’s basic financial statements as listed in the Table of Contents. We did not audit the financial statements of Northern California Power Agency (NCPA), Transmission Agency of Northern California (TANC) and M-S-R Public Power Agency (MSR PPA) as of and for the year ended June 30, 2021, related to the calculation of the Investments in Joint Ventures. At June 30, 2022, the Investment in these Joint Ventures collectively represents 4.4%, 5.9% and 2.4%, respectively, of total assets, net position and revenues of Silicon Valley Power. The financial statements of the NCPA, TANC and MSR PPA were audited by other auditors whose reports have been furnished to us, and our opinion, inso far as it relates to the calculation of the Investments in Joint Ventures, is based solely on the reports of the other auditors.
In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Silicon Valley Power as of June 30, 2022, and the changes in financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing sta ndards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Silicon Valley Power, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirement relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management’s for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in th e United States of America; and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Silic on Valley Power’s ability to continue as a going concern for twel ve months beyond the financial stat ement date, including any currently known information that may raise substantial doubt shortly thereafter. 1 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or erro r, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with ge nerally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud ma y involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expect ed to influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and
assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures r esponsive to those risks. Such procedur es include examining, o
n a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit i n order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Silicon Valley Power’s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting polic ies used and the reasonableness of significant accounting estimate
s made by management, as well as evalua te the overall presentation of the financial state
ments.
Conclude whether, in our judgment, there are conditions or events, considered in the aggr egate, that raise substan
tial doubt about Silicon Valley Power’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with
those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Report on Summarized Comparative Information
We have previously audited Silicon Valley Power’s June 30, 2021 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated November 30, 2021. In our opinion the summarized comparative information presented herein as of and for the year ended June 30, 2021 is consistent, in all material respects, with the audited financial statements from which it has been derived.
Emphasis of Matter
As discussed in Note 1, the financial statements present only Silicon Valley Power and do not purport to, and do not present fairly the financial position
of the City as of June 30, 2022, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. 2 Changes in Accounting Principles
Management adopted the provisions of Government al Accounting Standards Board Statement No. 87, Leases, which became effective during the year ended June 30, 2022 and required the restatement of certain balances as discussed in Note 2B to the financial statements.
The emphasis of this matter does not constitute a modification to our opinions.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and other requ ired supplementary information as li sted in the Table of Contents be presented to supplement the basic fina ncial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standard s generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial stat ements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditi ng Standards, we have also issued our report dated November 30, 2022, on our consideration of the City of Santa Clara’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is solely to describe the sc ope of our testing of inte rnal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City of Santa Clara’s internal control over financia l reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Santa Clara’s internal control over financial reporting and compliance.
Pleasan
t Hill, California
November 30, 2022
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5 Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS
The management’s discussion and analysis of the Sil icon Valley Power (SVP) provides an overall review of the SVP’s financial activities fo r the fiscal years ended June 30, 2022 and 2021. The intent of this discussion and analysis is to look at SVP’s financial performance as a whole. Readers should review the discussion and ana lysis in conjunction with the Basic Financial Statements, including the notes to the ba sic 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. S VP 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 reta il 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 el ectric 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 mai nly due to increases in capital assets of $33.6 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 cons umption 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 financia l 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 Note s to these Basic Financial Statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
6 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 abou t 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 infor mation about all SVP’s revenues and all its expenses, also on full accrual basis, with the emph asis on measuring net revenues and expenses of the program. The Statements of Cash Flows provid e information about cash activities for the fiscal year.
FISCAL 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).
MA
NAGEMENT’S DISCUSSION AND ANALYSIS (continued)
7 Description 2022 2021 * Amount % 2020
Po
oled cash and investments 417.6 $ 434.9 $ (17.3) $ -4.0% 382.8 $ Other assets 263.4 179.5 83.9 46.7% 160.3
Capital assets 635.3 601.7 33.6 5.6% 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 3 06.4 (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 6.2 6.8 (0.6) -8.8% 5.2 Unrestricted 452.6 444.9 7.7 1.7% 400.6
Total Net Position 970.8 $ 915.4 $ 55.4 $ 6.1% 840.9 $ *
Not restated for the implementation of GASB 87 (See N ote 2R) Deferred outflows on pension and OPEB
related items
Table 1
Net Position
(in millions)
Increase (Decrease)
June 30, 2022, 2021, and 2020
M
ANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
8 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 72.0 32.2 39.8 123.6% 28.6 -
Total Revenues 611.1 528.5 82.6 15.6% 523.4
Expenses:
Retail 526.5 432.3 94.2 21.8% 408.8
Wholesale 18.3 12.3 6.0 48.8% 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 553.4 454.2 99.2 21.8% 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
S
VP 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
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
9 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 purch ases was $18.3 million in fiscal year 2021- 22, $12.3 million in fiscal year 2020-21, and $30 m illion in fiscal year 2019-20. The increase in wholesale power purchases in fiscal year 2021-22 wa s due to the overall high-priced resource market.
Interest income was $6.1 million 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. Interes t expense was $3.1 million in fiscal year 2021- 22, $3.8 million in fiscal year 2020-21, and $6.9 m illion 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 Electr ic 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 w as an increase in net investment in capital assets, $0.7 million was a decrease of restricted f or 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 $635.3 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 I mprovement 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 Reve nue Bonds and three issues of Subordinate Revenue Bonds totaling of $142.8 million. These bon ds are secured by net electric revenues earned by SVP and mature in fiscal years 2023 through 2033.
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
10 ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives f or the coming year are discussed in detail in the Letter of Transmittal Section of the City’s Ann ual Comprehensive Financial Report for the fiscal year ended June 30, 2022.
CONTACTING SVP’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to pr ovide citizens, taxpayers, investors, and creditors with a general overview of SVP’s finances . Questions about these Basic Financial Statements should be directed to the City of Santa Clara Finance Department, 1500 Warburton Avenue, Santa Clara, CA 95050-3796.
See accompanying notes to financial statements
11 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 2R) 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
Right-to-use leased assets 2,916,623 -
Accumulated depreciation (520,990,136) (496,816,889) Total Capital Assets (Net of Accumulated Depreciat ion) 635,340,002 601,730,561 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 2R) 2,365,415 -
Total Other Noncurrent Assets 115,973,915 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 (Note 5G) 164,564 -
Deferred outflow on refunding of debt 6,192,411 7,051,125 Deferred outflows on OPEB related items (Note 8) 1,2 17,486 464,425 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
See accompanying notes to financial statements
12 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) 13,580,00 0 13,005,000 Current portion derivative financial instruments (Note 5G) 164,564 - Current portion of leases obligation (Note 5J) 654,0 44 - 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 5G) 42,186,709 13,032,122
Deferred inflow on refunding of debt 1,537,064 1,793,331 Deferred inflow - leases related (Note 2R) 2,571,068 - Deferred inflows pension related items (Note 7) 18,3 43,263 148,855 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
See accompanying notes to financial statements
13 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 (21,01 0,694) (4,791,168) Interest expense (3,117,699) (3,744,098)
Equity in income (losses) of joint ventures 14,639,1 61 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
Statements of Revenue, Expenses and Changes in Net Positio n
See accompanying notes to financial statements
14 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
See accompanying notes to financial statements
15 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 423,729,65 6 $ 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 (4,7 38,491) 2,739,064 (Decrease) Increase in due to lease obligation 616,4 66 - 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
CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)
NOTES TO FINANCIAL STATEMENTS
For the years ended June 30, 2022 and 2021
16 NOTE 1 – DEFINITION OF THE REPORTING ENTITY
The City of Santa Clara (the City), California’s El ectric Utility Enterprise Fund, which began operating as Silicon Valley Power (SVP) in 1997, co mmenced 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 electr ic 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. Wholesal e power was purchased from United Gas and Electric Company of San Jose.
Between 1903 and 1965, SVP purchased all of its ele ctric power requirements from investor- owned utilities. In 1965, it received an allocatio n 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. Throu ghout the 1970’s, SVP and NCPA worked on behalf of all municipal electric utilitie s in Northern California to gain access to wholesale transmission markets and to jointly devel op 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 g eothermal 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 generat ion 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 streetl ights 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 powe r 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.
Notes to Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
SVP’s Financial Statements are prepared in conformi ty with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Government Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities
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 in the United States of America. The electric ente rprise fund is included in the City’s Annual Comprehensive Financial Report, and therefore, thes e 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 re cognized in the accounting period in which they are earned regardless of whether they are rece ived, 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 obj ective 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 cla ssified 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’ l easing activities. To be consistent with the Citywide implementation, the provisions of this Sta tement were implemented during fiscal year 2022.
As a result, the beginning the balances of leases r eceivable and deferred inflows of resources related to leases were $2,832,684 as of July 1, 202 1. The balances of the lease payable and intangible right-to-use asset were $2,916,623 as of July 1, 2021. SVP restated and increased the balances in that amount and the net effect on beginning net position was zero.
The GASB issued Statement No. 89 "Accounting for In terest Cost Incurred Before the End of a Construction Period.” The objectives of this State ment 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 cos ts. 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
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 provisions of this Statement were implemented during fiscal year 2022. The implementation had no effect on the financial statements.
The GASB issued Statement No. 93, Replacement of In terbank Offered Rates. The primary objective of this Statement is to address accountin g 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 Secti on 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 i n 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 perfo rm; (2) mitigate costs associated with the reporting of certain defined contribution pension p lans, defined contribution other postemployment benefit (OPEB) plans, and employee b enefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduc iary component units in fiduciary fund financial statements; and (3) enhance the relevance , consistency, and comparability of the accounting and financial reporting for Internal Rev enue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet th e definition of a pension plan and for benefits provided through those plans. This statem ent 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 t he consistency of authoritative literature by addressing practice issues identified during implem entation and application of certain GASB statements. The provisions of this Statement relat ed to LIBOR, SNAP, and Leases, were implemented during fiscal year 2022.
SVP is analyzing the effects of the following prono uncements and plans to adopt them by the effective dates:
The GASB issued Statement No. 91 “Conduit Debt Obli gation.” 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 eff ective for periods beginning after December 15, 2021. SVP is currently evaluating the impact on the financial statements.
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 GASB issued Statement No. 92 “Omnibus 2020.” T he objective of this statement is to enhance comparability in reporting and improve the consistency of authoritative literature by addressing practice issues identified during implan tation of certain GASB statements. This statement becomes effective upon issuance for requirements related to GASB 87. For GASB 73, GASB 74, and GASB 84 as well as measurement of liab ilities associated with asset retirement obligations, 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 an d Public-Public Partnerships and Availability Payment Arrangements.” The objective of this statement is to address issues related to public-private and public-public partnership arr angements 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-Base d Information Technology Arrangements.” The objective of this statement is t o provide guidance on the accounting and financial reporting for subscription-based informat ion technology arrangements (SBITAs) for government end users. This statement becomes effec tive for periods beginning after June 15, 2022. SVP is currently evaluating the impact on the financial statements.
The GASB issued Statement No. 100 “Accounting Chang es and Errors Corrections". The objective of this statement is to establish account ing and financial reporting requirements for (a) accounting changes and (b) the correction of an err or in previously issued financial statements.
This statement becomes effective for periods beginn ing 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 a fter 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 ser vices 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 st atements present increases (revenues) and decreases (expenses) in total net position. Report ed net position is segregated into three categories – net investment in capital assets, restricted, and unrestricted.
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 D. Cash and Investments
SVP’s cash and investments pool is maintained by th e City except for fiscal agent cash and investments.
While maintaining safety and liquidity, the City ma ximizes investment return by pooling its available cash for investment purposes. Unless the re are specific legal or contractual requirements to do otherwise, interest earnings are apportioned among funds according to average monthly cash and investment balances. It i s 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 state ment 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 rese rve 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 receiva bles, 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 fo r 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 wi th a value of $5,000 and buildings, improvements and infrastructure, right-to-use build ing with costs exceeding $20,000 or more with useful lives exceeding two years are capitaliz ed. 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 discusse d in Note 2R below. Contributed capital
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 assets are valued at their estimated acquisition va lue on the date contributed. Depreciation is recorded on a straight-line basis over the estimate d useful lives of the assets (buildings and improvements: 20 to 50 years; and equipment: 3 to 2 5 years) and is charged as an expense against operations. Accumulated depreciation is reported on the statement of net position.
The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvemen ts are capitalized and depreciated over the remaining useful lives of the related capital assets.
Capital assets and the related obligations under le ase/purchase agreements are capitalized and accounted for in accordance with Accounting Standar ds Codification (ASC) Topic 840. Interest is capitalized on construction in progress in accor dance with ASC Topic 835, Capitalization of Interest Cost in Situations Involving Certain Tax-E xempt Borrowings, and Certain Gifts and Grants. Accordingly, interest capitalized is the to tal 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 i nterest capitalized for the fiscal years ended June 30, 2021 or 2022.
H. Joint Ventures
SVP participates in several joint ventures in accor dance 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, maint enance, 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 reso urces 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
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 entity estimate its accrued sick leave liability ba sed on the sick leave accumulated at the statement of net position date by those employees w ho 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 le ave payments are recorded as an expense and liability by SVP.
J. Risk Management
SVP is covered under the City’s self-insurance prog rams via Internal Service Funds. There were no significant reductions in insurance coverage fro m the prior year by major categories of risk and the amount of settlements did not exceed insura nce coverage for the past four fiscal years.
Additional information with respect to the City’s s elf-insurance programs can be found in the City’s Annual Comprehensive Financial Report.
K. Electric Resource Purchased
SVP purchases power from various suppliers and agen cies (including joint powers agencies) for resale to its customers (see Note 10). SVP also en gages in numerous resource energy transactions with the objective of reducing its ove rall cost of resource energy. Gross resource energy sales and resource energy purchases are reco rded 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 bi llings periodically rendered to customers.
Operating revenues for services provided, but not b illed at the end of the fiscal year, are recognized and accrued based on estimated consumpti on. Operating revenues primarily include the sales of electric power to residential, commercial, industrial, and municipal customers.
Non-operating revenues primarily represent interest income, grants, rents, and other non- recurring miscellaneous income.
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 N. Taxes on Income
As an agency of the City, SVP falls under the revie w of the Internal Revenue Code Section 115 and corresponding California Revenue and Taxation C ode 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 p osition includes a separate section for deferred outflows of resources. Deferred outflows of resourc es represent a consumption of net assets that applies to a future period(s) and so will not be re cognized as an outflow of resources (expense/expenditure) until then. SVP has three ite ms that qualify for reporting in this category:
deferred outflow related to the refunding, pension and OPEB.
In addition to liabilities, the statement of financ ial 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 f inancial statements SVP reports deferred amounts related to derivative instruments, refundin g, 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 positio n followed by unrestricted net position if necessary.
Q. Use of Estimates
The preparation of financial statements in conformi ty with GAAP in the United States of America requires management to make estimates and a ssumptions that affect the reported amounts of assets and liabilities and disclosures o f 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 contr ol of the right to use another entity’s nonfinancial asset (the underlying asset) as specif ied 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.
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)
24 Lessee - SVP is a lessee for noncancellable lease of buil dings. SVP recognizes a lease liability with an initial, and individual value of $100,000 a nd 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. Th e lease asset is initially measured as the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date, plus certain initial direct cost s. Subsequently, the lease asset is amortized on a straight‐line basis over its useful life.
Key estimates and judgments related to leases inclu de 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 Cit y 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 l ease 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 leas e 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 lea se 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.
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)
25 Key estimates and judgments include how SVP determi nes (1) the discount rate it uses to discount the expected lease receipts to present val ue, (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. Lease receipts included in the measurement of the l ease receivable is composed of fixed payments 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. SVP has leases related to fiber and land use and the balances related to the leases receivable and deferred inflow of resources as of June 30, 2022 were $2,604,571 and $2,571,068, re spectively. The leases have remaining terms of one to 19 years as of July 1, 2021 and annual increases of 3%. SVP recognized $11,894 in lease revenue and $68,494 in interest revenue du ring the current fiscal year related to these leases.
S. Prior Year Summarized Comparative Information
The basic financial statements include certain prior year summarized comparative information in total but not at the level of detail required for a presentation in accordance with generally accepted accounting principles. Accordingly, such i nformation should be read in conjunction with the SVP’s financial statements for the year en ded June 30, 2021, from which the summarized information was derived.
NOTE 3 – CASH AND INVESTMENTS
SVP’s cash and investments pool is maintained by th e 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 Gov ernment Code allow the City to invest in certain types of investments, provided the credit r atings of the issuers are acceptable to the City.
The table below also identifies certain provisions of the City’s Investment Policy and the
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 California Government Code that address interest ra te risk, credit risk, and concentration of credit risk.
Minimum Maximum Maximum
Maximum Credit Percentage Investment
Authorized Investment Type Maturity Quality or Portfol io In One Issuer U.S. Treasury Obligations 7 years N/A 100% 100%
U.S. Agency Securities
(1) 7 years Top three ratings
categories
80% (2) 40%
Negotiable 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 cate gory 20% 10% Joint Power Authority Investment Pools 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%
(2) Callable securities are limited to 30% of the portfolio. (3) No more than 10% of the outstanding commercial paper of any single issuer. time of purchase for Mortgage-Backed Securities (MBS). Maximum Final Maturity for MBS's = 30 years with balloon payments.
(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. (4) Maximum Weighted Average Life with Current Public Securities Association Assumptions =12 years at
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 B. Investments Authorized by Debt Agreements
The City invests bond proceeds restricted for const ruction 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 proce ed investments are reported monthly to the City Council.
SVP also maintains required amounts of cash and inv estments with trustees or fiscal agents under the terms of certain debt issues. These fund s are unexpended bond proceeds or are pledged reserves to be used if SVP fails to meet it s 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 thos e 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 Pensi on Rate Stabilization Program, (PRSP) Trust administered by Public Agency Retirement Serv ices (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 In vestment Guideline Document for the investment account and by the agreement for adminis trative 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 ele cted 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 201 6-17, the City Council approved SVP to designate and make an initial deposit of $3.5 milli on in fiscal year 2018 towards pre-funding the City’s pension obligations. As of June 30, 2022, t he 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.
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 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 maturi ty 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 value s of SVP’s investments to market interest rate fluctuations is provided by the following table tha t shows the distribution to SVP’s investment by maturity.
2022 2021
Credit Under 180 181 - 365 1 - 3 3 - 5 Fair Fa ir
Type of Investment Rating Days Days Years Yea rs 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 25,587,115 - - - 25,587,115 31,036,044 Cash and Investments
- City Treasury 109,197,967 46,044,018 180,987,249 81,354,064 417,583,298 434,877,562 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 4,544,395 - - - 4,544,395 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 44,768,112 - - - 44,768,112 30,827,676 Total Cash and Investments 153,966,079 $ 46,044,018 $ 180,987,249 $ 81,354,064 $ 462,351,410 $ 465,705,238 $ Maturity
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 is a voluntary participant in the Local Ag ency 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 obli gations. 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 A gent 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 ri sk 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 co llateral for repurchase agreements, be conducted on a delivery-versus-payment basis. Secu rities 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 significant other observable inputs; Level 3 inputs are significant unobservable inputs. See City’s Annual Financial Report Note 7 to the financial statements for more detailed information.
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)
30 Fair Value Measurements Using
Investments and
Derivative Instruments
Measured at Fair Value
Quoted Prices in
Active Markets for
Identical Assets
Significant
Other
Observable
Inputs
6/30/2022 Level 1 Level 2 Exempt
(1)
Investments by Fair Value Level
Short 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)
4,544,395 - - 4,544,395 Pension Rate Stabilization Investment (Cash
and Equivalents) 62,426 62,426 - - Pension Rate Stabilization Investment
(Mutual Fund - Equity) 1,927,138 1,927,138 - - (Mutual Fund - Fixed Income) 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 38,682,902 5,234,655 911,703 32,536,544 Total Investment by Fair Value Level 355,216,503 $ 157,703,928 $ 164,555,717 32,956,858 Investments Measured at the Amortized Cost
State Investment Pool (LAIF) 25,587,115 - - 25,587,115 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 26,72 4,615 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 fair value hierarchy, or reported at amortized cost.
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)
31 The City utilizes a third party pricing service to determine fair market prices for its individually held investments. Evaluations are based on market i nformation available at the time and generated using proprietary evaluated pricing models and methodologies.
Level 1 investments are valued using a marketable a ctively 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 987,121,234 290,871 (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 490,304,345 (23,929,914) - 91,432,697 557,807,128 Enterprise Activity Capital Assets,
Net 604,647,184 $ 30,692,818 $ - $ - $ 635,340,002 $
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 – CAPITAL ASSETS (continued)
32 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 20 21 consisted of the following in SVP Projects.
Projects as of June 30 , 2022 Authorized Expended Comm itments 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 $
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 – CAPITAL ASSETS (continued)
33 Projects as of June 30, 2021 Authorized Expended Commi tments 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 / Amortiza tion as of June 30, Current Rate, Issue Date and Maturity 2021 Defeased of Discoun ts 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 $
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 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, tog ether with other available moneys, to refinance outstanding Electric 2003A Bonds. The Ele ctric 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-ex empt 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 c allable portion of the outstanding principal amount of Electric 2013 A Bonds through a direct pl acement 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 th e 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 pr incipal of Electric 2013A Bonds were outstanding. In the event of default, SVP will tra nsfer 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 t o 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 E lectric Revenue Refunding Bonds, Series 2018A (Electric 2018A Bonds) to refinance $54.58 mi llion 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 t rustee all adjusted net revenues held by it and received thereafter and the trustee will disburse a ll adjusted net revenues and any other funds
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 then held or thereafter received by the trustee und er 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.
C. Subordinate Electric Revenue Refunding Bonds, Series 2020-1 As of April 1, 2020, all $54.830 million of the Ele ctric 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 a ll 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 agr eement with Bank of America, N.A. (the “Bank”) and issued $52.985 million of Subordinate E lectric 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 aft er conversion were fixed at time of issuance.
Starting April 2, 2021, the Bonds will bear interes t 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 fo r the 2020-1 bonds (including a failure by the City to pay principal or interest on the related bo nds, a failure by the City to perform or observe its covenants, a default in other specified indebte dness 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 decla re 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.
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 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 t he 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 agr eement 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, Serie s 2013 A under a Taxable to Tax-Exempt Conversion structure. The Electric 2020-2 Bonds be ar 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 202 0-2 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 Electr ic 2020-2 Bonds is secured by a pledge of Available Electric Revenues of SVP on a basis subor dinate 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 bo nds, a failure by the City to perform or observe its covenants, a default in other specified indebte dness 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 decla re 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-Exemp t Multiple Draw Term Loan with the Bank of America Preferred Funding Corporation (the “Elec tric 2014 Loan Agreement”) to fund the phase-shifting transformer project and the acquisit ion 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.
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 The City Council determined that it was in the best interests of the City to continue the credit facility 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 agr eement with Bank of America, N.A. (the “Bank” and issued $16.720 million of Subordinate El ectric 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, 2 020 through July 1, 2024 and were sold at a true interest cost of 0.70%. Debt service on the E lectric 2020-3 Bonds is secured by a pledge of Available Electric Revenues of SVP on a basis subor dinate to outstanding Electric Revenue Bonds, if any.
In the event of default under the loan agreement fo r the 2020-3 bonds (including a failure by the City to pay principal or interest on the related bo nds, a failure by the City to perform or observe its covenants, a default in other specified indebte dness 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 decla re 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 up on 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 oper ating revenues and non-operating interest earnings amounted to $554.2 million and operating c osts 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 repres ented 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 de termine whether they meet the definition of derivative instruments, and if so, whether they eff ectively hedge the expected cash flows associated with the interest rate and energy exposu res. Under hedge accounting, the increase
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 (decrease) in the fair value of a hedge is reported as a deferred cash flow hedge on the statement of net position.
Notional Amounts and Fair Values – Future Derivative Instruments SVP maintains a Market Risk Management Policy, whic h 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 trans actions. The primary goal of these guidelines is to provide a framework for the operat ion 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 stat ement 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 purc hase/sales transactions occur, the deferred balance is recorded as a component of Purchased Pow er. For energy derivatives, fair values are estimated by comparing contract prices to forward m arket 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.
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 Notional Amount (MWh)
Long Short
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 Short
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
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 Credit Risk
Credit risk is the risk of loss due to a counterpar ty 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 powe r and gas contracts on the Futures market on Intercontinental Exchange (ICE). As of June 30, 20 22, 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 cle aring 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 brokera ge 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 arrang ements whenever it has entered into more than one bilateral transactions with counterparty. Unde r 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 transactio ns and net their fair values so that a single amount will be owed by (or to) the non-defaulting party.
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)
41 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 s ettlement and pays the fixed contracted rate entered into on the trade date; on sales contr acts (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 Fu tures contracts, on purchase contracts (long positions), SVP receives PG&E Citygate average dail y price at settlement and pays the fixed contracted rate entered into on the trade date; o n 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 bec ause the contract prices are different from the settlement prices.
H. Other
Various debt agreements governing SVP’s revenue bon ds contain a number of covenants including those that require SVP to maintain and pr eserve the enterprise in good repair and working order, to maintain certain levels of insura nce, and to fix and collect rates, fees, and charges so as to maintain certain debt coverage rat ios. SVP is in compliance with these specific covenants and all other material covenants governin g 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:
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)
42 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 $
J. Lease Liabilities
SVP entered into a five‐year lease agreement as les see for the use of office space in November 2015 and the lease was extended to October 2026. SV P is required to make monthly principal and interest payments and common area operating exp enses with 3% annual escalation. The lease agreement qualifies as other than short-term leases under GASB87 and therefore, has been recorded at the present value of the future minimum lease payment as of the date of June 30, 2021. The lease liability is measured at a discount rate of 1.10% based on Applicable Federal Rates for real estate as of July 2021.
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)
43 A summary of the SVP’s lease transactions for the f iscal year ended June 30, 2022 are as follows:
Balance
June 30, 2021
(As restated) Retirment
Balance
June 30, 2022 Current portion
Lease liabilities 2,916,623 $ (629,957) $ 2,286,666 $ 654,044 $ Total Lease liabilities 2,916,623 $ (629,957) $ 2,286,666 $ 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 240,822 553 241,375
Total 2,286,666 $ 43,962 $ 2,330,628 $
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 Cali fornia (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.
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
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 As described in paragraph (E) below, the carrying v alue 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 Equ ity 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 gener ally empowered to sell, purchase, generate, transmit, manage electrical energy and provide regu latory 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 Manage r, the staff of NCPA is responsible for providing various administrative, operating and pla nning services for NCPA and its associated power corporations.
Project Financing and Construction
NCPA’s project construction and development program s have been individually financed by project revenue bonds collateralized by NCPA’s assi gnment of all payments, revenues and
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 proceeds associated with its interest in each proje ct. Each project participant has agreed to pay its proportionate share of debt service and other c osts 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 additiona lly 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 Dist rict (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 experi enced greater than anticipated declines in steam production from the existing geothermal wells . Although initially operated as baseload generation projects at full capability (238MW), NCP A changed its steam field production from baseload to load-following and reduced average annu al 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 product ion. 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, r eaching approximately 68 MW by the year 2040.
Combustion Turbine Project No. 1
NCPA owns five dual (natural gas and fuel oil) comb ustion 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 desi gned to provide peak power and reserve requirements and emergency support. Each purchaser is responsible under its power sales contract for paying entitlement share in Combustion Turbine Project No. 1 of all NCPA’s costs of such project.
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 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 repl aced 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 relati vely 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 ut ilities. 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 f acilities 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 char ges 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 al ternating current transmission project between Southern Oregon and Central California. As Project Manager, TANC is responsible for the overall direction and coordination of all Project o perations and maintenance, additions and betterments, and for general and administrative support.
The Project was declared commercially operable on M arch 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 Calif ornia. The Project has successfully met and completed all major environmental requirements. As of June 30, 2021, the most recent data available, TANC’s investment in the Project was $54 6.5 million, less accumulated depreciation and amortization of $290.3 million.
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 In connection with its participation in the Project , TANC has an entitlement balance of the Project’s transfer capability of approximately 1,36 2 megawatts and is obligated to pay an average of approximately 80 percent of the operatin g 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 20.47% 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 sh are 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, o perations 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 t he Modesto Irrigation District, the City of Santa Clara, and the City of Redding, California, t o develop or acquire and manage electric power resources for the benefit of the members. Th e personnel of its members and contract professional staff perform the administrative and m anagement functions of MSR PPA. The member’s income and expenses sharing ratio is as fo llows: 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 ac counting for the investment was suspended.
As of December 31, 2021, the date of the latest ava ilable audited financial statements, SVP was in a 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 t o 35 percent of MSR PPA’s operating cost, to the extent such funding is necessary. Dur ing 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.
MSR PPA’s principal activity is a 28.8% ownership i nterest in a 507-megawatt unit of a coal- fired electricity generating plant located in New M exico (San Juan Plant). The San Juan plant
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 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 t he power purchased by MSR PPA from the Big Horn I Project. SVP’s share equates to appr oximately a 105 MW share of the output at a cost comparable to combined cycle gas-fuel generati on. 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 co ntinue to take the same output through September 30, 2031, or if the Big Horn Project is r epowered MSR PPA will have a right of first offer to negotiate a long-term power purchase for s uch 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 Agre ement and Redelivery Agreement with Avangrid Renewables Inc. to purchase additional win d 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 o f agreements (the “San Juan Restructuring Agreements”) to provide for the inter ests of MSR PPA and certain other San Juan Participants (the “exiting participants”) in the Sa n Juan Generation Station to be transferred to the remaining San Juan Participants effective Decem ber 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 exi ting participants and the remaining San Juan Participants, and the establishment and fundin g of mine reclamation and plant decommissioning trust funds. The San Juan Restructu ring Agreements were subsequently executed by all nine San Juan Generation Station ow ners and PNM Resources Development
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)
49 Company (a non-utility affiliate of PNM) and, following receipt of regulatory approvals, became effective on January 31, 2016. Various other implem enting 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 Gene ration 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 th e Modesto Irrigation District, the City of Santa Clara, and the City of Redding, California, t o develop or acquire and manage natural gas resources for the benefit of the members. The pers onnel of its members and contract professional staff perform the administrative and m anagement functions of MSR EA. Each member’s income and expense sharing ratio is as fol lows: 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 M SR EA’s operating cost, to the extent such funding is necessary. During the years ended June 3 0, 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 Ci ties 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 Se ptember 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 P acific 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. Unde r 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. C EI has guaranteed repayment of the bonds, and responsibility for bond repayment is non-recourse to the City. Moreover, any default by the other Gas Prepay Project participants is also non-recourse to the City.
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)
50 F. Contingent Liability
Under the terms of the various joint venture agreem ents, 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 statemen ts 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 Powe r'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 p ay 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-2039 9.7 386% 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%.
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)
51 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 fiducia ry net position have been determined on the same basis as they are reported by the CalPERS Fina ncial Office. For this purpose, benefit payments (including refunds of employee contributio ns) 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 ar e required to participate in the City’s Miscellaneous Agent Multiple-Employer defined benef it plan administered by the California Public Employees’ Retirement System (CalPERS), whic h acts as a common investment and administrative agent for its participating member e mployers. Benefit provisions under the Plan are established by State statute and City resolutio n. 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.
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 Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members, who must be pub lic 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 B enefit. 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 serv ice 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 det ermined on an annual basis by the actuary and shall be effective on the July 1 following notice o f 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 t o finance the costs of benefits earned by employees during the year, with an additional amoun t to finance any unfunded accrued liability.
SVP is required to contribute the difference betwee n the actuarially determined rate and the contribution rate of employees.
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 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 propor tionate share of the net pension liability of the Plan as follows:
June 30, 2022 June 30, 2021
Miscellaneous 73,533,480 $ 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 i s measured as of June 30, 2021, and the total pension liability for the Plan used to calculate th e net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forw ard to June 30, 2021 using standard update procedures. SVP’s proportion of the net pension li ability was based on a projection of SVP’s long-term share of contributions to the pension pla n relative to the projected contributions of all funds of the City. SVP’s proportionate share of th e 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 $6,364,608 and $13,041,275 respectively. At June 30, 2022 and 202 1, SVP reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
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) $
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 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 a s a reduction of the net pension liability in the year ended June 30, 2023. Other amounts report ed as deferred outflows of resources and deferred inflows of resources related to pensions w ill 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
C. Actuarial Assumptions
For the measurement period ended June 30, 2021, the total pension liability was determined by rolling forward the June 30, 2020 total pension lia bility. The June 30, 2020 total pension liability was based on the following actuarial methods and assumptions:
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 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 Se rvice 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.
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 disc ount rate for the Plan assumed that contributions from all plan members in the Public E mployees Retirement Fund (PERF) will be made at the current member contribution rates and t hat contributions from employers will be made statutorily required rates, actuarially determ ined. 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
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)
56 return on plan investments was applied to all perio d of projected benefit payments to determine the total pension liability for the Plan.
The long-term expected rate of return on pension pl an 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 c lasses, 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 us ing both short-term and long-term returns. The expected rate of return was then set equal to the s ingle 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.
Asset Class (a)
Assumed Asset
Allocation
Real Return
Years 1 - 10 (b)
Real Return
Years 11+ (c)
Public 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.
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)
57 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 73,533,480 $ 98,396,395 $
1% Increase 8.15% 8.15%
Net Pension Liability 46,131,125 $ 71,794,130 $
Miscellaneous
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. Subsequent Events
On July 12,2021, CalPERS reported a preliminary 21. 3% net return on investments for fiscal year 2020-21. Based on the thresholds specified in CalPERS Funding Risk Mitigation policy, the excess return of 14.3% prescribes a reduction i n investment volatility that corresponds to a reduction in the discount rate used for funding pur poses of .20% from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year As set Liability Management (ALM) cycle, the board elected to defer any changes to the asset all ocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021.
On November 17, 2021, the board adopted a new strat egic asset allocation. The new asset allocation along with the new capital market assump tions, economic assumptions and administrative expense assumption support a discoun t rate of 6.90% (net of investment expense but without a reduction of administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumpt ion from 2.50% to 2.30% as recommended in
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)
58 the November 2021 CalPERS Experience Study and Revi ew of Actuarial Assumptions. This study also recommended modifications to retirement rates, termination rates, mortality rates and rates of salary increases that were adopted by the board. These new assumptions will be reflected in the GASB 68 accounting valuation reports for the June 30, 2022, measurement date.
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 fisc al year 2007-08 in accordance with GAAP, provides reimbursements to retirees for qualified e xpenses. Employees who have retired from the City with at least ten years of service and mee t certain criterion based upon retirement date, household income in the most recent calendar year a nd age are entitled to reimbursements for qualified expenses. Annual maximum reimbursement a mounts differ depending on when an employee retired from City service. The majority o f retirees may be eligible for a maximum of $4,626 in annual reimbursements. Amendments to ben efit provisions are negotiated by the various bargaining units at the City and must be ap proved 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 Service s (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, C A 92660, or by calling 1-800-540- 6369.
For purposes of measuring the net OPEB liability, d eferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expe nse, information about the fiduciary net position of the OPEB plan and additions to and dedu ction from the OPEB’s fiduciary net position have been determined on the same bases. F or this purpose OPEB benefit payments are recognized when currently due and payable in accord ance with the benefits terms. Investments are report at fair value.
Generally accepted accounting principles require th at 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.
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 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 b e 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 $635 thousand.
C. Actuarial Assumptions
The June 30, 2022 total OPEB liability was based on the following actuarial methods and assumptions:
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 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 gene rational 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 Medicare(Kaiser)- 5% 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 a s 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 v aluation as of June 30, 2020, rolled forward to June 30, 2022 using standard actuarial methods, based on actuarial methods and assumptions.
SVP’s proportion of the net OPEB liability was base d on a projection of SVP’s long-term share of contributions to the OPEB plan relative to the p rojected 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%.
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 For the year ended June 30, 2022, SVP reported a ne t 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 rela ted 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 840 - Total 1,217 $ 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 $
Other amounts reported as deferred outflows of reso urces related to OPEB will be recognized as expense as follows:
Annual Annual
Measurement Period Amortization Measurement Period Amo rtization Ended June 30 (in thousands) Ended June 30 (in thousan ds) 2023 (157) $ 2022 (436) $
2024 (135) 2023 (458)
2025 189 2024 (435)
2026 371 2025 (111)
2027 21 2026 71
Thereafter - Thereafter 21
2022 2021
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)
62 E. Discount Rate
The discount rate used to measure the total OPEB li ability was 4.75% as of June 30, 2022. The projection of cash flows used to determine the disc ount 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 m embers. 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
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
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)
63 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 calcu lated using healthcare cost trend rates that are 1% point lower or 1% point higher than the current rate.
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
CITY OF SANTA CLARA ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)
NOTES TO FINANCIAL STATEMENTS
For the years ended June 30, 2022 and 2021
64 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 (N ote 6), Western Area Power Administration, and other sources to supply the pow er requirements of Silicon Valley Power’s electric utility customers under long-term power pu rchase 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 und er PPAs is included in materials, services and supplies expense and excluded from wholesale resources purchases.
B. Restructuring of the California Electric Industry
Deregulation Legislation and Direct Access
The passage of AB1890 in 1998 triggered fundamental changes in the structure of the electric industry in California. Generally, AB1890 provided for creation of the California Power Exchange (Cal PX), which was to be a clearinghouse for energy transactions among investor- owned utilities, independent generators and power m arketers, who in turn would serve so called direct-access customers. AB1890 also created the C alifornia Independent System Operator (CAISO), which was to manage the state’s bulk transmission grid.
However, in 2000 and 2001, the price of electricity at the Cal PX became extremely high, and investor-owned utilities were unable to pay for the energy that they needed from the Cal PX.
Eventually the Cal PX filed for bankruptcy and was dismantled. Investor-owned utility PG&E and several energy marketers would also file for ba nkruptcy and over a decade of litigation ensued.
The CAISO, however, continues to manage the state’s bulk electric system and the day-ahead and day-of markets, and it has implemented various price controls and tariffs in an effort to avoid repeating the mistakes of 2000 and 2001. Along wi th balancing control area responsibility, the CAISO has also announced that it will take on the role of reliability coordinator for the region.
Energy Wholesale Trading and Risk Management
SVP participates in the wholesale gas and power mar ket and the CAISO’s centralized market.
Since CAISO’s Market Redesign and Technology Upgrad e (MRTU), CAISO has become the ultimate buyer and seller in the California day ahe ad market. Therefore, SVP engages in the trading of commodity forward contracts (gas and ele ctric energy contracts) to secure fuel supply and hedge daily power purchase/sales from/to CAISO. Activities during the fiscal year were
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)
65 substantially considered hedging transactions and, as such, have been accounted for using the settlement method of accounting. Accordingly, rela ted gross sales and purchases totaling $36.0 million 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 succe ss and contribution to the entire utility. A Risk Management Committee administers and monitors compl iance with the Council approved risk policies and the related procedures on a regular ba sis. 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 counterpart ies’ financial condition and assigning credit limits as applicable. These credit limits are esta blished 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 colla teral in the form of parental guarantee, surety bonds, letter of credit, or cash prepayment. Addit ionally, 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 provid e for the net settlement of subject contracts with the same counterparty in the event of default.
NOTE 10 – MAJOR SUPPLIERS
SVP purchases electric energy through its participa tion 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 (CAI SO), and from other sources to supply its retail electric utility customers. Additionally, SV P purchases transmission services through its participation in the TANC and from the CAISO.
The purchases of energy and transmission services t hat represent 5% or more of the total purchased power costs are shown in the table below:
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)
66 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 am ount, include normal recurring pending claims and litigation. In the opinion of managemen t, 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 P osition 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 outs ide 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.
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)
67 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 c ash as well as cost reduction and financial stability of the Electric Utility. In December 201 0, 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 mann er. 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 irr evocable 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
69 This part of the City of Santa Clara Electric Utili ty 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 pensio n 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 l iability 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
70 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) 73,533,480 $ 98,396,395 $ 92,007,139 $ Plan's Covered Payroll 28,859,863 $ 28,818,319 $ 28,630,755 $ Plan's Proportionate Share of the Net Pension
Liability/(Asset) as a Percentage of it's Covered
Payroll 254.79% 341.44% 321.36%
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 Liabil ity
71 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 201 5 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
72 June 30, 2022 June 30, 2021 June 30, 2020 June 30, 201 9 Actuarially determined contribution 11,026,399 $ 10,027,454 $ 9,365,958 $ 8,258,503 $ Contributions in relation to the actuarially
determined contributions (11,026,399) (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)
73 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 201 5 8,832,105 $ 7,558,410 $ 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
74 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) 13,057,945 $ 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 City 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
75 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 (635) (570) (638) (748) (886) Contribution deficiency (excess) 899 $ 989 $ 874 $ 1,108 $ 1,025 $ Covered-emplyee payroll 54,802 $ 52,857 $ 53,128 $ 52,963 $ 47,313 $ Contributions as a percentage of
covered-employee payroll 1.16% 1.08% 1.20% 1.41% 1.87%
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)
Schedule of Proportionate Share of the Contributions (OP EB Plan) Actuarial valuation date June 30, 2020
Actuarial cost method Entry Age Normal, Level Percen tage 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 2022, decreasing to an ultimated
rate of 4% in 2076
Medicare (non-Kaiser)- 6.1% for 2022, 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 2022, decreasing to an ultimated rate of 4% in 2076