Agenda packet — Vernon City Council, October 17, 2023 (part 2 of 2)

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(32)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Debt Service Requirements (Continued)
Fiscal Year Ending June 30, Principal Interest
2023 20,380,000 $ 8,385,050 $
2024 21,335,000 7,405,125
2025 22,400,000 6,325,000
2026 23,530,000 5,190,875
2027 31,255,000 3,917,875
2028-2032 54,915,000 2,059,375
Total Requirements 173,815,000 $ 33,283,300 $
Electric System Revenue Bonds
2021 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 - $ 1,923,697 $
2024 4,690,000 2,486,250
2025 4,885,000 2,246,875
2026 5,130,000 1,996,500
2027 5,405,000 1,733,125
2028-2032 5,270,000 7,357,500
2033-2037 6,765,000 5,860,625
2038-2042 19,925,000 3,114,875
Total Requirements 52,070,000 $ 26,719,447 $
Electric System Revenue Bonds
2022 Taxable Series A
Water System Revenue Bonds
2020 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 250,000 $ 575,725 $
2024 265,000 562,850
2025 275,000 549,350
2026 - 542,475
2027 - 542,475
2028-2032 1,985,000 2,563,500
2033-2037 2,180,000 2,052,625
2038-2042 2,680,000 1,535,450
2043-2047 3,180,000 1,051,925
2048-2051 3,785,000 463,663
Total Requirements 14,600,000 $ 10,440,038 $

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(33)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Debt Service Requirements (Continued)
Note Payable- Direct Borrowing
Fiscal Year Ending June 30, Principal Interest
2023 139,535 $ - $
2024 139,535 -
2025 139,535 -
2026 139,535 -
2027 139,535 -
2028-2031 523,256 -
Total Requirements 1,220,930 $ - $
Changes in Long-Term Liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022:

Amounts
Balance Balance Due Within
June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 281,475,000 $ 235,885,000 $ (96,450,000) $ 420,910,000 $ 50,360,000 $ Bond Premium 7,744,795 38,266,557 (2,680,100) 43,331,252 - Bond Discount (1,923,931) - 754,988 (1,168,943) -
Note Payable- Direct Borrowing 1,360,465 - (139,535) 1,220,930 139,535 Compensated Absences (Note 1) 1,181,903 805,554 (769,052) 1,218,405 406,135 Total 289,838,232 $ 274,957,111 $ (99,283,699) $ 465,511,644 $ 50,905,670 $ Expense Stabilization Fund
The VPU maintains an Expense Stabilization Fund held by a Trustee in such amounts, at such times and from sources as shall be determined by the City in its sole discretion. If an Event of Default under the Indenture has occurred and is continuing, the Trustee shall transfer all moneys in this fund to the debt service funds as provided in the Indenture.

Moneys on deposit in this Fund may be withdrawn by the City at any time that no Event of Default exists under the Indenture. As at June 30, 2022, this fund has a balance of $38,934,149.

Right to Accelerate Upon Default
Notwithstanding anything contrary in the Indenture or in the Bonds, upon the occurrence of an Event of Default, the Trustee may, with the consent of each Credit Provider whose consent is required by a Supplemental Indenture or a Credit Support Agreement, and shall, at the direction of the Owners of a majority in principal amount of Outstanding Bonds (other than Bonds owned by or on behalf of the City) by written notice to the City, declare the principal of the Outstanding Bonds and the interest thereon to be immediately due and payable, whereupon such principal and interest shall, without further action, become and be immediately due and payable.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(34)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Credit Ratings
As of June 30, 2022, the ratings on all Electric System Revenue Bonds is BBB+/Stable by S&P and Baa1/Stable by Moody’s and the ratings on all Water System Revenue Bonds is A- /Stable by S&P and not rated by Moody’s.

NOTE 7 RISK MANAGEMENT
The VPU is in the City’s self-insurance program as part of its policy to self-insure certain levels of risk within separate lines of coverage to maximize cost savings.

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets, errors, and omissions; injuries to employees, and natural disasters.

The City utilizes insurance policy(s) to transfer these risks. Each policy has either selfinsured retention or deductible, which are parts of the City’s Risk Financing Program. These expenses are paid on a cash basis as they are incurred. There have been no significant settlements or reductions in insurance coverage during the past three fiscal years.

Starting in Fiscal 2010, the City chose to establish Risk Financing in the General Fund, whereby assets are set aside for claim-litigation settlements associated with the abovementioned risks up to their self-insured retentions or policy deductibles. Athens Administrators Inc. is the Third-Party Administrator for the City’s workers’ compensation program and they provide basic services for general liability claims and litigation.

The insurance limits for the fiscal year 2022 are as follows:

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(35)
NOTE 7 RISK MANAGEMENT (CONTINUED)
The City has numerous claims and pending litigations, which generally involve accidents and/or liability or damage to City property. The balance of claims/litigations against the City is in the opinion of management, ordinary routine matters, incidental to the normal business conducted by the City. In the opinion of management, such proceedings are substantially covered by insurance, and the ultimate dispositions of such proceedings are not expected to have a material adverse effect on the VPU’s financial position, results of operations or cash flows. Further information regarding the City’s self-insurance program may be found in the City’s Annual Financial Report.

NOTE 8 PENSION PLAN
A. General Information about the Pension Plans
Plan Descriptions
All full-time safety and miscellaneous personnel and temporary or part-time employees who have worked a minimum of 1,000 hours in a fiscal year are eligible to participate in the City’s agent multiple-employer defined benefit pension Safety and Miscellaneous Plans administered by the California Public Employees’ Retirement System (CalPERS) that acts as a common investment and administrative agent for participating public entities within the state of California. The City allocates the costs of these Plans across all City departments. The VPU’s proportionate share of the net pension liability of these Plans is reported as a cost-sharing plan in the financial statements. Benefits vest after five years of service. Employees who retire at the minimum retirement age with five years of credited service are entitled to retirement benefits. Monthly retirement benefits are based on a percentage of an employee’s average compensation for his or her highest consecutive 12 or 36 months of compensation for each year of credited service.

Benefits Provided
Miscellaneous members hired prior to January 1, 2013, with five years of credited service may retire at age 55 based on a benefit factor derived from the 2.7% at 55 Miscellaneous formula or may retire between ages 50 and 54 with reduced retirement benefits. New Miscellaneous members (PEPRA) with five years of credited service may retire at age 62 based on a benefit factor derived from the 2% at 62 Miscellaneous formula or may retire between age 52 and 61 with reduced retirement benefits. The benefit factor increases to a maximum of 2.5% at age 67. Safety members with five years of credited service may retire at age 50 based on a benefit factor derived from the 3% at 50 Safety formula for sworn Police and Fire Department employees. New Safety members (PEPRA) with five years of credited service may retire at age 57 based on a benefit factor derived from the 2.7% at 57 Safety (PEPRA) formula or may retire between age 50 and 56 with reduced retirement benefits for new Safety (PEPRA) members of both Police and Fire Departments. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by State statute provided through a contract between the City and CalPERS.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(36)
NOTE 8 PENSION PLAN (CONTINUED)
A. General Information about the Pension Plans (Continued) Benefits Provided (Continued)
The Plans’ provisions and benefits in effect for the measurement date of June 30, 2021, are summarized as follows:

Miscellaneous
Prior to On or After
Hire Date January 1, 2013 January 1, 2013
Benefit Formula 2.7%@55 2%@62
Benefit Vesting Schedule 5 Years of Service 5 Years of Service Benefit Payments Monthly for Life Monthly for Life
Retirement Age 50 52
Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5% Required Employee Contribution Rates 8.000% 6.250%
Required Employer Contribution Rates:

Normal Cost Rate 11.380% 11.380%
Payment of Unfunded Liability 3,924,540 $ - $
Safety
Prior to On or After
Hire Date January 1, 2013 January 1, 2013
Benefit Formula 3.0%@50 2.7%@57
Benefit Vesting Schedule 5 Years of Service 5 Years of Service Benefit Payments Monthly for Life Monthly for Life
Retirement Age 50 50
Monthly Benefits, as a % of Eligible Compensation 3.000% 2.0% to 2.7% Required Employee Contribution Rates 9.000% 13.750%
Required Employer Contribution Rates:

Normal Cost Rate 22.780% 22.780%
Payment of Unfunded Liability 7,063,113 $ 15,563 $
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change in the rate.

Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute to the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2022, the VPU’s share of employer contributions made to the plans was $2,674,983.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(37)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions
Actuarial Assumptions
The net pension liability of each of the Plans is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

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

Discount Rate 7.15% 7.15%
Inflation 2.500% 2.500%
Payroll Growth 2.750% 2.750%
Projected Salary Increase (1) (1)
Mortality Rate Table (2) (2)
Post-Retirement Benefit Increase (3) (3)
(1) Varies by entry age and service.
(2) The mortality table used was developed based on CalPERS-specific data. 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 includes 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 Experience Study and Review of Actuarial Assumptions report from December 2017 that can be found on the CalPERS website.
(3) The lessor of contract COLA or 2.50% until Purchasing Power Protection Allowance Floor on purchasing power applies, 2.50% thereafter.

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

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(38)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Long-Term Expected Rate of Return (Continued)
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’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The expected real rates of return by asset class are as follows:

Assumed Real Return Real Return
Asset Years Years
Asset Class (a) Allocation 1 - 10 (b) 11+ (c)
Global Equity 50.00 % 4.80% 5.98%
Fixed Income 28.00 1.00% 2.62%
Inflation Assets - 0.77% 1.81%
Private Equity 8.00 6.30% 7.23%
Real Assets 13.00 3.75% 4.93%
Liquidity 1.00 0.00% -0.92%
Total 100.00 %
(a)
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period.

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

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(39)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
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 in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation 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 strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to

2.30% as recommended in the November 2021 CalPERS Experience Study and Review 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 account valuation repots for the June 30, 2022 measurement date.

Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the VPU
The VPU’s net pension liability for the Plans is measured as the proportionate share of the combined net pension liability of the City’s miscellaneous and safety agent multipleemployer plans. The VPU’s proportionate share of the combined net pension liability was based on the VPU’s current year share of contributions to the pension plans relative to the City’s total current year contributions to the pension plans.

The VPU’s proportionate share of the combined net pension liability for the pension plans as of the measurement date ended June 30, 2020 and 2021 were as follows:

Increase (Decrease)
Total Plan Net Pension
Pension Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 64,469,634 87,452,632 $ 22,982,998 $ 16.99% Balance at June 30, 2021 (MD) 103,984,555 120,548,668 16,564,112 18.82% Net Changes during 2020-21 33,096,036 $ 39,514,921 $ $ 1.83% (6,418,885)

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(40)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Pension Expense and Deferred Outflows and Inflows of Resources For the measurement period ended June 30, 2021, the VPU recognized its proportionate share of the combined pension expense of the Plans which totaled $3,003,538. At June 30, 2022, the VPU reported its proportionate share of the Plans’ combined deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension Contributions Subsequent
to Measurement Date 2,674,983 $ - $
Differences Between Actual and
Expected Experience 2,293,548 -
Net Differences Between Projected and
Actual Earnings on Plan Investments - (9,375,486)
Differences Between Employer Contributions
And Proportionate Share of Contributions - (950,132)
Change in Employer's Proportion 370,266 (97,852)
Total 5,338,797 $ (10,423,470) $
$2,674,983 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended June 30, Total
2023 $ (1,399,634)
2024 (1,599,037)
2025 (2,158,527)
2026 (2,602,458)
2027 -
Thereafter -

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(41)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the VPU’s proportionate share of the Plans’ combined net pension liability, calculated using a discount rate of 7.15%, as well as what the VPU’s proportionate share of the Plans’ combined net pension liability would be if it were calculated using a discount rate that is a 1-percentage point lower or a 1-percentage point higher than the current rate:

Total
1% Decrease 6.15%
Net Pension Liability $ 29,168,636
Current Discount Rate 7.15%
Net Pension Liability $ 16,564,112
1% Increase 8.15%
Net Pension Liability $ 6,222,202
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

Payable to the Pension Plan
At June 30, 2022, the VPU had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022.

NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) The other postemployment benefits (OPEB) described in the following paragraphs relate to the City’s OPEB plan. The VPU’s share of the net pension liability of the City’s OPEB Plan is reported as a cost-sharing plan in these financial statements since the VPU’s operations are handled by City employees who are eligible to participate in the City’s OPEB plan.

Benefits Provided
Retiree medical and dental benefits are established through the City’s Fringe Benefits and Salary Resolution as well as individual memoranda of understanding between the City and the City’s various employee bargaining groups. Generally, the City will provide postemployment benefit plan for the employee only to those who retire at age sixty (60) or later with twenty (20) years of continuous uninterrupted service, up to the age of sixty-five (65). Alternatively, employees who retire before the age of sixty (60) with twenty (20) years of continuous uninterrupted service, will be permitted to pay their medical and dental premium cost and upon reaching the age of sixty (60), the City will pay the premium for the medical and dental plans until they reach the age of sixty-five (65).

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(42)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Benefits Provided (Continued)
Resolution 2012-217 granted specific retiree medical benefits to employees who retired during the 2012-2013 fiscal year in order to provide an incentive for early retirement whereby the City authorized the payment of medical and dental insurance premiums for eligible retiring employees and their eligible dependents with at least ten (10) years of service plus 5% for each additional full year of service above the ten (10) years of service.

Resolution 2013-06 declared that the retiree medical benefits which had not been a vested right for employees will continue to be a nonvested right for employees who continue to be employed by the City on or after July 1, 2013, but will be a vested right for those who retire during the 2012-2013 fiscal year. The City’s plan is considered a substantive OPEB plan and the City recognizes costs in accordance with GASB Statement No 45. The City may terminate its unvested OPEB in the future.

Funding Policy and Contributions
The City has established an irrevocable OPEB trust with assets dedicated to paying future retiree medical benefits. The City intends to contribute 100% or more of the actuarially determined contribution for the explicit subsidy liability only. The portion of the liability due to the implicit subsidy is not prefunded but is paid as benefits come due. For the fiscal year ended June 30, 2022, the VPU’s proportionate share of contributions made was $551,938 ($289,520 contributed to the OPEB trust, $170,456 paid for retiree premiums, and the estimated implied subsidy of $91,962).

Net OPEB Liability
The City’s net OPEB liability is measured as of June 30, 2021, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2021. A summary of the principal assumptions and methods used to determine the total OPEB liability is shown on the next page.

Explicit subsidy benefit payments by employee group were allocated based on expected benefit payments. The following actuarial assumptions, applied to all periods included in the measurement unless otherwise specified:

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(43)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Actuarial Assumptions (Continued)
Funding Method Entry age normal level percent of pay cost method Inflation 2.25%
Salary Increases 2.75% annual increases
Long-Term Return on Assets 6.25% net of investment expenses Discount Rate 6.25%
Healthcare Cost Trend Rates 6.3% for FY2021, gradually decreasing over several decades to ultimate rate of 3.8% in FY76 and later
years
Mortality 2017 CalPERS Experience Study. Tables include 15 years of static mortality improvement using 90%
of scale MP-2016
Long-Term Expected Rate of Return
The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class.

These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the OPEB plan’s target asset allocation as of June 30, 2021 are summarized in the following table:

Long-Term
Target Expected Real
Asset Class Allocation Rate of Return
CERBT Strategy 1:

Equity 59.00 % 4.42%
Fixed Income 25.00 1.00%
TIPS 5.00 0.15%
Commodities 3.00 3.98%
REITs 8.00 1.73%
Total 100.00 %
Discount Rate
The discount rate used to measure the total OPEB liability was 6.25%. The projection of cash flows used to determine the discount rate assumed that City’s contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(44)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Allocation of the Net OPEB Liability
The VPU’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2020 and 2021 was as follows:

Increase (Decrease)
Total Plan Net OPEB
OPEB Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 1,189,602 4,622,908 $ 3,433,306 $ 16.99% Balance at June 30, 2021 (MD) 2,072,760 5,153,673 3,080,913 18.82% Net Changes during FY 2020-21 530,765 $ 883,158 $ $ 1.83% (352,393) Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the VPU’s proportionate share of the net OPEB liability if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate:

Discount Rate
1% Decrease Current Rate 1% Increase
(5.25%) (6.25%) (7.25%)
Net OPEB Liability $ 3,080,913 3,657,431 $ 2,596,467 $
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the VPU’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate:

Healthcare Trend Rate
1% Decrease Current Rate 1% Increase
Net OPEB Liability $ 3,080,913 2,837,276 $ 3,322,985 $
OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the VPU recognized its proportionate share of the OPEB expense(revenue) of $(158,635). At June 30, 2022, the VPU reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(45)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB (Continued)
Deferred Deferred
Outflows Inflows
of Resources of Resources
Contributions Between Measurement Date and
Reporting Date 551,938 $ - $
Difference Between Expected and Actual Liability 26,113 (664,032) Changes of Assumptions 84,092 (705,599)
Net Differences Between Projected and Actual
Earnings on Investments - (208,281)
Total 662,143 $ $ (1,577,912)
The $551,938 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Deferred
Outflows
(Inflows)
Fiscal Year Ending June 30, of Resources
2023 $ (439,431)
2024 (441,059)
2025 (438,463)
2026 (118,239)
2027 (14,058)
Thereafter (16,457)
Payable to the OPEB Plan
At June 30, 2022, the VPU had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(46)
NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS Bicent Agreements
Asset Sale
On December 13, 2007, the City entered into an Amended and Restated Purchase and Sale Agreement (the Bicent Agreement), with Bicent (California) Power LLC (Bicent), which is an affiliate of Bicent Holdings and Natural Gas Partners, to sell to Bicent the Malburg Generating Station (MGS) and the economic burdens and benefits of the City’s interests in 22 MW from the Hoover Dam Uprating Project for $287,500,000. This transaction closed on April 10, 2008.

Bicent agreed to sell the capacity and the energy of the MGS to the City on the terms set forth in a Power Purchase Tolling Agreement, by and between the City and Bicent, dated as of April 10, 2008 (the PPTA). City treated the PPTA as an asset lease-back transaction due to a 30-year ground lease between the City and BCM by deferring most of the gain from the sale of MGS to be amortized over the 15-year life of the PPTA. The City also deferred the gain from the CFD to be amortized over the 10-year life of the CFD.

On December 15, 2021, the City made the determination to reacquire MGS to achieve potential costs savings and other resource management benefits. In addition to the potential savings, the City expects there to be other benefits associated with the acquisition of MGS, which includes having control of the facility and the site, providing the City with flexibility with respect to the MGS operations and MGS’s role in the City’s resource portfolio. The City issued Electric System Revenue Bonds, 2021 Series A to finance the acquisition. (See Note 6)
Southern California Public Power Authority
In 1980, the City entered into a joint powers agreement with nine (9) Southern California cities and an irrigation district to form the Southern California Public Power Authority (the Authority). The Authority’s purpose is the planning, financing, acquiring, constructing, and operating of projects that generate or transmit electric energy for sale to its participants. The joint powers agreement has a term expiring in 2030 or such later date as all bonds and notes of SCPPA and interest thereon have been paid in full or adequate provisions for payments have been made. A copy of SCPPA’s audited financial statements can be reviewed on their website at www.scppa.org or can be obtained by written request at 225 South Lake Avenue, Suite 1250, Pasadena, CA 91101.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(47)
NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued)
Take or Pay Contract
The Authority’s interests or entitlements in natural gas, generation, and transmission projects are jointly owned with other utilities. Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity, or natural gas produced. Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The City has the following “take or pay” contract with the Authority:

Palo Verde Project
The Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (the Station), a nuclear-fired generating station near Phoenix, Arizona, from the Salt River Project Agricultural Improvement and Power District, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System. The City has a 4.9% entitlement share of the Authority’s interest in the station.

Between 1983 and 2008, the Authority issued $3.266 billion in debt of Power Project Revenue Bonds for the Station to finance the bonds and the purchase of the Authority’s share of the Station and related transmission rights. The bonds are not obligations of any member of the Authority or public agency other than the Authority.

Under a power sales contract with the Authority, the City is obligated on a “take or pay” basis for its proportionate share of power generated, as well as to make payments for its proportionate share of the operating and maintenance expenses of the Station, debt service on the bonds and any other debt, whether or not the project or any part thereof or its output is suspended, reduced or terminated. The City took its proportionate share of the power generated and its proportionate share of costs during the fiscal year 2022 was $3,320,768. The City expects no significant increases in costs related to its nuclear resources.

CITY OF VERNON

VERNON PUBLIC UTILITIES

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(48)
NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued)
Power Purchase Commitments
The Authority has entered into power purchase agreements with project participants.

These agreements are substantially “take-and-pay” contracts where there may be other obligations not associated with the delivery of energy. The City has entered into power purchase agreements with the Authority related to the following projects:

Astoria 2 Solar Project
On July 23, 2014, the Authority entered into a power purchase agreement with Recurrent Energy for solar energy from the Astoria 2 Solar Project. SCPPA is entitled to 35 MW of photovoltaic generating capacity from commercial operation to December 31, 2021 and 45 MW of generating capacity from January 1, 2022 until the expected expiration date of December 31, 2036. The commercial operation date was December 2016. Power and Water Resources Pooling Authority, Lodi, Corona, Moreno Valley, and Rancho Cucamonga, are each buying the output of a separate portion of the facility, which is located in Kern County, California. SCPPA has purchase options in the 10th, 15th, and 20th Contract Years. The project is forecasted to start at a capacity factor of 31% with a 0.5% annual degradation. ACES Power Marketing is the third-party scheduling coordinator for the project. The City contracted to purchase 57.1429% until December 31, 2021, and 66.6667% thereafter, of the output. The City’s proportionate share of costs during the current fiscal year was $2,250,667.

Puente Hills Landfill Gas-to-Energy Project
On June 25, 2014, the Authority entered into a power purchase agreement with County Sanitation District No. 2 of Los Angeles County for 46 MW of the electric generation from a landfill gas-to-energy facility, located at Whittier, California. The project began deliveries to the Authority on January 1, 2017 for a term of 10 years.

The City contracted to purchase 23.2558% of the output. The City’s proportionate share of costs during the current fiscal year was $1,007,652.

Antelope DSR 1 Solar Project
On July 16, 2015, the Authority, entered into a power purchase agreement with Antelope DSR 1, LLC for 50 MW solar photovoltaic generating capacity from the Antelope DSR 1 Solar Facility. The facility is located near Lancaster, California, and commercial operation occurred on December 16, 2016 for a term of 20 years. The City contracted to purchase 50.00% of the output. The City’s proportionate share of costs during the current fiscal year was $1,192,621.

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF VERNON

VERNON PUBLIC UTILITIES

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(49)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 Plan’s Proportion of the
Net Pension Liability 18.82% 16.99% 15.47% 14.86% 15.55% 15.41% Plan’s Proportionate Share of the
Net Pension Liability 16,563,816 $ 22,982,998 $ 18,692,374 $ 16,866,107 $ 17,052,279 $ 14,675,830 $ Plan’s Covered Payroll 3,902,610 4,203,972 4,418,536 4,577,147 4,210,103 2,026,477 Plan’s Proportionate Share of the
Net Pension Liability as a
Percentage of Covered Payroll 424.43% 546.70% 423.04% 368.49% 405.03% 724.20% Plan Fiduciary Net Position as a
Percentage of the Total
Pension Liability 85.45% 74.79% 76.15% 77.68% 77.85% 78.91% Notes to Schedule:

Benefit Changes:

There were no changes in benefits.

Changes in Assumptions:

From fiscal year June 30, 2017 to June 30, 2018:

The discount rate was reduced from 7.65% to 7.15%.

From fiscal year June 30, 2018 to June 30, 2019:

There were no significant changes in assumptions.

From fiscal year June 30, 2019 to June 30, 2020:

There were no significant changes in assumptions.

From fiscal year June 30, 2020 to June 30, 2021:

The inflation rate was increased from 2.5% to 2.625%
The payroll growth rate was reduced from 3.00% to 2.875%.

From fiscal year June 30, 2021 to June 30, 2022:

The inflation rate was decreased from 2.625% to 2.5%
The payroll growth rate was reduced from 2.875% to 2.75%.

The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the VPU; therefore only six years are shown.

CITY OF VERNON

VERNON PUBLIC UTILITIES

SCHEDULE OF PLAN CONTRIBUTIONS
CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(50)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined
Contribution 2,674,983 $ 2,145,491 $ 1,908,522 $ 1,622,690 $ 1,475,490 $ 1,403,235 $ Contributions in Relation to the
Actuarially Determined
Contribution (2,674,983) (2,145,491) (1,908,522) (1,622,690) (1,475,490) (1,403,235) Contribution:

Deficiency (Excess) - $ - $ - $ - $ - $ - $
Covered Payroll 4,767,901 $ 3,902,610 $ 4,203,972 $ 4,418,536 $ 4,577,147 $ 4,210,103 $ Contributions as a Percentage
of Covered Payroll 56.10% 54.98% 45.40% 36.72% 32.24% 33.33% Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 6/30/2014 Methods and Assumptions Used to
Determine Contribution Rates:

Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Entry Age Amortization Method (1) (1) (1) (1) (1) (1)
Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Inflation 2.625% 2.625% 2.625% 2.75% 2.75% 2.75%
Salary Increases (2) (2) (2) (2) (2) (2)
Investment Rate of Return 7.00% (3) 7.25% (3) 7.25% (3) 7.375% (3) 7.50% (3) 7.50% (3) Mortality (4) (4) (4) (4) (4) (4)
(1) Level percentage of payroll, closed
(2) Depending on age, service, and type of employment
(3) Net of pension plan investment expense, including inflation (4) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board.
* Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the VPU; therefore only six years are shown.

CITY OF VERNON

VERNON PUBLIC UTILITIES

SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS *
(51)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the
Net OPEB Liability 18.82% 16.99% 15.47% 14.86% 10.71%
Plan’s Proportionate Share of the
Net OPEB Liability 3,080,913 $ 3,433,306 $ 3,391,408 $ 3,432,725 $ 3,887,475 $ Plan’s Covered-Employee Payroll 5,385,241 4,944,915 5,228,211 3,587,387 3,588,945 Plan’s Proportionate Share of the
Net OPEB Liability as a Percentage
of Covered-Employee Payroll 57.21% 69.43% 64.87% 95.69% 108.32% Plan Fiduciary Net Position as a
Percentage of the Total OPEB Liability 40.20% 25.70% 16.30% 8.62% 2.83% Notes to Schedule:

Changes in Assumptions:
* Fiscal year 2018 was the first year of implementation; therefore only five years are shown.

In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after age 65.

The discount rate was changed from 2.85% to 3.58% for the measurement period ended June 30, 2017. The discount rate for the measurement periods ended June 30, 2018 and 2019 was 6.50%. The discount rate for the measurement period ended June 30, 2020 was reduced to 6.25%.

The mortality, retirement, disability, and termination rates for the measurement periods ended June 30, 2017 and 2018 were based on the CalPERS 1997-2011 Experience Study and CalPERS 1997-2015 Experience Study, respectively.

The mortality improvement rates for the measurement periods ended June 30, 2017 and 2018 were based on the Scale MP-2016 and Scale-2018, respectively.

CITY OF VERNON

VERNON PUBLIC UTILITIES

SCHEDULE OF OPEB CONTRIBUTIONS
LAST TEN FISCAL YEARS *
(52)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined
Contribution 289,525 $ 261,372 $ 298,886 $ 400,166 $ 288,398 $ Contributions in Relation to the
Actuarially Determined
Contribution (551,938) (531,940) (605,820) (444,230) (221,199) Contribution:

Deficiency (Excess) (262,413) $ (270,568) $ (306,934) $ (44,064) $ 67,199 $ Covered Payroll 5,965,311 $ 5,385,241 $ 4,944,915 $ 5,228,211 $ 3,587,387 $ Contributions as a Percentage
of Covered Payroll 4.85% 4.85% 6.04% 7.65% 8.04%
Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2018 6/30/2016 6/30/2016 Methods and Assumptions Used to
Determine Contribution Rates:

Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Amortization Method (1) (1) (1) (1) (1)
Amortization Period 28 years 28 years 27 years 27 Years 29 Years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75%
Healthcare Trend Rates (7) (6) (3) (3) (2)
Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5) (5) (5) (5) (4)
(1) Level percentage of payroll, closed.
(2) 8.50% trending down to 5.00%.
(3) 6.90% trending down to 4.00%.
(4) CalPERS December 2014 experience study
(5) CalPERS December 2017 experience study
(6) 6.70% trending down to 3.80%.
(7) 6.30% trending down to 3.80%.
* Fiscal year 2018 was the first year of implementation; therefore five years year are shown.

SUPPLEMENTARY INFORMATION

CITY OF VERNON

VERNON PUBLIC UTILITIES

COMBINING STATEMENT OF NET POSITION
JUNE 30, 2022
(53)
Electric Gas Water Fiber Optics Eliminating
Fund Fund Fund Fund Entry Totals
ASSETS
Current Assets:

Cash and Cash Equivalents 130,758,591 $ 8,692,417 $ 17,015,777 $ 493,854 $ - $ 156,960,639 $ Accounts Receivable, Net of
Allowance 12,396,047 580,100 1,141,938 144,253 - 14,262,338 Accrued Unbilled Revenue 16,411,782 1,240,987 1,373,195 - - 19,025,964 Accrued Interest Receivable 84,749 - 4,448 - - 89,197
Due from Other City Funds 70,399 - - - (70,399) -
Prepaid Items 17,666 - - - - 17,666
Prepaid Natural Gas 636,909 - - - - 636,909
Total Current Assets 160,376,143 10,513,504 19,535,358 638,107 (70,399) 190,992,713 Noncurrent Assets:

Restricted Cash and Cash
Equivalents 39,025,025 - 7,358,059 - - 46,383,084
Advances to Other City Funds 27,079,890 - 202,798 - (27,079,890) 202,798 Prepaid Items 994,736 - - - - 994,736
Deposits 1,201,423 - - - - 1,201,423
Capital Assets:

Nondepreciable 63,421,951 - 7,381,939 - - 70,803,890
Depreciable, Net 362,295,361 15,379,161 8,886,072 1,063,160 - 387,623,754 Total Noncurrent Assets 494,018,386 15,379,161 23,828,868 1,063,160 (27,079,890) 507,209,685 Total Assets 654,394,529 25,892,665 43,364,226 1,701,267 (27,150,289) 698,202,398

DEFERRED OUTFLOWS OF

RESOURCES
Deferred Outflows Related to Pensions 4,016,377 397,282 917,279 7,859 - 5,338,797 Deferred Outflows Related to OPEB
Liability 498,130 49,273 113,765 975 - 662,143
Deferred Amount on Debt Refunding 1,933,345 - - - - 1,933,345 Total Deferred Outflows of
Resources 6,447,852 446,555 1,031,044 8,834 - 7,934,285

CITY OF VERNON

VERNON PUBLIC UTILITIES

COMBINING STATEMENT OF NET POSITION (CONTINUED)
JUNE 30, 2022
(54)
Electric Gas Water Fiber Optics Eliminating
Fund Fund Fund Fund Entry Totals

LIABILITIES
Current Liabilities:

Accounts Payable 15,828,391 $ 215,122 $ 1,415,262 $ 13,734 $ - $ 17,472,509 $ Accrued Wages and Benefits 333,914 28,032 44,295 363 - 406,604 Due to Other City Funds 2,965,077 71,583 - - (70,399) 2,966,261 Customer Deposits 425,426 13,558 61,184 - - 500,168
Bond Interest Payable 4,969,736 - 242,490 - - 5,212,226 Bonds Payable 50,110,000 - 250,000 - - 50,360,000
Note Payable - - 139,535 - - 139,535
Compensated Absences 369,608 8,377 28,069 81 - 406,135
Total Current Liabilities 75,002,152 336,672 2,180,835 14,178 (70,399) 77,463,438 Noncurrent Liabilities:

Advances from Other City Funds - 23,226,198 - 3,853,692 (27,079,890) - Bonds Payable 397,826,476 - 14,885,833 - - 412,712,309
Note Payable - - 1,081,395 - - 1,081,395
Compensated Absences 739,215 16,754 56,139 162 - 812,270 Net Other Postemployment Benefit
Liability 2,317,770 229,264 529,343 4,536 - 3,080,913
Net Pension Liability 12,461,180 1,232,605 2,845,943 24,384 - 16,564,112 Total Noncurrent Liabilities 413,344,641 24,704,821 19,398,653 3,882,774 (27,079,890) 434,250,999 Total Liabilities 488,346,793 25,041,493 21,579,488 3,896,952 (27,150,289) 511,714,437

DEFERRED INFLOWS OF

RESOURCES
Deferred Inflows Related to Pensions 7,841,575 775,654 1,790,896 15,345 - 10,423,470 Deferred Inflows Related to OPEB
Liability 1,187,063 117,419 271,107 2,323 - 1,577,912
Total Deferred Inflows of
Resources 9,028,638 893,073 2,062,003 17,668 - 12,001,382

NET POSITION
Net Investment in Capital Assets 145,563,396 15,301,360 6,869,387 1,053,694 - 168,787,837 Restricted for Debt Service 32,836,544 - - - - 32,836,544 Unrestricted (Deficit) (14,932,990) (14,896,706) 13,884,392 (3,258,213) - (19,203,517) Total Net Position 163,466,950 $ 404,654 $ 20,753,779 $ (2,204,519) $ - $ 182,420,864 $

CITY OF VERNON

VERNON PUBLIC UTILITIES

COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022
(55)
Electric Gas Water Fiber Optics
Fund Fund Fund Fund Totals

OPERATING REVENUES
Charges for Services 208,539,519 $ 18,705,573 $ 10,845,652 $ 480,014 $ 238,570,758 $ Total Operating Revenues 208,539,519 18,705,573 10,845,652 480,014 238,570,758

OPERATING EXPENSES
Cost of Sales 144,582,543 17,765,508 7,743,964 222,558 170,314,573 Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Total Operating Expenses 161,093,464 18,472,543 8,244,066 408,710 188,218,783 OPERATING INCOME 233,030 47,446,055 2,601,586 71,304 50,351,975

NONOPERATING REVENUES
(EXPENSES)
Intergovernmental 665,887 5,029 194,487 - 865,403
Investment Income 269,257 4,128 11,991 246 285,622
Net Decrease in Fair Value of
Investments (8,231) - - - (8,231)
Interest Expense (13,599,589) - (563,895) - (14,163,484) Loss on Disposition of Assets (1,900,009) (6,076) (409,841) - (2,315,926) Total Nonoperating
Revenues (Expenses) (14,572,685) 3,081 (767,258) 246 (15,336,616) CHANGE IN NET POSITION 236,111 32,873,370 1,834,328 71,550 35,015,359 Net Position (Deficit) - Beginning
of Year 130,593,580 168,543 18,919,451 (2,276,069) 147,405,505

NET POSITION (DEFICIT) -
END OF YEAR $ 404,654 163,466,950 $ 20,753,779 $ (2,204,519) $ 182,420,864 $

CITY OF VERNON

VERNON PUBLIC UTILITIES

COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2022
(56)
Electric Gas Water Fiber Optics
Fund Fund Fund Fund Totals

CASH FLOWS FROM OPERATING

ACTIVITIES
Cash Received from Customers 199,972,221 $ 18,586,393 $ 10,427,677 $ 367,504 $ 229,353,795 $ Cash Paid to Suppliers for Goods and Services (133,793,435) (16,770,406) (6,851,398) (242,584) (157,657,823) Cash Paid to Employees for Services (3,090,696) (724,165) (1,818,089) (168,276) (5,801,226) Cash Paid to City for Services (5,214,961) - - - (5,214,961) Net Cash Provided (Used) by Operating
Activities 57,873,129 1,091,822 1,758,190 (43,356) 60,679,785

CASH FLOWS FROM CAPITAL AND

RELATED FINANCING ACTIVITIES
Repayment of Bonds (34,975,000) - (240,000) - (35,215,000) Issuance of Bonds 235,885,000 - - - 235,885,000
Bond Premiums 38,266,557 - - - 38,266,557
Payment to Refunding Bond Escrow Agent (62,999,903) - - - (62,999,903) Bond Interest Paid (16,875,267) - (587,975) - (17,463,242) Payment of Note Payable - - (139,535) - (139,535)
Net Acquisition of Capital Assets (216,887,677) (261,506) (4,033,299) (211,814) (221,394,296) Net Cash Used by Capital
and Related Financing Activities (57,586,290) (261,506) (5,000,809) (211,814) (63,060,419)

CASH FLOWS FROM NONCAPITAL

FINANCING ACTIVITIES
Grant Revenue Received 665,887 5,029 194,487 - 865,403
Payment from (Provided to) Other City Funds 114,065 (59) 1,915,195 (114,006) 1,915,195 Net Cash Provided (Used) by
Noncapital Financing Activities 779,952 4,970 2,109,682 (114,006) 2,780,598

CASH FLOWS FROM INVESTING

ACTIVITIES
Investment Income 178,598 4,128 7,583 246 190,555
Net Cash Provided by Investing Activities 178,598 4,128 7,583 246 190,555

CHANGE IN CASH AND CASH
EQUIVALENTS 839,414 1,245,389 (1,125,354) (368,930) 590,519 Cash and Cash Equivalents - Beginning of Year 168,538,227 7,853,003 25,499,190 862,784 202,753,204

CASH AND CASH EQUIVALENTS -
END OF YEAR $ 8,692,417 169,783,616 $ 24,373,836 $ 493,854 $ 203,343,723 $

COMPOSITION OF CASH AND CASH

EQUIVALENTS
Cash and Cash Equivalents 130,758,591 $ 8,692,417 $ 17,015,777 $ 493,854 $ 156,960,639 $ Restricted Cash and Investments 39,025,025 - 7,358,059 - 46,383,084 Total 169,783,616 $ 8,692,417 $ 24,373,836 $ 493,854 $ 203,343,723 $

CITY OF VERNON

VERNON PUBLIC UTILITIES

COMBINING STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30, 2022
(57)
Electric Gas Water Fiber Optics
Fund Fund Fund Fund Totals

RECONCILIATION OF OPERATING

INCOME TO NET CASH

PROVIDED (USED) BY OPERATING

ACTIVITIES
Operating Income $ 47,446,055 $ 233,030 $ 2,601,586 $ 71,304 $ 50,351,975 Adjustments to Reconcile Operating Income
to Net Cash Provided (Used) by
Operating Activities:

Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Deferred gain from sale of generation assets (6,555,916) - - - (6,555,916) Change in Operating Assets and Liabilities:

Accounts Receivable (6,672,318) (216,191) (164,414) (112,510) (7,165,433) Accrued Unbilled Revenue (1,889,809) 97,011 (254,361) - (2,047,159) Due from Other Funds 523,087 - - - 523,087
Prepaid Expenses and Deposits (104,017) - - - (104,017) Prepaid Natural Gas (636,909) - - - (636,909)
Deferred Outflows of Resources (564,694) 5,199 102,727 37,961 (418,807) Accounts Payable 3,257,996 164,516 (1,292) (27,752) 3,393,468 Accrued Wages and Benefits (115,466) (22,058) (67,916) (4,087) (209,527) Due to Other City Funds 2,965,077 71,583 (593,486) - 2,443,174 Customer Deposits (5,171) - 800 - (4,371)
Compensated Absences 56,427 1,347 (18,983) (2,289) 36,502 Other Postemployment Benefit Liability (111,573) (48,588) (167,986) (24,246) (352,393) Net Pension Liability (3,801,160) (627,374) (1,822,068) (168,284) (6,418,886) Deferred Inflows of Resources 7,570,599 726,312 1,643,481 395 9,940,787 Net Cash Provided (Used) by
Operating Activities $ 57,873,129 $ 1,091,822 $ 1,758,190 $ (43,356) $ 60,679,785

CITY OF VERNON

ELECTRIC FUND
(AN ENTERPRISE FUND OF THE

CITY OF VERNON)

FINANCIAL STATEMENTS AND

SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2022

CITY OF VERNON

ELECTRIC FUND

TABLE OF CONTENTS
YEAR ENDED JUNE 30, 2022

INTRODUCTORY SECTION

A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC
UTILITIES i

FINANCIAL SECTION
INDEPENDENT AUDITORS’ REPORT 1
MANAGEMENTS’ DISCUSSION AND ANALYSIS (Required Supplementary Information – Unaudited) 4

BASIC FINANCIAL STATEMENTS
STATEMENT OF NET POSITION 10

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET
POSITION 12
STATEMENT OF CASH FLOWS 13
NOTES TO BASIC FINANCIAL STATEMENTS 15

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION
LIABILITY – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 48
SCHEDULE OF PLAN CONTRIBUTIONS – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 49
SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY 50 SCHEDULE OF OPEB CONTRIBUTIONS 51

INTRODUCTORY SECTION
Vernon Public Utilities
4305 Santa Fe Avenue, Vernon, CA, 90058
323.583.8811 | CityofVernon.org
Message from the General Manager
As an essential resource to all customers, our job is to provide dependable, high-quality electric, water, natural gas, and fiber optic services at costeffective rates with the highest standards for reliability. We ensure that electricity will stay on when needed, customers have safe, clean drinking water, there is a reliable supply of natural gas to meet demand, and our fiber services offer competitive rates and the latest technology. Our mission focuses on reliably providing the lowest electric rates in California by 2030.

As a municipally owned utility, every customer is a stakeholder in Vernon Public Utilities (VPU). VPU enjoys the continued support of the City Council, which has approved key strategic initiatives for sustained success. These initiatives include Renewable Energy Projects, such as the Daggett Solar Project (operational in September 2023) and the Sapphire Solar and Storage Facility Project (operational in December 2025). With Council support, along with City Administration, VPU remains focused on providing our customers with reliable services and competitive rates.

Despite the recent supply chain issues and higher costs for energy, materials, and supplies, which are critical to our operations, VPU is committed to maintaining a strong financial and operational position for the future. Our strategy focuses on the following initiatives for financial and operational flexibility:

1. Electric load growth with a diversified customer base which includes green commerce.

2. A diversified Energy Resource portfolio, which includes meeting California’s Renewable Portfolio Standard Targets as outlined in SB100. Specifically, (i) 2027 - 52%, (ii) 2030 - 60%, and (iii) 2045 - 100% Carbon Neutral. VPU is in the process of updating its Integrated Resource Plan, which focuses on providing direction for reliability, affordability, and meeting renewable energy requirements.

3. Optimizing the operating profile for the Malburg Generating Station (MGS) for operational savings and continued coordination with the CAISO to prevent statewide rolling blackouts and requests to run MGS when energy is needed most across the electric grid.

4. Continued strategic capital investment in electric, water, natural gas, and fiber optic infrastructure to support high-quality and reliable services. VPU continues to be one of the most reliable electric systems compared to other utilities. VPU is a three-time recipient of the RP3 Diamond Level Award, the highest reliability award from APPA, which reflects our continued investment in utility infrastructure and commitment to safety and workforce development.

5. A focus on the utility’s financial strength, including improving key financial metrics used by the rating agencies such as Moody’s and S&P Global Ratings, including the implementation of a Utility Financial Reserves Policy, and keeping rates competitive to ensure businesses can grow in Vernon.

As we enter 2023, I am optimistic about the future. VPU is focused on providing reliable and competitive electric, water, natural gas, and fiber optic services. In that pursuit, we will excel today and in the future.

Sincerely,
Todd Dusenberry
General Manager
(i)

FINANCIAL SECTION
CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.

CliftonLarsonAllen LLP
CLAconnect.com
(1)
INDEPENDENT AUDITORS’ REPORT
Honorable Mayor and the Members of the City Council
City of Vernon, California
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying financial statements of the Electric Fund of the City of Vernon (Electric Fund), an enterprise fund of the City of Vernon, California (City), which comprise the statement of net position as of June 30, 2022, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Electric Fund’s basic financial statements as listed in the table of contents.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Electric Fund as of June 30, 2022, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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

Emphasis of Matter
As discussed in Note 1, the financial statements present only the Electric Enterprise Fund and do not purport to, and do not, present fairly the financial position of the City of Vernon as of June 30, 2022, and the changes in its financial position and 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.

Honorable Mayor and the Members of the City Council
City of Vernon, California
(2)
Responsibilities of Management 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 the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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

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

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

Honorable Mayor and the Members of the City Council
City of Vernon, California
(3)
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of proportionate share of the City’s net pension liability, schedule of plan contributions, schedule of proportionate share of the City’s net OPEB liability, and schedule of OPEB contributions, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information
Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditors’ report thereon. Our opinion on the basic financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 8, 2023, on our consideration of the Electric Fund’s internal control over the financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Electric Fund’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Electric Fund’s internal control over financial reporting and compliance.

CliftonLarsonAllen LLP
Irvine, California
August 8, 2023

CITY OF VERNON

ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(4)
The management of the Electric Fund of the City of Vernon (“the City”), offers the following overview and analysis of the basic financial statements of the Electric Fund for the fiscal year ended June 30, 2022. Management encourages readers to utilize information in the Management’s Discussion and Analysis (MD&A) in conjunction with the accompanying basic financial statements.

OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to the Electric Fund’s basic financial statements.

Included as part of the financial statements are three separate statements.

The statement of fund net position presents information on the Electric Fund’s total assets and deferred outflows of resources and total liabilities and deferred inflows of resources, with the difference between the two reported as net position.

The statement of revenues, expenses, and changes in fund net position presents information showing how the Electric Fund's net position changed during the most recent fiscal year. Financial results are recorded using the accrual basis of accounting. Under this method, all changes in net position are reported as soon as the underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses reported in this statement for some items may affect cash flows in a future fiscal period (examples include billed but uncollected revenues and employee earned but unused vacation leave).

The statement of cash flows reports cash receipts, cash payments, and net changes in cash and cash equivalents from operations, noncapital financing, capital and related financing, and investing activities.

The notes to the financial statements provide additional information that is essential.

CITY OF VERNON

ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(5)

FINANCIAL HIGHLIGHTS
Fund Net Position
The table below summarizes the Electric Fund’s net position as of the current fiscal year ended June 30, 2022, and prior fiscal year ended June 30, 2021. The details of the current year’s summary can be found on page 10-11 of this report.

City of Vernon
Electric Fund
Fund Net Position
June 30, 2022 and 2021
The category of the Electric Fund’s net position with the largest balance totaling $145.6 million represents resources that are invested in capital assets, net of the related debt.

The second category restricted for debt services totaling $32.8 million represents resources that are subject to external restrictions on how they can be used, in this case bond debt.

The remaining category of net position, totaling ($14.9) million represents a deficit in the unrestricted net position that is expected to be recovered from the Electric Fund’s estimated load growth, future revenues, including rate adjustments, and control of operating expenses.

CITY OF VERNON

ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(6)
Fund Net Position (Continued):
 Current assets increased by $16 million from the prior year while restricted and other assets decreased by $6 million from the prior year due to the drawdowns funding the electric capital improvement projects.
 Capital assets increased by $198.5 million from the prior year mainly due to the continued capital investment in the Electric Fund infrastructure.  Current liabilities increased by $29.8 million from the prior year while long-term liabilities increased by $147 million from the prior year mainly due to higher debt service requirements.  The total net position of the Electric Fund increased by $32.9 million from the prior year primarily due to a $21.3 million increase in net investment in capital assets, an increase of $8.9 million in debt service restrictions, and an increase in the unrestricted (deficit) of $2.7 million.

CITY OF VERNON

ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(7)
Changes in Fund Net Position
The table below summarizes the Electric Fund’s changes in net position over the current and prior fiscal years. The details of the current year’s changes in net position can be found on page 12 of this report.

City of Vernon
Electric Fund
Changes in Fund Net Position
June 30, 2022 and 2021
The Electric Fund’s operating income of $47.4 million, less non-operating revenue (expenses) of $14.6 million resulted in an increase in net position by $32.8 million during the current year. The Electric Fund’s $30.7 million increase in its change in net position is primarily due to higher billed amount to customers of $19.5 million or 10%, higher consumption of 18.0 or 1%, and lower cost of sale (operating expenses) of $11.2 million or 7%.

CITY OF VERNON

ELECTRIC FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(8)

CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets
The Electric Fund’s investment in capital assets as of June 30, 2022 amounted to $425.7 million (net of accumulated depreciation). This investment in capital assets includes land, intangible assets, construction in progress, building, utility system improvements, and machinery and equipment. The total increase in the Electric Fund's investment in capital assets for the current fiscal year was $216.9 million, offset by the depreciation of $16.5 million representing total capital assets, net of $200.4 million.

Additional information on the Electric Fund's capital assets can be found in Note 5 of this report.

Outstanding debt
As of June 30, 2022, the following debt remains outstanding:
 $ 37,895,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A  $ 11,505,000 City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B  $111,720,000 City of Vernon Electric System Revenue Bonds, 2015 Taxable Series A  $ 19,305,000 City of Vernon Electric System Revenue Bonds, 2020 Series A  $173,815,000 City of Vernon Electric System Revenue Bonds, 2021 Taxable Series A  $ 52,070,000 City of Vernon Electric System Revenue Bonds, 2022 Taxable Series A The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide funds to (i) finance the cost of certain capital improvements to the City’s Electric System, (ii) fund a deposit to the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds.

The City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B were issued to provide funds to (i) refund the $28,680,000 aggregate principal amount of 2009 Bonds maturing on August 1, 2012, (ii) to pay a portion of the Costs of the 2012 Project, and (iii) to pay costs of issuance of the 2012 Taxable Series B Bonds.

The City of Vernon Electric System Revenue Bonds, 2015 Taxable Series A were issued to provide funds to (i) refund a portion of the Outstanding Electric System Revenue Bonds, 2009 Series A; (ii) finance the costs of certain capital improvements to the City’s Electric System by reimbursing the Electric System for the prior payment of such costs from the Light and Power Fund; (iii) fund a deposit to the Debt Service Reserve Fund; and (iv) pay costs of issuance of the 2015 Bonds.

The City of Vernon Electric System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Electric System of the City, (ii) to refund all of the City’s outstanding Electric System Revenue Bonds, 2009 Series A, and (iii) to pay costs of issuance of the 2020 Bonds.

The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to provide funds: (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the city limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights, (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement, and (iii) to pay costs of issuance of the 2021 Bonds.

CITY OF VERNON

ELECTRIC FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(9)
The City of Vernon Electric System Revenue Bonds, 2022 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue Bonds, 2012 Taxable Series B and (ii) to pay costs of issuance of the 2022 Bonds.

As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City were BBB+/Stable rating by S&P and Baa1/Stable rating by Moody’s.

Additional information on the Electric Fund's long-term debt can be found in Note 6 of this report.

ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES
These factors were considered in preparing the Electric Fund’s FY 2022-23 operating and capital budgets:
 VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability.  VPU continues to respond to inflation and supply chain issues, including energy, natural gas, materials and supplies, and construction costs to maintain generation, transmission, and distribution infrastructure to continue to provide exceptionally reliable service.  Continue to implement VPU’s capital plan, manage operating and maintenance expenses, update the 2018 Integrated Resource Plan, and complete an Electric Cost of Service Analysis and Rate Design study.

REQUESTS FOR INFORMATION
This report is designed to provide an overview of the Electric Fund's FY 2021-22 results. Questions concerning the fund’s financial or operating results can be addressed to Scott Williams, Director of Finance, [email protected], City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.

CITY OF VERNON

ELECTRIC FUND

STATEMENT OF NET POSITION
JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(10)
ASSETS
Current Assets:

Cash and Cash Equivalents 130,758,591 $
Accounts Receivable, Net of Allowance of $971,686 12,396,047 Accrued Unbilled Revenue 16,411,782
Accrued Interest Receivable 84,749
Due from Other City Funds 70,399
Prepaid Items 17,666
Inventories 636,909
Total Current Assets 160,376,143
Noncurrent Assets:

Restricted Cash and Cash Equivalents 39,025,025
Advances to Other City Funds 27,079,890
Prepaid Items 994,736
Deposits 1,201,423
Capital Assets:

Nondepreciable 63,421,951
Depreciable, Net 362,295,361
Total Noncurrent Assets 494,018,386
Total Assets 654,394,529

DEFERRED OUTFLOWS OF RESOURCES
Deferred Outflows Related to Pensions 4,016,377
Deferred Outflows Related to OPEB Liability 498,130
Deferred Amount on Refunding 1,933,345
Total Deferred Outflows of Resources 6,447,852

CITY OF VERNON

ELECTRIC FUND

STATEMENT OF NET POSITION (CONTINUED)
JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(11)

LIABILITIES
Current Liabilities:

Accounts Payable $ 15,828,391
Accrued Wages and Benefits 333,914
Due to Other City Funds 2,965,077
Customer Deposits 425,426
Bond Interest Payable 4,969,736
Bonds Payable, Net 50,110,000
Compensated Absences 369,608
Total Current Liabilities 75,002,152
Noncurrent Liabilities:

Bonds Payable, Net 397,826,476
Compensated Absences 739,215
Other Postemployment Benefit Liability 2,317,770
Net Pension Liability 12,461,180
Total Noncurrent Liabilities 413,344,641
Total Liabilities 488,346,793

DEFERRED INFLOWS OF RESOURCES
Deferred Inflows Related to Pensions 7,841,575
Deferred Inflows Related to OPEB Liability 1,187,063
Total Deferred Inflows of Resources 9,028,638

NET POSITION
Net Investment in Capital Assets 145,563,396
Restricted for Debt Service 32,836,544
Unrestricted (Deficit) (14,932,990)
Total Net Position 163,466,950 $

CITY OF VERNON

ELECTRIC FUND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(12)

OPERATING REVENUES
Charges for Services $ 208,539,519
Total Operating Revenue 208,539,519

OPERATING EXPENSES
Cost of Sales 144,582,543
Depreciation 16,510,921
Total Operating Expenses 161,093,464
OPERATING INCOME 47,446,055

NONOPERATING REVENUES (EXPENSES)
Intergovernmental 665,887
Investment Income 269,257
Net Decrease in Fair Value of Investments (8,231)
Interest Expense (13,599,589)
Loss on Disposition of Assets (1,900,009)
Total Nonoperating Revenues (Expenses) (14,572,685)
CHANGE IN NET POSITION 32,873,370
Net Position - Beginning of Year 130,593,580
NET POSITION - END OF YEAR $ 163,466,950

CITY OF VERNON

ELECTRIC FUND

STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(13)

CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers 199,972,221 $
Cash Paid to Suppliers for Goods and Services (133,793,435) Cash Paid to Employees for Services (3,090,696)
Cash Paid to City for Services (5,214,961)
Net Cash Provided by Operating Activities 57,873,129

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of Bonds (34,975,000)
Issuance of Bonds 235,885,000
Bond Premiums 38,266,557
Payment to Refunding Bond Escrow Agent (62,999,903)
Bond Interest Paid (16,875,267)
Net Acquisition of Capital Assets (216,887,677)
Net Cash Used by Capital and Related Financing Activities (57,586,290)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Grant Revenue Received 665,887
Payments from Other City Funds 114,065
Net Cash Provided by Noncapital Financing Activities 779,952

CASH FLOWS FROM INVESTING ACTIVITIES
Investment Income 178,598
Net Cash Provided by Investing Activities 178,598
CHANGE IN CASH AND CASH EQUIVALENTS 1,245,389
Cash and Cash Equivalents - Beginning of Year 168,538,227 CASH AND CASH EQUIVALENTS - END OF YEAR $ 169,783,616

COMPOSITION OF CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents 130,758,591 $
Restricted Cash and Investments 39,025,025
Total $ 169,783,616

CITY OF VERNON

ELECTRIC FUND

STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(14)

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES
Operating Income $ 47,446,055
Adjustments to Reconcile Operating Income
to Net Cash Provided by Operating Activities:

Depreciation 16,510,921
Deferred Gain from Sale of Generation Assets (6,555,916) Change in Operating Assets and Liabilities:

Accounts Receivable (6,672,318)
Accrued Unbilled Revenue (1,889,809)
Due from Other City Funds 523,087
Prepaid Expenses and Deposits (104,017)
Prepaid Natural Gas (636,909)
Deferred Outflows of Resources (564,694)
Accounts Payable 3,257,996
Accrued Wages and Benefits (115,466)
Due to Other City Funds 2,965,077
Customer Deposits (5,171)
Compensated Absences 56,427
Other Postemployment Benefit Liability (111,573)
Net Pension Liability (3,801,160)
Deferred Inflows of Resources 7,570,599
Net Cash Provided by Operating Activities 57,873,129 $

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(15)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present only the Electric Enterprise Fund (the Electric Fund) of the City of Vernon, California (the City), and do not present fairly the financial position and results of the operations of the City. The Electric Fund accounts for the independent operations and the maintenance of the City’s electric utility. The Electric Fund is administered as an independent fiscal and accounting entity with a self-balancing set of accounts recording resources, related liabilities, obligations, reserves, and equities, segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.

For additional information regarding the City of Vernon, refer to the City’s annual financial report.

The financial statements of the Electric Fund have been prepared in conformity with the U.S. generally accepted accounting principles (U.S. GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Electric Fund’s significant accounting policies are described below.

A. Basis of Presentation
The Electric Fund’s financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

The Electric Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues, such as charges for services, result from exchange transactions associated with the sale of electricity and gas. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses.

B. Pooled Cash
Part of the Electric Fund’s operating cash balance is pooled with various other City funds for deposit purposes. The share of each fund in the pooled cash account is recorded in each of the fund’s books of accounts, and interest income is apportioned to the participating funds based on the relationship of their average monthly balances to the total of the pooled cash.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(16)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Electric Fund considers all highly liquid investments (including restricted cash and investments) with an original maturity of three months or less when purchased to be cash equivalents. Investment transactions are recorded on the settlement date. Investments in nonparticipating interest-earning investment contracts are reported at cost and all other investments are reported at fair value. Fair value is defined as the amount that the Electric Fund could reasonably expect to receive for an investment in a current sale between a willing buyer and a seller and is generally measured by quoted market prices.

D. Receivables/Payables
Short-term City interfund receivables and payables are classified as “due from other City funds” and “due to other City funds”, respectively, on the statement of net position. Longterm City interfund receivables and payables are classified as “advances to/from other City funds,” respectively, on the statement of net position.

Trade receivables are shown net of an allowance for uncollectible accounts. Allowances for uncollectible receivables were $971,686 as of June 30, 2022. The Electric Fund’s customers are billed monthly. The estimated value of services provided, but unbilled at year-end has been included in the accompanying statement of net position.

E. Prepaid Item
The City made a prepayment to Southern California Public Power Authority (SCPPA) for the VPU’s share of SCPPA’s payoff of the Hoover Center and Air Slots debt. This prepaid amount is amortized over the life of the debt based on the annual debt service obligations. See Note 10 for further information regarding SCPPA.

F. Inventories
All inventories are valued at cost, or estimated historical costs when historical information is unavailable, using the first-in/first-out (FIFO) method. Inventory costs in the proprietary funds are recorded as an expense or capitalized into capital assets when used.

G. Deposits
The City has deposits in SCPPA’s Project Stabilization Fund for use within SCPPA’s project purposes at the City’s discretion. At June 30, 2022, the amount of deposits totaled $1,201,423.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(17)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. Capital Assets
Capital assets (including infrastructure) are recorded at historical cost or at estimated historical cost if the actual historical cost is not available. Contributed capital assets are recorded at their estimated acquisition value at the date contributed. Capital assets include land, intangible assets, construction in progress, and plant assets including building, improvements, and machinery and equipment. The capitalization threshold for all capital assets is $5,000. Capital assets used in operations are depreciated using the straight-line method over their estimated useful lives. Intangible assets with an indefinite useful life are not amortized but are evaluated annually for any impairment.

The estimated useful lives are as follows:

Utility Infrastructure and Buildings 25 to 50 Years
Improvements 10 to 20 Years
Machinery and Equipment 3 to 35 Years
Maintenance and repairs are charged to operations when incurred. Betterments and major improvements, which significantly increase values, change capacities or extend useful lives, are capitalized. Upon sale or retirement of capital assets, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the statement of revenues, expenses, and changes in net position.

I. Compensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the City will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate.

J. Deferred Outflows and Inflows of Resources
The Electric Fund recognizes deferred outflows and inflows of resources. A deferred outflow of resource is defined as consumption of net position by the Electric Fund that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position by the Electric Fund that is applicable to a future reporting period. On June 30, 2022, the Electric Fund has deferred outflows of resources representing deferred amounts on bond refunding, pension-related transactions, and postemployment benefit-related transactions, and deferred inflows of resources representing pension-related transactions and postemployment benefit-related transactions.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(18)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) K. Long-Term Obligations
Bond discounts, premiums and deferred amounts on refunding are amortized over the life of the bonds.

L. Net Position
The Electric Fund’s financial statements utilize a net position presentation. Net position is categorized as invested in capital assets (net of related debt), restricted and unrestricted.
 Net Investment in Capital Assets – This category groups all capital assets into one component of net position. Accumulated depreciation and the outstanding balances of liabilities that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category.  Restricted Net Position – This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.
 Unrestricted Net Position – This category represents the net position of the Electric Fund not restricted for any project or other purposes or included in Net Investment in Capital Assets.

The City’s policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position are available is to use restricted resources first.

M. Use of Estimates
The preparation of basic financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

N. Pensions
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 City’s California Public Employees’ Retirement System (CalPERS) plan and additions to/deductions from the Pension Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(19)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Postemployment Benefits Other than Pensions (OPEB)
For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense information about the fiduciary net position of the City’s OPEB Plan and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis as they are reported by the OPEB Plan. For this purpose, the OPEB Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value.

NOTE 2 CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of June 30, 2022 are classified in the accompanying statement of net position as follows:

Cash and Cash Equivalents 130,758,591 $
Restricted Cash and Cash Equivalents 39,025,025
Total Cash and Cash Equivalents 169,783,616 $
Cash and cash equivalents as of June 30, 2022 consist of the following:

Equity in the City's Pooled Cash 8,340,938 $
Deposits with Financial Institutions 30,593,952
Short-Term Investments 130,848,726
Total Cash and Cash Equivalents 169,783,616 $
Equity in the Cash Pool of the City of Vernon
The Electric Fund has equity in the cash pool managed by the City. The Electric Fund is a voluntary participant in that pool and the pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The Electric Fund has not adopted an investment policy separate from that of the City. The amount of the Electric Fund cash in this pool is reported in the accompanying financial statements based upon the Electric Fund’s pro rata share of the amount calculated by the City. The balance available for withdrawal is based on the accounting records maintained by the City.

The City’s Investment Policy
The City’s Investment Policy sets forth the investment guidelines for all funds of the City.

The Investment Policy conforms to the California Government Code Section 53600 et. seq.

The authority to manage the City’s investment program is derived from the City Council.

Pursuant to Section 53607 of the California Government Code, the City Council annually appoints the City Treasurer to manage the City’s investment program and approves the City’s investment policy. The Treasurer is authorized to delegate this authority as deemed appropriate. No person may engage in investment transactions except as provided under the terms of the Investment Policy and the procedures established by the Treasurer.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(20)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
The City’s Investment Policy (Continued)
This Investment Policy requires that the investments be made with the prudent person standard, that is, when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the trustee (Treasurer and staff) will act with care, skill, prudence, and diligence under the circumstances then prevailing, including but not limited to, the general economic conditions and the anticipated needs of the City.

The Investment Policy also requires that when following the investing actions cited above, the primary objective of the trustee be to safeguard the principal, secondarily meet the liquidity needs of depositors, and then achieve a return on the funds under the trustee’s control. Further, the intent of the Investment Policy is to minimize the risk of loss on the City’s held investments from:

A. Credit risk
B. Custodial credit risk
C. Concentration of credit risk
D. Interest rate risk
Investments Authorized by the California Government Code and the City’s Investment Policy
The table below identifies the investment types that are authorized for the City by the California Government Code and the City’s Investment Policy. The table also identifies certain provisions of the California Government Code that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investment of debt proceeds held by the bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s Investment Policy.

Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of Portfolio* in One Issuer Rating U.S. Treasury Bonds 5 Years None None None
State and Local Agency Bonds 5 Years None None None
Securities of the U.S. Government, or
its Agencies 5 Years None None None
Certain Asset-Backed Securities 5 Years 20% None AA
Negotiable Certificates of Deposit 5 Years 30% None None Bankers' Acceptances 180 Days 40% 30% None
Commercial Paper 270 Days 25% 10% P-1
Repurchase Agreements 1 year None None None
Reverse Repurchase Agreements 92 Days 20% None None
Medium-Term Notes 5 Years 30% None A
Mutual Funds Investing in Eligible Securities N/A 20% 10% AAA Money Market Mutual Funds N/A 20% 10% AAA
Mortgage Pass-Through Securities 5 Years 20% None AA
State Administered Pool Investment N/A None $75 Million None * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(21)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustees are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s Investment Policy. The table below identifies the investment types that are authorized for investments held by the bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.

Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of Portfolio in One Issuer Rating Securities of the U.S. Government, or
its Agencies None None None None
Certain Asset-Backed Securities None None None AA
Certificates of Deposit None None None None
Bankers' Acceptances 1 Year None None None
Commercial Paper None None None P-1
Money Market Mutual Funds N/A None None AAA
State Administered Pool Investment N/A None $75 Million None Investment Contracts None None None None
Disclosure Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City has no specific limitations with respect to this metric. Information about the sensitivity of the fair values of the Electric Fund’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided in the following table that shows the distribution of the Electric Fund’s investments by maturity:

Investment Maturities
Fair Value (in Months)
as of Less than 13 to 25 to
Investment Type 6/30/2022 12 Months 24 Months 60 Months Local Agency Investment Fund 627,044 $ 627,044 $ - $ - $ Held by Trustee:

Money Market Mutual Funds 130,221,682 130,221,682 - -
Total investments 130,848,726 $ 130,848,726 $ - $ - $
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the California Government Code, the City’s Investment Policy, or debt agreements, and the actual rating as of the year-end for each investment type.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(22)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Disclosures Relating to Credit Risk (Continued)
Minimum Actual Fair Value
Required Credit Rating as of
Investment Type Rating Moody's / S&P June 30, 2022
Local Agency Investment Fund Not Rated Not Rated 627,044 $ Held by Trustee:

Money Market Funds Aaa / AAA Aaa / AAA 130,221,682
Total in Custody of Trustee 130,848,726 $
Concentration of Credit Risk
The City’s Investment Policy places no limit on the amount the City may invest in any one issuer excluding a 10% limitation on commercial paper, mutual funds, and money market mutual funds and a 30% limitation on bankers’ acceptances. The City’s Investment Policy also places no limit on the amount of debt proceeds held by the bond trustee that the trustee may invest in one issuer that is governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s Investment Policy. As of June 30, 2022, there were no investments held by the Electric Fund that exceeded 5% in any one issuer, excluding money market mutual funds.

Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government 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. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party.

The California Government Code and the City’s Investment Policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments. Under the California Government Code, a financial institution is required to secure deposits, in excess of the FDIC insurance amount of $250,000, made by state or local governmental units by pledging government securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Such collateral is held by the pledging financial institution’s trust department or agent in the City’s name.

At June 30, 2022, all of the Electric Fund’s deposits were insured or collateralized as required by Section 53652 of the California Government Code.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(23)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Local Agency Investment Fund (LAIF)
The Electric Fund also maintained cash balances with the state of California Local Agency Investment Fund (LAIF). LAIF is an external investment pool sponsored by the state of California. The administration of LAIF is provided by the California State Treasurer and regulatory oversight is provided by the Pooled Money Investment Board and the Local Investment Advisory Board. The value of the pool shares in LAIF, which may be withdrawn, is determined on an amortized cost basis, which is different than the fair value of the Electric Fund’s position in the pool.

Fair Value Measurement
The Electric Fund categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset.  Level 1 inputs are quoted prices for identical assets or liabilities in active markets that the government can access at the measurement date.  Level 2 inputs are other than quoted prices included in Level 1 that are observable for an asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs for an asset or liability.

The Electric Fund’s investments in money market mutual funds and LAIF are not subject to categorization in the fair value hierarchy.

NOTE 3 ACCOUNTS RECEIVABLE
The Electric Fund’s accounts receivable at June 30, 2022, are as follows:

Accounts Receivable 13,367,733 $
Less: Allowance for Uncollectible Accounts (971,686)
Total Accounts Receivable, Net 12,396,047 $

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(24)
NOTE 4 INTERNAL TRANSACTIONS
Transactions between the Electric Fund and the other City funds commonly occur in the normal course of business for services received or furnished (accounting, management, engineering, legal services, and capital projects).

Advances to Other City Funds
The following table summarizes the Electric Fund’s advances to the other City funds at June 30, 2022:

Advances to Other City Funds - July 1, 2021 27,193,955 $ Advance Repaid by City Funds During the Year (114,065)
Advances to Other City Funds - June 30, 2022 27,079,890 $ The advances between the other City funds and the Electric Fund do not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the Electric Fund that benefits both. On November 6, 2012, the City adopted Resolution No. 2012-215 extending the repayment term of the advance to the other City funds from 15 months to a period of over 10 years.

The City’s General Fund allocates certain administrative and overhead costs to the Electric Fund which is included as part of the cost of sales. The allocated cost for the year ended June 30, 2022, was $3,203,444.

Transfers to City
The Electric Fund’s retail rates are established by the City Council and are not subject to regulation by the California Public Utility Commission or any other state agency. The retail rates include a 3% surcharge for payments in lieu of franchise tax to the City’s General Fund. For the current year, the Electric Fund paid the City’s General Fund $5,033,574 in lieu of franchise tax. Additionally, for the current year, the Electric Fund paid the City’s General Fund $181,387 for 40% of the cost of the new ERP system. This amount is reported in the accompanying financial statements as part of operating expenses.

Under the City Charter and the Electric Fund’s electric revenue bond indentures, the Electric Fund is allowed to transfer up to 11.5% of its retail sales after meeting debt service obligations and certain debt coverage ratios. However, no additional transfers were made for the year ended June 30, 2022.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(25)
NOTE 5 CAPITAL ASSETS
Capital asset activity of the Electric Fund for the fiscal year ended June 30, 2022, was as follows:

Balance Balance
June 30, 2021 Additions Deletions Transfers June 30, 2022 Capital Assets, Not Being Depreciated:

Electric Utility - Land 13,193,594 $ - $ - $ - $ 13,193,594 $ Electric Utility - Intangibles - Environmental Credits 1,163,811 3,610,772 - - 4,774,583 Electric Utility - Construction In Progress 45, 129,024 324,750 - - 45,453,774 Total Capital Assets, Not Being
Depreciated 59,682,155 3,739,796 - - 63,421,951
Capital Assets, Being Depreciated:

Electric Utility - Production Plant 16,189,303 196,173,685 - - 212,362,988 Electric Utility - Transmission Plant 4, - 888,113 (1,271,649) - 3,616,464 Electric Utility - Distribution Plant 258, 16,781,817 451,179 (18,181,346) - 257,051,650 Electric Utility - General Plant 9,587,933 192,379 (25,903) - 9,754,409 Total Capital Assets, Being Depreciated 289,116,528 213,147,881 (19,478,898) - 482,785,511 Less Accumulated Depreciation for:

Electric Utility - Production Plant (10,757,493) (8,634,043) - - (19,391,536) Electric Utility - Transmission Plant (3, (78,093) 424,581) 1,059,485 - (2,443,189) Electric Utility - Distribution Plant (101, (7,438,076) 227,123) 16,493,501 - (92,171,698) Electric Utility - General Plant (6,148,921) (360,709) 25,903 - (6,483,727) Total Accumulated Depreciation (121,558,118) (16,510,921) 17,578,889 - (120,490,150) Total Capital Assets, Being Depreciated, Net
Electric Utility - Production Plant 5,431,810 187,539,642 - - 192,971,452 Electric Utility - Transmission Plant 1, (78,093) 463,532 (212,164) - 1,173,275 Electric Utility - Distribution Plant 157, 9,343,741 224,056 (1,687,845) - 164,879,952 Electric Utility - General Plant 3,439,012 (168,330) - - 3,270,682 Net Depreciable Assets 167,558,410 196,636,960 (1,900,009) - 362,295,361 Total Capital Assets, Net 227,240,565 $ 200,376,756 $ (1,900,009) $ - $ 425,717,312 $ The Electric Fund’s total depreciation expense for the year was $16,510,921.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(26)
NOTE 6 LONG-TERM OBLIGATIONS
As of June 30, 2022, outstanding debt obligations consisted of the following:
$43,765,000 Electric System Revenue Bonds (2008 Taxable Series A) At June 30, 2022, $37,895,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $72,050,772, payable through fiscal year 2039. For the current year, debt service and net electric revenues were $4,240,768 and $69,089,394, respectively. Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide funds to (i) finance the cost of certain capital improvements to the City’s Electric System, (ii) fund a deposit to the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds. $37,640,000 Electric System Revenue Bonds (2012 Series A) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series A, in the amount of $37,640,000. The City of Vernon Electric System Revenue Bonds, 2012 Series A were issued to provide funds to (i) pay a portion of the costs of certain capital improvements to the City’s Electric System, (ii) to provide for capitalized interest on the 2012 Series A Bonds, and (iii) to pay costs of issuance of the 2012 Series A Bonds. The Electric System Revenue Bonds were refunded in the current fiscal year with the issuance of the Electric System Revenue Bonds 2021 Series A.
$35,100,000 Electric System Revenue Bonds (2012 Taxable Series B) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series B, in the amount of $35,100,000. During the current fiscal year, a portion of the Electric System Revenue Bonds were refunded with the issuance of the Electric System Revenue Bonds 2022 Series A. At June 30, 2022, $11,505,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $12,752,831, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $25,817,900 and $69,089,394, respectively. Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B were issued to provide funds to (i) refund the $28,680,000 aggregate principal amount of 2009 Bonds maturing on August 1, 2012, (ii) to pay a portion of the Costs of the 2012 Project, and (iii) to pay costs of issuance of the 2012 Taxable Series B Bonds.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(27)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
$111,720,000 Electric System Revenue Bonds (2015 Taxable Series A) At June 30, 2022, $111,720,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $124,140,019, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $5,087,518 and $69,089,394, respectively. Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2015 Taxable Series A were issued to provide funds to (i) refund a portion of the Outstanding Electric System Revenue Bonds, 2009 Series A; (ii) finance the Costs of certain Capital Improvements to the City’s Electric System by reimbursing the Electric System for the prior payment of such Costs from the Light and Power Fund; (iii) fund a deposit to the Debt Service Reserve Fund; and (iv) pay costs of issuance of the 2015 Bonds. $71,990,000 Electric System Revenue Bonds (2020 Series A) At June 30, 2022, $19,305,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $30,319,875, payable through fiscal year 2038. For the current year, debt service and net electric revenues were $25,596,000 and $69,089,394, respectively. Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2020 Series A were issued to provide funds to (i) to finance the acquisition and construction of certain capital improvements to the Electric System of the City, (ii) to refund all the City’s outstanding Electric System Revenue Bonds, 2009 Series A, and (iii) to pay costs of issuance of the 2020 Bonds.
$183,815,000 Electric System Revenue Bonds (2021 Series A) In December 2021, the City of Vernon issued 2021A Electric System Revenue Bonds in the amount of $183,815,000 (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the City limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights; (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement; and (iii) to pay costs of issuance of the 2021 bonds.

The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis on April 1 and October 1, commencing April 1, 2022. At June 30, 2022, $173,815,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $207,098,300, payable through fiscal year 2028. For the current year, debt service and net electric revenues were $12,671,686 and $69,089,394, respectively.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(28)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
$183,815,000 Electric System Revenue Bonds (2021 Series A) (Continued) Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). $52,070,000 Electric System Revenue Bonds (2022 Series A) In December 2021, the City of Vernon issued 2022A Electric System Revenue Bonds in the amount of $52,070,000 to refund the 2012A Electric System Revenue Bonds, a portion of the 2012B Electric Revenue Bonds, and provide for the costs of issuing the bonds.

The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis beginning February 1 and August 1, commencing on August 1, 2022. At June 30, 2022, $52,070,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds is $78,789,447, payable through fiscal year 2042. For the current year, debt service and net electric revenues were $-0- and $69,089,394, respectively.

Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue bonds, 2012 Taxable Series B and (ii) pay costs of issuance of the 2022 Bonds.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(29)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
A summary of bonds payable under the Electric Fund is as follows:

Fixed Annual Original
Interest Principal Issue Outstanding
Bonds Maturity Rates Installments Amount June 30, 2022
City of Vernon 07/01/38 7.40% - To begin 07/01/10: 43,765,000 $ 37,895,000 $ Electric System Revenue Bonds, 8.59% $265,000 -
2008 Taxable Series A $4,065,000
City of Vernon 08/01/26 6.25% - To begin 08/01/22: 35,100,000 11,505,000 Electric System Revenue Bonds, 6.50% $6,165,000 -
2012 Taxable Series B $7,940,000
City of Vernon 08/01/26 4.05% - To begin 08/01/23: 111,720,000 111,720,000 Electric System Revenue Bonds, 4.85% $15,925,000 -
2015 Taxable Series A $22,540,000
City of Vernon 08/01/50 5.00% To begin 08/03/20: 71,990,000 19,305,000 Electric System Revenue Bonds, $1,525,000 -
2020 Taxable Series A $28,655,000
City of Vernon 04/01/28 4% - To begin 04/01/22: 183,815,000 173,815,000 Electric System Revenue Bonds, 5.00% $10000,000 -
2021 Taxable Series A $54,915,000
City of Vernon 08/01/41 5.00% To begin 05/05/22: 52,070,000 52,070,000 Electric System Revenue Bonds, $950,000 -
2022 Taxable Series A $5,850,000
Premium 42,795,419
Discounts (1,168,943)
Total Revenue Bonds $ 447,936,476
As of June 30, 2022, annual debt service requirements of the Electric Fund to maturity are as follows:

Electric System Revenue Bonds
2008 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 1,025,000 $ 3,211,156 $
2024 1,120,000 3,119,029
2025 1,220,000 3,018,526
2026 1,330,000 2,909,004
2027 1,450,000 2,789,603
2028-2032 9,445,000 11,747,040
2033-2037 14,510,000 6,677,437
2038-2041 7,795,000 683,979
Total Requirements 37,895,000 $ 34,155,772 $

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(30)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Electric System Revenue Bonds
2012 Taxable Series B
Fiscal Year Ending June 30, Principal Interest
2023 6,165,000 $ 531,831 $
2024 1,170,000 302,613
2025 1,305,000 225,269
2026 1,390,000 140,181
2027 1,475,000 47,938
Total Requirements 11,505,000 $ 1,247,832 $
Electric System Revenue Bonds
2015 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 22,540,000 $ 4,580,368 $
2024 23,520,000 3,596,938
2025 24,585,000 2,530,618
2026 25,780,000 1,341,193
2027 15,295,000 370,904
Total Requirements 111,720,000 $ 12,420,019 $
Electric System Revenue Bonds
2020 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 - $ 965,250 $
2024 - 965,250
2025 - 965,250
2026 - 965,250
2027 - 965,250
2028-2032 6,585,000 4,188,125
2033-2037 10,325,000 1,940,625
2038-2041 2,395,000 59,875
Total Requirements 19,305,000 $ 11,014,875 $
Electric System Revenue Bonds
2021 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 20,380,000 $ 8,385,050 $
2024 21,335,000 7,405,125
2025 22,400,000 6,325,000
2026 23,530,000 5,190,875
2027 31,255,000 3,917,875
2028 54,915,000 2,059,375
Total Requirements 173,815,000 $ 33,283,300 $

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(31)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Electric System Revenue Bonds
2022 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 - $ 1,923,697 $
2024 4,690,000 2,486,250
2025 4,885,000 2,246,875
2026 5,130,000 1,996,500
2027 5,405,000 1,733,125
2028-2032 5,270,000 7,357,500
2033-2037 6,765,000 5,860,625
2038-2042 19,925,000 3,114,875
Total Requirements 52,070,000 $ 26,719,447 $
Changes in Long-Term Liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022.

Amounts
Balance Balance Due Within
June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 266,635,000 $ 235,885,000 $ (96,210,000) $ 406,310,000 $ 50,110,000 $ Bond Premium 7,189,882 38,266,557 (2,661,020) 42,795,419 - Bond Discount (1,923,931) - 754,988 (1,168,943) -
Compensated Absences (Note 1) 1,052,396 724,315 (667,888) 1,108,823 369,608 Total 272,953,347 $ 274,875,872 $ (98,783,920) $ 449,045,299 $ 50,479,608 $ Expense Stabilization Fund
The Electric Fund maintains an Expense Stabilization Fund held by a Trustee in such amounts, at such times and from sources as shall be determined by the City in its sole discretion. If an Event of Default under the Indenture has occurred and is continuing, the Trustee shall transfer all moneys in this fund to the debt service funds as provided in the Indenture. Moneys on deposit in this Fund may be withdrawn by the City at any time that no Event of Default exists under the Indenture. As at June 30, 2022, this fund has a balance of $38,934,149.

Credit Ratings
As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City were BBB+/Stable by S&P and Baa1/Stable by Moody’s.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(32)
NOTE 7 RISK MANAGEMENT
The Electric Fund is in the City’s self-insurance program as part of its policy to self-insure certain levels of risk within separate lines of coverage to maximize cost savings.

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets, errors, and omissions; injuries to employees, and natural disasters.

Starting in Fiscal 2010, the City chose to establish Risk Financing in the General Fund, whereby assets are set aside for claim-litigation settlements associated with the abovementioned risks up to their self-insured retentions or policy deductibles. Athens Administrators Inc. is the Third-Party Administrator for the City’s workers’ compensation program, and they provide basic services for general liability claims and litigation. The insurance limits for the fiscal year 2022 are as follows:

Deductible/SIR
Insurance Type Program Limits (Self-Insured Retention)
Excess Liability Insurance $20,000,000 $2,000,000 SIR per occurrence D and O Employment Practice $2,000,000 $150,000 SIR non-safety; $150,000 SIR safety Excess Workers Compensation $50,000,000 $1,500,000 SIR per occurrence for presumptive loss Employer's Liability $1,000,000 $1,000,000 SIR per occurrence for all employees Commercial Property Insurance $100,000,000 $25,000 except:
$25,000,000 Flood Sublimit $250,000 power stations
$1.5/kVA transfers, subject to a $250,000 minimum
$500,000 named transformers
Employee Dishonest - Crime $1,000,000 $25,000
Pollution - Site Owned $5,000,000 $25,000 for non-utility locations, divested locations and scheduled storage tanks
$50,000 for utility locations
$100,000 for natural gas pipeline
Cyber Liability $3,000,000 $100,000
Contractors Equipment/Auto $10,000,000 Maximum Loss Per Occurrence $5,000 Physical Damage $1,000,000 Equipment Limit-loss or damage to any one piece
Residential Property Insurance $8,023,126 Blanket Building Limit $2,500 $89,013 Blanket Business Personal Property Limit
Terrorism and Sabotage $100,000,000 Policy Aggregate N/A $5,000,000 Active Shooter and Malicious Attack
Per Occurrence/Aggregate
$5,000,000 Terrorism and Sabotage Liability
Per Occurrence/Aggregate
The City has numerous claims and pending litigations, which generally involve accidents and/or liability or damage to City property. The balance of claims/litigations against the City is in the opinion of management, ordinary routine matters, incidental to the normal business conducted by the City. In the opinion of management, such proceedings are substantially covered by insurance, and the ultimate dispositions of such proceedings are not expected to have a material adverse effect on the Electric Fund’s financial position, results of operations or cash flows. Further information regarding the City’s self-insurance program may be found in the City’s Annual Financial Report.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(33)
NOTE 8 PENSION PLAN
A. General Information About the Pension Plans
Plan Descriptions
All full-time safety and miscellaneous personnel and temporary or part-time employees who have worked a minimum of 1,000 hours in a fiscal year are eligible to participate in the City’s cost-sharing and agent multiple-employer defined benefit pension Safety and Miscellaneous Plans, respectively, administered by the California Public Employees’ Retirement System (CalPERS) that acts as a common investment and administrative agent for participating public entities within the state of California. The City allocates the costs of these Plans across all City departments. The Electric Fund’s proportionate share of the net pension liability of these Plans is reported as a cost-sharing plan in the financial statements. Benefits vest after five years of service. Employees who retire at the minimum retirement age with five years of credited service are entitled to retirement benefits. Monthly retirement benefits are based on a percentage of an employee’s average compensation for his or her highest consecutive 12 or 36 months of compensation for each year of credited service.

Benefits Provided
Miscellaneous members hired prior to January 1, 2013, with five years of credited service may retire at age 55 based on a benefit factor derived from the 2.7% at 55 Miscellaneous formula or may retire between ages 50 and 54 with reduced retirement benefits. New Miscellaneous members (PEPRA) with five years of credited service may retire at age 62 based on a benefit factor derived from the 2% at 62 Miscellaneous formula or may retire between age 52 and 61 with reduced retirement benefits. The benefit factor increases to a maximum of 2.5% at age 67. Safety members with five years of credited service may retire at age 50 based on a benefit factor derived from the 3% at 50 Safety formula for sworn Police and Fire Department employees. New Safety members (PEPRA) with five years of credited service may retire at age 57 based on a benefit factor derived from the 2.7% at 57 Safety (PEPRA) formula or may retire between age 50 and 56 with reduced retirement benefits for new Safety (PEPRA) members of both Police and Fire Departments. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute provided through a contract between the City and CalPERS.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(34)
NOTE 8 PENSION PLAN (CONTINUED)
A. General Information About the Pension Plans (Continued) The Plans’ provisions and benefits in effect at the measurement date of June 30, 2021, are summarized as follows:

Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute to the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2022, the Electric Fund’s share of employer contributions made to the Plans was $2,012,496.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(35)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions
Actuarial Assumptions
The net pension liability of each of the Plans is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

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

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

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(36)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
The expected real rates of return by asset class are as follows:

Assumed Real Return Real Return
Asset Years Years
t Class (a) Allocation 1 - 10 (b) 11+ (c)
Global Equity 50.00% 4.80% 5.98%
Fixed Income 28.00% 1.00% 2.62%
Inflation Assets 0.00% 0.77% 1.81%
Private Equity 8.00% 6.30% 7.23%
Real Assets 13.00% 3.75% 4.93%
Liquidity 1.00% 0.00% -0.92%
Total 100.00%
(a) In the CalPERS CAFR, Fixed
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period.

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

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 in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(37)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Subsequent Events (Continued)
On November 17, 2021, the board adopted a new strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to

Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the Electric Fund
The Electric Funds’ net pension liability for the Plans is measured as the proportionate share of’ the combined net pension liability of the City’s miscellaneous and safety agent multiple-employer plans. The Electric Fund’s proportionate share of the combined net pension liability was based on the Electric Fund’s current year share of contributions to the pension plans relative to the City’s total current year contributions to the pension plans.

The Electric Funds’ proportionate share of the combined net pension liability for the pension plans as of the measurement date ended June 30, 2020 and 2021 was as follows:

Increase (Decrease)
Total Plan Net Pension
Pension Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 45,617,506 61,879,846 $ 16,262,340 $ 12.02% Balance at June 30, 2021 (MD) 56,791,532 69,252,712 12,461,180 14.16% Net Changes during 2020-21 7,372,866 $ 11,174,026 $ $ 2.14% (3,801,160) Pension Expense and Deferred Outflows and Inflows of Resources For the measurement period ended June 30, 2021, the Electric Fund recognized its proportionate share of the combined pension expense of the Plans, totaling $3,093,351.

At June 30, 2022, the Electric Fund reported its proportionate share of the Plans’ combined deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(38)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Pension Expense and Deferred Outflows and Inflows of Resources (Continued) Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension Contributions Subsequent
to Measurement Date 2,012,496 $ - $
Differences Between Actual and
Expected Experience 1,725,314 -
Change in Assumptions - -
Net Differences Between Projected and
Actual Earnings on Plan Investments - (7,053,136)
Differences Between Employer Contributions
And Proportionate Share of Contributions - (714,821)
Change in Employer's Proportion 278,567 (73,618)
Total 4,016,377 $ $ (7,841,575)
$2,012,496 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended June 30, Total
2023 $ (1,053,016)
2024 (1,203,219)
2025 (1,623,974)
2026 (1,957,485)
2027 -
Thereafter -
Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Electric Fund’s proportionate share of the Plans’ combined net pension liability, calculated using a discount rate of 7.15%, as well as what the Electric Fund’s proportionate share of the Plans’ combined net pension liability would be if it were calculated using a discount rate that is a 1-percentage point lower or a 1-percentage point higher than the current rate:

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(39)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate (Continued) Total
1% Decrease 6.15%
Net Pension Liability $ 21,944,686
Current Discount Rate 7.15%
Net Pension Liability $ 12,461,180
1% Increase 8.15%
Net Pension Liability $ 4,681,201
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

Payable to the Pension Plan
At June 30, 2022, the Electric Fund had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022.

NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB)
The other postemployment benefits (OPEB) described in the following paragraphs relate to the City’s OPEB plan. The Electric Fund’s share of the net pension liability of the City’s OPEB Plan is reported as a cost-sharing plan in these financial statements since the Electric Fund’s operations are handled by City employees who are eligible to participate in the City’s OPEB Plan.

Alternatively, employees who retire before the age of sixty (60) with twenty (20) years of continuous uninterrupted service, will be permitted to pay their medical and dental premium cost and upon reaching the age of sixty (60), the City will pay the premium for the medical and dental plans until they reach the age of sixty-five (65).

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(40)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Benefits Provided (Continued)
Resolution 2012-217 granted specific retiree medical benefits to employees who retired during the 2012-2013 fiscal year in order to provide an incentive for early retirement whereby the City authorized the payment of medical and dental insurance premiums for eligible retiring employees and their eligible dependents with at least ten (10) years of service plus 5% for each additional full year of service above the ten (10) years of service.

Resolution 2013-06 declared that the retiree medical benefits which had not been a vested right for employees will continue to be a nonvested right for employees who continue to be employed by the City on or after July 1, 2013, but will be a vested right for those who retire during the 2012-2013 fiscal year. The City’s plan is considered a substantive OPEB plan and the City recognizes costs in accordance with GASB Statement No 75. The City may terminate its unvested OPEB in the future.

Funding Policy and Contributions
The City has established an irrevocable OPEB trust with assets dedicated to paying future retiree medical benefits. The City intends to contribute 100% or more of the actuarially determined contribution for the explicit subsidy liability only. The portion of the liability due to the implicit subsidy is not prefunded but is paid as benefits come due. For the fiscal year ended June 30, 2022, the Electric Fund’s proportionate share of contributions made was $415,223 ($217,817 contributed to the OPEB trust, $128,240 paid for retiree premiums, and the estimated implied subsidy of $69,166).

Actuarial Assumptions
The valuation has been prepared on a closed group basis. Assumptions such as age-related healthcare claims, healthcare trends, retiree participation rates, and spouse coverage, were selected based on demonstrated plan experience and the best estimate of expected future experience. Explicit subsidy benefit payments by employee group were allocated based on expected benefit payments. The following actuarial assumptions, applied to all periods included in the measurement unless otherwise specified:

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(41)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Actuarial Assumptions (Continued)
Funding Method Entry age normal level percent of pay cost method Inflation 2.25%
Salary Increases 2.75% annual increases
Long-Term Return on Assets 6.25% net of investment expenses Discount Rate 6.25%
Healthcare Cost Trend Rates 6.3% for FY2022, gradually decreasing over several decades to ultimate rate of 3.8% in FY76 and later
years
Mortality 2017 CalPERS Experience Study. Tables include 15 years of static mortality improvement using 90%
of scale MP-2016
Long-Term Expected Rate of Return
The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class.

Long-Term
Target Expected Real
Asset Class Allocation Rate of Return
CERBT Strategy 1:

Equity 59.00% 4.42%
Fixed Income 25.00 1.00%
TIPS 5.00 0.15%
Commodities 3.00 3.98%
REITs 8.00 1.73%
Total 100.00%
Discount Rate
The discount rate used to measure the total OPEB liability was 6.25%. The projection of cash flows used to determine the discount rate assumed that City’s contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(42)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Change of Assumptions
Medical trend rates were updated to exclude the Affordable Care Act’s Excise Tax on highcost health insurance plan due to its repeal.

Allocation of the Net OPEB Liability
The Electric Fund’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2020 and 2021 was as follows:

Increase (Decrease)
Total Plan Net OPEB
OPEB Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 841,782 3,271,125 $ 2,429,343 $ 12.02% Balance at June 30, 2021 (MD) 1,559,455 3,877,225 2,317,770 14.16% Net Changes during FY 2021-22 606,100 $ 717,673 $ $ 2.14% (111,573) Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the Electric Fund’s proportionate share of net OPEB liability if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate:

Discount Rate
1% Decrease Current Rate 1% Increase
(5.25%) (6.25%) (7.25%)
Net OPEB Liability $ 2,317,770 2,751,626 $ 1,953,422 $
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the Electric Fund’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate:

Healthcare Trend Rate
1% Decrease Current Rate 1% Increase
Net OPEB Liability $ 2,317,770 2,134,592 $ 2,500,009 $

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(43)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the Electric Fund recognized its proportionate share of the OPEB expense(revenue) of $(119,343). At June 30, 2022, the Electric Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Deferred
Outflows Inflows
of Resources of Resources
Contributions Between Measurement Date and
Reporting Date 415,223 $ - $
Difference Between Expected and Actual Liability 19,646 (499,577) Changes of Assumptions 63,261 (530,789)
Net Differences Between Projected and Actual
Earnings on Investments - (156,697)
Total 498,130 $ $ (1,187,063)
The $415,223 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Deferred
Outflows
(Inflows)
Fiscal Year Ending June 30, of Resources
2022 $ (330,601)
2023 (331,825)
2024 (329,873)
2025 (88,956)
2026 (10,577)
Thereafter (12,324)
Subsequent Events
There were no subsequent events that would materially affect the results presented in this disclosure.

Payable to the OPEB Plan
At June 30, 2022, the Electric Fund had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(44)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS
Bicent Agreements
Asset Sale
On December 13, 2007, the City entered into an Amended and Restated Purchase and Sale Agreement (the Bicent Agreement), with Bicent (California) Power LLC (Bicent), which is an affiliate of Bicent Holdings and Natural Gas Partners, to sell to Bicent the Malburg Generating Station (MGS) and the economic burdens and benefits of the City’s interests in 22 MW from the Hoover Dam Uprating Project for $287,500,000. This transaction closed on April 10, 2008.

Take or Pay Contract
The Authority’s interests or entitlements in natural gas, generation, and transmission projects are jointly owned with other utilities. Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity, or natural gas produced. Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The City has the following “take or pay” contract with the Authority:

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(45)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued)
Take or Pay Contract (Continued)
Palo Verde Project
The Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (the Station), a nuclear-fired generating station near Phoenix, Arizona, from the Salt River Project Agricultural Improvement and Power District, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System. The City has a 4.9% entitlement share of the Authority’s interest in the station.

Power Purchase Commitments
The Authority has entered into power purchase agreements with project participants.

CITY OF VERNON

ELECTRIC FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(46)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued)
Power Purchase Commitments (Continued)
Puente Hills Landfill Gas-to-Energy Project
On June 25, 2014, the Authority entered into a power purchase agreement with County Sanitation District No. 2 of Los Angeles County for 46 MW of the electric generation from a landfill gas to energy facility, located at Whittier, California. The project began deliveries to the Authority on January 1, 2017 for a term of 10 years.

The City contracted to purchase 23.2558% of the output. The City’s proportionate share of costs during the current fiscal year was $1,007,652.

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF VERNON

ELECTRIC FUND

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(48)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 City’s Proportion of the
Net Pension Liability 14.17% 12.03% 10.93% 10.61% 10.60% 10.41% City's Proportionate Share of the
Net Pension Liability 12,461,180 $ 16,262,340 $ 13,198,355 $ 12,037,649 $ 11,622,798 $ 9,913,819 $ City’s Covered Payroll 2,763,712 2,971,068 3,153,590 3,119,774 2,844,009 1,368,926 City’s Proportionate Share of the
Net Pension Liability as a
Percentage of City's Covered Payroll 450.89% 547.36% 418.52% 385.85% 408.68% 724.20% Plan Fiduciary Net Position as a
Percentage of the Plan's Total
Pension Liability 85.45% 74.79% 76.15% 77.68% 77.85% 78.91% Notes to Schedule:

Benefit Changes:

There were no changes in benefits.

Changes in Assumptions:

From fiscal year June 30, 2017 to June 30, 2018:

The discount rate was reduced from 7.65% to 7.15%.

From fiscal year June 30, 2018 to June 30, 2019:

There were no significant changes in assumptions.

From fiscal year June 30, 2019 to June 30, 2020:

There were no significant changes in assumptions.

From fiscal year June 30, 2020 to June 30, 2021:

The inflation rate was increased from 2.5% to 2.625%
The payroll growth rate was reduced from 3.00% to 2.875%.

From fiscal year June 30, 2021 to June 30, 2022:

The inflation rate was decreased from 2.625% to 2.5%
The payroll growth rate was reduced from 2.875% to 2.75%.

The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Electric Fund, therefore only six years are shown.

CITY OF VERNON

ELECTRIC FUND

SCHEDULE OF PLAN CONTRIBUTIONS

CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(49)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined
Contributions 2,012,496 $ 1,518,109 $ 1,347,573 $ 1,158,143 $ 1,005,691 $ 947,914 $ Contributions in relation to the
Actuarially Determined
Contributions (2,012,496) (1,518,109) (1,347,573) (1,158,143) (1,005,691) (947,914) Contribution :

Deficiency (Excess) $ - - $ - $ - $ - $ - $
Covered Payroll 3,589,490 $ 2,763,712 $ 2,971,068 $ 3,153,590 $ 3,119,774 $ 2,844,009 $ Contributions as a Percentage
of Covered Payroll 56.07% 54.93% 45.36% 36.72% 32.24% 33.33% Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 6/30/2014 Methods and Assumptions Used to
Determine Contribution Rates:

CITY OF VERNON

ELECTRIC FUND

SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS *
(50)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the
Net OPEB Liability 14.16% 12.02% 10.93% 10.61% 6.43%
Plan’s Proportionate Share of the
Net OPEB Liability 2,317,770 $ 2,429,343 $ 2,394,613 $ 2,449,998 $ 2,333,037 $ Plan’s Covered-Employee Payroll 3,810,495 3,491,517 3,731,469 2,152,941 2,153,877 Plan’s Proportionate Share of the
Net OPEB Liability as a Percentage
of Covered-Employee Payroll 60.83% 69.58% 64.17% 113.80% 108.32% Plan Fiduciary Net Position as a
Percentage of the Total OPEB Liability 40.22% 25.73% 16.30% 8.62% 2.83% Notes to Schedule:

Changes in Assumptions:
* Fiscal year 2018 was the first year of implementation, therefore only five years are shown.

The mortality improvement rates for the measurement periods ended June 30, 2017 and 2018 were based on the Scale MP-2016 and Scale-2018, respectively.

In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after age 65.

CITY OF VERNON

ELECTRIC FUND

SCHEDULE OF OPEB CONTRIBUTIONS
LAST TEN FISCAL YEARS *
(51)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined
Contribution 217,810 $ 184,942 $ 211,038 $ 285,605 $ 173,080 $ Contributions in relation to the
Actuarially Determined
Contribution (415,223) (376,391) (427,758) (317,055) (132,751) Contribution:

Deficiency (Excess) $ (197,413) $ (191,449) $ (216,720) $ 40,329 (31,449) $ Covered Payroll 4,487,701 $ 3,810,495 $ 3,491,517 $ 3,731,469 $ 2,152,941 $ Contributions as a Percentage
of Covered Payroll 4.85% 4.85% 6.04% 7.65% 8.04%
Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 Methods and Assumptions Used to
Determine Contribution Rates:

Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Amortization Method (1) (1) (1) (1) (1)
Amortization Period 28 years 28 years 27 years 27 years 29 years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75%
Healthcare Trend Rates (7) (6) (3) (3) (2)
Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5) (5) (5) (5) (4)
(1) Level percentage of payroll, closed.
(2) 8.50% trending down to 5.00%.
(3) 6.90% trending down to 4.00%.
(4) CalPERS December 2014 experience study
(5) CalPERS December 2017 experience study
(6) 6.70% trending down to 3.80%.
(7) 6.30% trending down to 3.80%.
* Fiscal year 2018 was the first year of implementation, therefore five years year are shown.

CITY OF VERNON

WATER FUND
(AN ENTERPRISE FUND OF THE

CITY OF VERNON)

FINANCIAL STATEMENTS AND

SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2022

CITY OF VERNON

WATER FUND

TABLE OF CONTENTS
YEAR ENDED JUNE 30, 2022

INTRODUCTORY SECTION

A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC
UTILITIES i

FINANCIAL SECTION
INDEPENDENT AUDITORS’ REPORT 1
MANAGEMENTS’ DISCUSSION AND ANALYSIS (REQUIRED
SUPPLEMENTARY INFORMATION – UNAUDITED) 4

BASIC FINANCIAL STATEMENTS
STATEMENT OF NET POSITION 9

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET
POSITION 11
STATEMENT OF CASH FLOWS 12
NOTES TO BASIC FINANCIAL STATEMENTS 13

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION
LIABILITY – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 37
SCHEDULE OF PLAN CONTRIBUTIONS – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 38
SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY 39 SCHEDULE OF OPEB CONTRIBUTIONS 40

1. Electric load growth with a diversified customer base which includes green commerce.

Sincerely,
Todd Dusenberry
General Manager

FINANCIAL SECTION
(1)
INDEPENDENT AUDITORS’ REPORT
Honorable Mayor and the Members of the City Council
City of Vernon, California
Report on the Financial Statements
Opinion
We have audited the accompanying financial statements of the Water Fund of the City of Vernon, (Water Fund), an enterprise fund of the City of Vernon, California (City), which comprise the statement of net position as of June 30, 2022, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Water Fund’s basic financial statements as listed in the table of contents.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Water Fund as of June 30, 2022, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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

Emphasis of Matter
As discussed in Note 1 to the financial statements, the financial statements present only the City’s Water Fund and do not purport to, and do not, present fairly the financial position of the City of Vernon, California as of June 30, 2022, and the changes in its financial position and 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.

CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.

CliftonLarsonAllen LLP
CLAconnect.com
Honorable Mayor and the Members of the City Council
City of Vernon, California
(2)
Responsibilities of Management 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 the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

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

Honorable Mayor and the Members of the City Council
City of Vernon, California
(3)
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of proportionate share of the net pension liability, schedule of plan contributions, schedule of proportionate share of the net OPEB liability, and schedule of OPEB contributions, identified as required supplementary information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 8, 2023, on our consideration of the Water Fund’s internal control over the financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Water Fund’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Water Fund’s internal control over financial reporting and compliance.

CliftonLarsonAllen LLP
Irvine, California
August 8, 2023

CITY OF VERNON

WATER FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(4)
The management of the Water Fund of the City of Vernon (“the City”) offers the following overview and analysis of the basic financial statements of the Water Fund for the fiscal year ended June 30, 2022.

Management encourages readers to utilize information in the Management’s Discussion and Analysis (MD&A) in conjunction with the accompanying basic financial statements.

OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to the Water Fund’s basic financial statements.

Included as part of the financial statements are three separate statements.

The statement of net position presents information on the Water Fund’s total assets and deferred outflows of resources and total liabilities and deferred inflows of resources, with the difference between the two reported as net position.

The statement of revenues, expenses and changes in net position presents information showing how the Water Fund's net position changed during the most recent fiscal year. Financial results are recorded using the accrual basis of accounting. Under this method, all changes in net position are reported as soon as the underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses reported in this statement for some items may affect cash flows in a future fiscal period (examples include billed but uncollected revenues and employee earned but unused vacation leave).

The notes to the financial statements provide additional information that is essential to fully understand the data provided in the financial statements.

CITY OF VERNON

WATER FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(5)

FINANCIAL HIGHLIGHTS
Fund Net Position
The table below summarizes the Water Fund’s net position as of the current fiscal year ended June 30, 2022 and prior fiscal year ended June 30, 2021. The details of the current year’s summary can be found on pages 9 and 10 of this report.

City of Vernon
Water Fund
Fund Net Position
June 30, 2022 and 2021
The assets and deferred outflows of resources of the Water Fund exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $20,753,779 (net position).

The category of the Water Fund’s net position with the largest balance totaling $13,884,392 represents the unrestricted net position that is expected to be used for future projects or other purposes.

The remaining category of net position, totaling $6,869,387, represents resources that are invested in capital assets, net of related debt.

CITY OF VERNON

WATER FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(6)
Fund Net Position (Continued):
 Current assets increased by $3.2 million from the prior year due to increases in cash by $2.8 million, accounts receivable by $164 thousand, and accrued unbilled revenue by $254 thousand.
 Restricted assets decreased by $3.9 million in 2022 as we drew down on the Water System Revenue Bonds 2020 Taxable Series A to fund capital projects.  Capital assets increased $3.1 million from the prior year due to additional water plant construction totaling $3.1 million, net of depreciation of $410 thousand (See Note 5).  Current liabilities decreased by $663 thousand from the prior year primarily due to decreases accrued wages and benefits by $68 thousand and in the amount due to other city funds balance by $593 thousand.
 Long-term liabilities decreased by $2.4 million from the prior year due to decreases in bonds payable by $269 thousand, in the note payable by $140 thousand, and net other postemployment benefit liability of $168 thousand, and net pension liability of $1.8 million.  The net investments in capital assets, net of related debt decreased by $434 thousand while the unrestricted net position increased by $2.3 million causing an increase in the total net position of $1.8 million.

CITY OF VERNON

WATER FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(7)
Changes in Fund Net Position
The table below summarizes the Water Fund’s changes in net position over the current and prior fiscal years. The details of the current year’s changes in net position can be found on page 11 of this report.

City of Vernon
Water Fund
Changes in Fund Net Position
June 30, 2022 and 2021
The Water Fund’s FY 2021-22 operating income of $2.6 million offset by net non-operating revenues (expenses) of $(767) thousand resulted in a net position of $1.8 million. The key reasons for this change are due to a water rate adjustment effective January 2022, management and control of operating expenses, and higher net non-operating revenues(expenses) by $200 thousand.

CITY OF VERNON

WATER FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2022
(8)

CAPITAL ASSETS
The Water Fund’s investment in capital assets as of June 30, 2022 amounted to $16.3 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, and utility system improvements.

Additional information on the Water Fund's capital assets can be found in Note 5 of this report.

OUTSTANDING DEBT
As of June 30, 2022, the following debt remains outstanding:
 $14,600,000 City of Vernon Water System Revenue Bonds, 2020 Taxable Series A  $1,220,930 City of Vernon agreement with Water Replenishment District of Southern California
The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to(i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds.

As of June 30, 2022, the rating on the Water System Revenue Bonds is A-/Stable by S&P.

Additional information on the Water Fund's long-term debt can be found in Note 6 of this report.

ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES
These factors were considered in preparing the Water Fund’s FY 2022-23 operating and capital budgets.
 VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability.  VPU continues to respond to inflation and supply chain issues, including higher chemical and construction costs, to maintain infrastructure investment to continue to provide exceptionally reliable service.
 Continue to implement the multi-year water rate adjustment plan approved by City Council as well as manage and control operating expenses.

REQUESTS FOR INFORMATION
This report is designed to provide an overview of the Water Fund's FY 2021-22 results. Questions concerning the fund’s financial or operating results can be addressed to Scott Williams, Director of Finance, [email protected], City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.

CITY OF VERNON

WATER FUND

STATEMENT OF NET POSITION
JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(9)
ASSETS
Current Assets:

Cash and Cash Equivalents 17,015,777 $
Accounts Receivable, Net of Allowance of $53,364 1,141,938 Accrued Unbilled Revenue 1,373,195
Accrued Interest Receivable 4,448
Total Current Assets 19,535,358
Noncurrent Assets:

Restricted Cash and Cash Equivalents 7,358,059
Advances to Other City Funds 202,798
Capital Assets:

Nondepreciable 7,381,939
Depreciable, Net 8,886,072
Total Noncurrent Assets 23,828,868
Total Assets 43,364,226

DEFERRED OUTFLOWS OF RESOURCES
Deferred Outflows Related to Pensions 917,279
Deferred Outflows Related to OPEB Liability 113,765
Total Deferred Outflows of Resources 1,031,044

CITY OF VERNON

WATER FUND

STATEMENT OF NET POSITION (CONTINUED)
JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(10)

LIABILITIES
Current Liabilities:

Accounts Payable $ 1,415,262
Accrued Wages and Benefits 44,295
Customer Deposits 61,184
Bond Interest Payable 242,490
Bonds Payable 250,000
Note Payable 139,535
Compensated Absences 28,069
Total Current Liabilities 2,180,835
Noncurrent Liabilities:

Bonds Payable 14,885,833
Note Payable 1,081,395
Compensated Absences 56,139
Net Other Postemployment Benefit Liability 529,343
Net Pension Liability 2,845,943
Total Noncurrent Liabilities 19,398,653
Total Liabilities 21,579,488

DEFERRED INFLOWS OF RESOURCES
Deferred Inflows Related to Pensions 1,790,896
Deferred Inflows Related to OPEB Liability 271,107
Total Deferred Inflows of Resources 2,062,003

NET POSITION
Net Investment in Capital Assets 6,869,387
Unrestricted 13,884,392
Total Net Position $ 20,753,779

CITY OF VERNON

WATER FUND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(11)

OPERATING REVENUES
Charges for Services $ 10,845,652
Total Operating Revenue 10,845,652

OPERATING EXPENSES
Cost of Sales 7,743,964
Depreciation 500,102
Total Operating Expenses 8,244,066
OPERATING INCOME 2,601,586

NONOPERATING REVENUES (EXPENSES)
Intergovernmental 194,487
Investment Income 11,991
Interest Expense (563,895)
Loss on Disposition of Assets (409,841)
Total Nonoperating Revenues (Expenses) (767,258)
CHANGE IN NET POSITION 1,834,328
Net Position - Beginning Of Year 18,919,451
NET POSITION - END OF YEAR $ 20,753,779

CITY OF VERNON

WATER FUND

STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2022
See accompanying Notes to Basic Financial Statements.
(12)

CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 10,427,677
Cash Paid to Suppliers for Goods and Services (6,851,398) Cash Paid to Employees for Services (1,818,089)
Net Cash Provided by Operating Activities 1,758,190

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payment of Bond Payable (240,000)
Bond Interest Paid (587,975)
Payment of Note Payable (139,535)
Net Acquisition of Capital Assets (4,033,299)
Net Cash Used by Capital and Related Financing Activities (5,000,809)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Grant Revenue Received 194,487
Payment from (Provided to) Other City Funds 1,915,195
Net Cash Provided by Noncapital Financing Activities 2,109,682

CASH FLOWS FROM INVESTING ACTIVITIES
Investment Income 7,583
Net Cash Provided by Investing Activities 7,583
CHANGE IN CASH AND CASH EQUIVALENTS (1,125,354)
Cash and Cash Equivalents - Beginning of Year 25,499,190 CASH AND CASH EQUIVALENTS - END OF YEAR $ 24,373,836

COMPOSITION OF CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents $ 17,015,777
Restricted Cash and Investments 7,358,059
Total $ 24,373,836

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES
Operating Income $ 2,601,586
Adjustments to Reconcile Operating Income
to Net Cash Provided by Operating Activities:

Depreciation 500,102
Change in Operating Assets and Liabilities:

Accounts Receivable (164,414)
Accrued Unbilled Revenue (254,361)
Deferred Outflows of Resources 102,727
Accounts Payable (1,292)
Accrued Wages and Benefits (67,916)
Due to Other Funds (593,486)
Customer Deposits 800
Compensated Absences (18,983)
Other Postemployment Benefit Liability (167,986)
Net Pension Liability (1,822,068)
Deferred Inflows of Resources 1,643,481
Net Cash Provided by Operating Activities 1,758,190 $

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(13)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present only the Water Enterprise Fund (the Water Fund) of the City of Vernon, California (the City), and do not present fairly the financial position and results of the operations of the City. The Water Fund accounts for the independent operations and the maintenance of the City’s Water utility. The Water Fund is administered as an independent fiscal and accounting entity with a self-balancing set of accounts recording resources, related liabilities, obligations, reserves, and equities, segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations.

For additional information regarding the City of Vernon, refer to the City’s annual financial report.

The financial statements of the Water Fund have been prepared in conformity with the U.S. generally accepted accounting principles (U.S. GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Water Fund’s significant accounting policies are described below.

A. Basis of Presentation
The Water Fund’s financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

The Water Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues, such as charges for services, result from exchange transactions associated with the sale of Water. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses.

B. Pooled Cash
Part of the Water Fund’s operating cash balance is pooled with various other City funds for deposit purposes. The share of each fund in the pooled cash account is recorded in each of the fund’s books of accounts, and interest income is apportioned to the participating funds based on the relationship of their average monthly balances to the total of the pooled cash.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(14)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Cash Deposits and Investments
For purposes of the statement of cash flows, the Water Fund considers all highly liquid investments (including restricted cash and investments) with an original maturity of three months or less when purchased to be cash equivalents. Investment transactions are recorded on the settlement date. Investments in nonparticipating interest-earning investment contracts are reported at cost and all other investments are reported at fair value. Fair value is defined as the amount that the Water Fund could reasonably expect to receive for an investment in a current sale between a willing buyer and a seller and is generally measured by quoted market prices.

Trade receivables are shown net of an allowance for uncollectible accounts. Allowances for uncollectible accounts were $53,364 as of June 30, 2022. The Water Fund’s customers are billed monthly. The estimated value of services provided, but unbilled at year-end has been included in the accompanying financial statements.

E. Capital Assets
Capital assets (including infrastructure) are recorded at historical cost or at estimated historical cost if the actual historical cost is not available. Contributed capital assets are recorded at their estimated acquisition value at the date contributed. Capital assets include land, construction in progress, and plant assets including building, improvements, and machinery and equipment. The capitalization threshold for all capital assets is $5,000. Capital assets used in operations are depreciated using the straightline method over their estimated useful lives.

The estimated useful lives are as follows:

Utility Plant 3 to 50 Years
Maintenance and repairs are charged to operations when incurred. Betterments and major improvements, which significantly increase values, change capacities or extend useful lives, are capitalized. Upon sale or retirement of capital assets, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the statement of revenues, expenses, and changes in net position.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(15)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Compensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the Water Fund will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate.

G. Deferred Outflows and Inflows of Resources
The Water Fund recognizes deferred outflows and inflows of resources. A deferred outflow of resource is defined as a consumption of net position by the Water Fund that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position by the Water Fund that is applicable to a future reporting period. On June 30, 2022, the Water Fund has deferred outflows of resources representing deferred amounts on pension-related transactions and postemployment benefit-related transactions and deferred inflows of resources representing pensionrelated transactions and postemployment benefit-related transactions.

H. Long-Term Obligations
Bond discounts and premiums are amortized over the life of the bonds using the straight-line method.

I. Net Position
The Water Fund financial statements utilize a net position presentation. Net position is categorized as invested in capital assets (net of related debt), restricted, and unrestricted.
 Net Investment in Capital Assets – This category groups all capital assets into one component of net position. Accumulated depreciation and the outstanding balances of liabilities that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category.  Restricted Net Position – This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. The Water Fund does not have any restricted net position.  Unrestricted Net Invested in Capital Assets or Position – This category represents the net position of the Water Fund not restricted for any project or other purposes.

The Water Fund’s policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position are available is to use restricted resources first.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(16)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Use of Estimates
The preparation of the basic financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

K. Pensions
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 City’s California Public Employees’ Retirement System (CalPERS) plan and additions to/deductions from the Pension Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

L. Other Postemployment Benefits Other than Pensions (OPEB) For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense information about the fiduciary net position of the City’s OPEB Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value.

NOTE 2 CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of June 30, 2022, are classified in the accompanying statement of net position as follows:

Cash and Cash Equivalents 17,015,777 $
Restricted Cash and Cash Equivalents 7,358,059
Total Cash and Cash Equivalents 24,373,836 $
Cash and cash equivalents as of June 30, 2022 consist of the following:

Equity in the City's Pooled Cash 10,972,364 $
Deposits with Financial Institutions 6,043,413
Money Market Mutual Funds 7,358,059
Total Cash and Cash Equivalents 24,373,836 $

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(17)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Equity in the Cash Pool of the City of Vernon
The Water Fund has equity in the cash pool managed by the City. The Water Fund is a voluntary participant in that pool and the pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The Water Fund has not adopted an investment policy separate from that of the City. The amount of the Water Fund’s cash in this pool is reported in the accompanying financial statements based upon the Water Fund’s pro rata share of the amount calculated by the City. The balance available for withdrawal is based on the accounting records maintained by the City.

The City’s Investment Policy
The City’s Investment Policy sets forth the investment guidelines for all funds of the City.

The Investment Policy conforms to the California Government Code Section 53600 et. seq.

The authority to manage the City’s investment program is derived from the City Council.

Pursuant to Section 53607 of the California Government Code, the City Council annually, appoints the City Treasurer to manage the City’s investment program and approves the City’s investment policy. The Treasurer is authorized to delegate this authority as deemed appropriate. No person may engage in investment transactions except as provided under the terms of the Investment Policy and the procedures established by the Treasurer.

This Investment Policy requires that the investments be made with the prudent person standard, that is, when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the trustee (Treasurer and staff) will act with care, skill, prudence, and diligence under the circumstances then prevailing, including but not limited to, the general economic conditions and the anticipated needs of the City.

A. Credit Risk
B. Custodial Credit Risk
C. Concentration of Credit Risk
D. Interest Rate Risk

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(18)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Investments Authorized by the California Government Code and the City’s Investment Policy
The table below identifies the investment types that are authorized for the City by the California Government Code and the City’s Investment Policy. The table also identifies certain provisions of the California Government Code that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investment of debt proceeds held by the bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s Investment Policy.

Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustees are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s Investment Policy. The table below identifies the investment types that are authorized for investments held by the bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(19)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Disclosure Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City has no specific limitations with respect to this metric. Information about the sensitivity of the fair values of the Water Fund’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided in the following table that shows the distribution of the Water Fund’s investments by maturity:

Investment Maturities
Fair Value (in Months)
as of Less than 13 to 25 to
Investment Type 6/30/2022 12 Months 24 Months 60 Months Held by Trustee:

Money Market Mutual Funds 7,358,059 $ 7,358,059 $ - $ - $ Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the California Government Code, the City’s Investment Policy, or debt agreements, and the actual rating as of the year-end for each investment type.

Minimum Actual Fair Value
Required Credit Rating as of
Investment Type Rating Moody's / S&P June 30, 2022
Held by Trustee:

Money Market Mutual Funds Aaa / AAA Aaa / AAA $ 7,358,059 Concentration of Credit Risk
The City’s Investment Policy places no limit on the amount the City may invest in any one issuer excluding a 10% limitation on commercial paper, mutual funds, and money market mutual funds and a 30% limitation on bankers’ acceptances. The City’s Investment Policy also places no limit on the amount of debt proceeds held by the bond trustee that the trustee may invest in one issuer that is governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s Investment Policy. As of June 30, 2022, there were no investments held by the Water Fund that exceeded 5% in any one issuer, excluding money market mutual funds.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(20)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government 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. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City’s Investment Policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments. Under the California Government Code, a financial institution is required to secure deposits, in excess of the FDIC insurance amount of $250,000, made by state or local governmental units by pledging government securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Such collateral is held by the pledging financial institution’s trust department or agent in the City’s name.

At June 30, 2022, all of the Water Fund’s deposits were insured or collateralized as required by Section 53652 of the California Government Code.

Fair Value Measurement
The Water Fund categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset.  Level 1 inputs are quoted prices for identical assets or liabilities in active markets that the government can access at the measurement date.  Level 2 inputs are other than quoted prices included in Level 1 that are observable for an asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs for an asset or liability.

The Water Fund’s investments in money market mutual funds is not subject to categorization in the fair value hierarchy.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(21)
NOTE 3 ACCOUNTS RECEIVABLES
The Water Fund’s accounts receivable at June 30, 2022, are as follows:

Accounts Receivable $ 1,195,302
Less: Allowance for Uncollectible Accounts (53,364)
Total Receivables, Net $ 1,141,938
NOTE 4 INTRA-ENTITY TRANSACTIONS
Transactions between the Water Fund and the other City funds commonly occur in the normal course of business for services received or furnished (accounting, management, engineering, legal services, and capital projects).

Advances to Other City Funds
The following table summarizes the Water Fund’s advances to the other City funds at June 30, 2022:

Advances to Other City Funds - July 1, 2021 $ 2,117,993 Advance Repaid by City Funds During the Year (1,915,195) Advances to Other City Funds - June 30, 2022 202,798 $
The advances between the other City funds and the Water Fund does not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the Water Fund that benefits the both. On November 6, 2012, the City adopted Resolution No. 2012-215 extending the repayment term of the advance to the other City funds from 15 months to a period of over 10 years.

The City’s General Fund allocates certain administrative and overhead costs to the Water Fund which is included as part of the cost of sales. The allocated costs for the year ended June 30, 2022, were $610,000.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(22)
NOTE 5 CAPITAL ASSETS
Capital asset activities of the Water Fund for the fiscal year ended June 30, 2022, were as follows:

Balance Balance
June 30, 2021 Additions Deletions Transfers June 30, 2022 Capital Assets, Not Being Depreciated:

Land 467,640 $ - $ - $ - $ 467,640 $
Construction in Progress 4,635,417 2,366,637 - (87,755) 6,914,299 Total Capital Assets, Not Being
Depreciated 5,103,057 2,366,637 - (87,755) 7,381,939
Capital Assets, Being Depreciated:

Water Utility Plant 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Total Capital Assets, Being Depreciated 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Less Accumulated Depreciation for:

Water Utility Plant (15,723,755) (500,102) 1,379,658 - (14,844,199) Total Accumulated Depreciation (15,723,755) (500,102) 1,379,658 - (14,844,199) Total Capital Assets, Being Depreciated, Net
Water Utility Plant 8,041,598 1,166,560 (409,841) 87,755 8,886,072 Total 8,041,598 1,166,560 (409,841) 87,755 8,886,072
Total Capital Assets, Net 13,144,655 $ 3,533,197 $ (409,841) $ - $ 16,268,011 $ The Water Fund’s total depreciation expense for the year was $500,102.

NOTE 6 LONG-TERM OBLIGATIONS
As of June 30, 2022, outstanding debt obligations consisted of the following:
$14,840,000 Water System Revenue Bonds (2020 Series A)
At June 30, 2022, $14,600,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of water revenues payable to bondholders. The debt service remaining on the bonds is $25,040,038, payable through fiscal 2051. For the current year, debt service and net water revenues were $827,975 and $3,194,732, respectively. Under the Indenture of Trust dated May 6, 2020, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Water Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(23)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
A summary of the bonds payable under the Water Fund is as follows:

Fixed Annual Original
Interest Principal Issue Outstanding
Bonds Maturity Rates Installments Amount June 30, 2022
City of Vernon 08/01/50 5.00% To begin 08/01/21: 14,840,000 $ $ 14,600,000 Water System Revenue Bonds, $240,000 -
2020 Taxable Series A $3,785,000
Premium 535,833
Total Revenue Bonds $ 15,135,833
Note Payable – Direct Borrowing
In May 2019, the City entered into an agreement with Water Replenishment District of Southern California (WRD) for assistance with the construction of a new groundwater well or rehabilitation of an existing groundwater well. The promissory note is unsecured and has no interest basis for an amount not to exceed $1,500,000. As of June 30, 2022, WRD has disbursed all of the funds under the agreement to the City. The note is payable in quarterly principal payments commencing September 1, 2020, in an amount which, together with all quarterly payments, will be sufficient to fully amortize the principal balance of the note by the maturity date of April 1, 2031.

Upon an event of default, WRD may declare any or all of the outstanding and unpaid principal balance immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice, declaration or act of any kind, all of which are hereby expressly waived by the City.

Debt Service Requirements
As of June 30, 2022, annual debt service requirements of the Water Fund to maturity are as follows:

Water System Revenue Bonds
2020 Taxable Series A
Fiscal Year Ending June 30, Principal Interest
2023 $ 250,000 $ 575,725
2024 265,000 562,850
2025 275,000 549,350
2026 - 542,475
2027 - 542,475
2028-2032 1,985,000 2,563,500
2033-2037 2,180,000 2,052,625
2038-2042 2,680,000 1,535,450
2043-2047 3,180,000 1,051,925
2048-2051 3,785,000 463,663
Total Requirements $ 14,600,000 $ 10,440,038

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(24)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Debt Service Requirements (Continued)
Note Payable - Direct Borrowing
Fiscal Year Ending June 30, Principal Interest
2023 139,535 $ - $
2024 139,535 -
2025 139,535 -
2026 139,535 -
2027 139,535 -
2028-2031 523,256 -
Total Requirements 1,220,930 $ - $
Changes in Long-Term Liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022:

Amounts
Balance Balance Due Within
June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 14,840,000 $ - $ (240,000) $ 14,600,000 $ 250,000 $ Bond Premium 554,913 - (19,080) 535,833 -
Note Payable - Direct Borrowing 1,360,465 - (139,535) 1,220,930 139,535 Compensated Absences 103,191 79,892 (98,875) 84,208 28,069 Total 16,858,569 $ 79,892 $ (497,490) $ 16,440,971 $ 417,604 $ Credit Ratings
As of June 30, 2022, the ratings on all Water System Revenue Bonds is A-/Stable by S&P and not rated by Moody’s.

NOTE 7 RISK MANAGEMENT
The Water Fund is in the City’s self-insurance program as part of its policy to self-insure certain levels of risk within separate lines of coverage to maximize cost savings.

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets, errors and omissions; injuries to employees, and natural disasters.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(25)
NOTE 7 RISK MANAGEMENT (CONTINUED)
Starting in Fiscal 2010, the City chose to establish Risk Financing in the General Fund, whereby assets are set aside for claim-litigation settlements associated with the abovementioned risks up to their self-insured retentions or policy deductibles. Athens Administrators Inc. is the Third-Party Administrator for the City’s workers’ compensation program, and they provide basic services for general liability claims and litigation.

The insurance limits for the fiscal year 2022 are as follows:

Deductible/SIR
Insurance Type Program Limits (Self-Insured Retention)
Excess Liability Insurance $20,000,000 $2,000,000 SIR per occurrence D and O Employment Practice $2,000,000 $150,000 SIR non-safety; $150,000 SIR safety Excess Workers Compensation $50,000,000 $1,500,000 SIR per occurrence for presumptive loss Employer's Liability $1,000,000 $1,000,000 SIR per occurrence for all employees Commercial Property Insurance $100,000,000 $25,000 except:
$25,000,000 Flood Sublimit $250,000 power stations
$1.5/kVA transfers, subject to a $250,000 minimum
$500,000 named transformers
Employee Dishonest - Crime $1,000,000 $25,000
Pollution - Site Owned $5,000,000 $25,000 for non-utility locations, divested locations and scheduled storage tanks
$50,000 for utility locations
$100,000 for natural gas pipeline
Cyber Liability $3,000,000 $100,000
Contractors Equipment/Auto $10,000,000 Maximum Loss Per Occurrence $5,000 Physical Damage $1,000,000 Equipment Limit-loss or damage to any one piece
Residential Property Insurance $8,023,126 Blanket Building Limit $2,500 $89,013 Blanket Business Personal Property Limit
Terrorism and Sabotage $100,000,000 Policy Aggregate N/A $5,000,000 Active Shooter and Malicious Attack
Per Occurrence/Aggregate
$5,000,000 Terrorism and Sabotage Liability
Per Occurrence/Aggregate
The City has numerous claims and pending litigations, which generally involve accidents and/or liability or damage to City property. The balance of claims/litigations against the City is in the opinion of management, ordinary routine matters, incidental to the normal business conducted by the City. In the opinion of management, such proceedings are substantially covered by insurance, and the ultimate dispositions of such proceedings are not expected to have a material adverse effect on the Water Fund’s financial position, results of operations or cash flows. Further information regarding the City’s self-insurance program may be found in the City’s Annual Financial Report.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(26)
NOTE 8 PENSION PLAN
A. General Information About the Pension Plans
Plan Descriptions
All full-time safety and miscellaneous personnel and temporary or part-time employees who have worked a minimum of 1,000 hours in a fiscal year are eligible to participate in the City’s cost-sharing and agent multiple-employer defined benefit pension Safety and Miscellaneous Plans, respectively, administered by the California Public Employees’ Retirement System (CalPERS) that acts as a common investment and administrative agent for participating public entities within the state of California. The City allocates the costs of these Plans across all City departments. The Water Fund’s proportionate share of the net pension liability of these Plans is reported as a cost-sharing plan in the financial statements. Benefits vest after five years of service. Employees who retire at the minimum retirement age with five years of credited service are entitled to retirement benefits. Monthly retirement benefits are based on a percentage of an employee’s average compensation for his or her highest consecutive 12 or 36 months of compensation for each year of credited service.

Benefits Provided
Miscellaneous members hired prior to January 1, 2013, with five years of credited service may retire at age 55 based on a benefit factor derived from the 2.7% at 55 Miscellaneous formula or may retire between ages 50 and 54 with reduced retirement benefits. New Miscellaneous members (PEPRA) with five years of credited service may retire at age 62 based on a benefit factor derived from the 2% at 62 Miscellaneous formula or may retire between age 52 and 61 with reduced retirement benefits. The benefit factor increases to a maximum of 2.5% at age 67. Safety members with five years of credited service may retire at age 50 based on a benefit factor derived from the 3% at 50 Safety formula for sworn Police and Fire Department employees. New Safety members (PEPRA) with five years of credited service may retire at age 57 based on a benefit factor derived from the 2.7% at 57 Safety (PEPRA) formula or may retire between age 50 and 56 with reduced retirement benefits for new Safety (PEPRA) members of both Police and Fire Departments. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute provided through a contract between the City and CalPERS.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(27)
NOTE 8 PENSION PLAN (CONTINUED)
A. General Information About the Pension Plans (Continued) Benefits Provided (Continued)
The Plans’ provisions and benefits in effect as of the measurement date of June 30, 2021, are summarized as follows:

Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute to the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2022, the Water Fund’s share of employer contributions made to the Plans was $459,607.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(28)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions
Actuarial Assumptions
The net pension liability of each of the Plans is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

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

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(29)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Long-Term Expected Rate of Return (Continued)
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’ asset classes, expected compound (geometric) returns were calculated over the short term (first 10 years) and the long-term (11+ years) using a building block approach. Using the expected nominal returns for both short term and long term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The expected real rates of return by asset class are as follows:

Assumed Real Return Real Return
Asset Years Years
Asset Class (a) Allocation 1 - 10 (b) 11+ (c)
Global Equity 50.00% 4.80% 5.98%
Fixed Income 28.00 1.00% 2.62%
Inflation Assets 0.00 0.77% 1.81%
Private Equity 8.00 6.30% 7.23%
Real Assets 13.00 3.75% 4.93%
Liquidity 1.00 0.00% -0.92%
Total 100.00%
(a)
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(30)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
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 in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021.

Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the Water Fund
The Water Fund’s net pension liability for the Plans is measured as the proportionate share of the combined net pension liability of the City’s miscellaneous and safety agent multiple-employer plans. The Water Fund’s proportionate share of the combined net pension liability was based on the Water Fund’s current year share of contributions to the pension plans relative to the City’s total current year contributions to the pension plans.

The Water Fund’s proportionate share of the combined net pension liability for the pension plans as of the measurement date ended June 30, 2020 and 2021 were as follows:

Increase (Decrease)
Total Plan Net Pension
Pension Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 13,094,244 17,762,255 $ 4,668,011 $ 3.45% Balance at June 30, 2021 (MD) 17,866,870 20,712,814 2,845,943 3.23% Net Changes during 2020-21 2,950,559 $ 4,772,626 $ $ -0.22% (1,822,067)

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(31)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Pension Expense and Deferred Outflows and Inflows of Resources For the measurement period ended June 30, 2021, the Water Fund recognized its proportionate share of the combined pension expense of the Plans, totaling $67,423. At June 30, 2022, the Water Fund reported its proportionate share of the Plans’ deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension Contributions Subsequent
to Measurement Date 459,607 $ - $
Differences Between Actual and
Expected Experience 394,025 -
Change in Assumptions - -
Net Differences Between Projected and
Actual Earnings on Plan Investments - (1,610,826)
Differences Between Employer Contributions
And Proportionate Share of Contributions - (163,253)
Change in Employer's Proportion 63,647 (16,817)
Total $ 917,279 $ (1,790,896)
$459,607 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended June 30, Total
2023 $ (240,409)
2024 (274,651)
2025 (370,754)
2026 (447,410)
2027 -
Thereafter -

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(32)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the Plans’ combined net pension liability, calculated using a discount rate of 7.15%, as well as what the Water Fund’s proportionate share of the Plans’ combined net pension liability would be if it were calculated using a discount rate that is a 1-percentage point lower or a 1-percentage point higher than the current rate:

Total
1% Decrease 6.15%
Net Pension Liability $ 5,011,809
Current Discount Rate 7.15%
Net Pension Liability $ 2,845,943
1% Increase 8.15%
Net Pension Liability $ 1,069,110
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

Payable to the Pension Plan
At June 30, 2022, the Water Fund had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022.

NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB)
The other postemployment benefits (OPEB) described in the following paragraphs relate to the City’s OPEB plan. The Water Fund’s share of the net pension liability of the City’s OPEB Plan is reported as a cost-sharing plan in these financial statements since the Water Fund’s operations are handled by City employees who are eligible to participate in the City’s OPEB Plan.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(33)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Benefits Provided
Retiree medical and dental benefits are established through the City’s Fringe Benefits and Salary Resolution as well as individual memoranda of understanding between the City and the City’s various employee bargaining groups. Generally, the City will provide postemployment benefit plan for the employee only to those who retire at age sixty (60) or later with twenty (20) years of continuous uninterrupted service, up to the age of sixty-five (65). Alternatively, employees who retire before the age of sixty (60) with twenty (20) years of continuous uninterrupted service, will be permitted to pay their medical and dental premium cost and upon reaching the age of sixty (60), the City will pay the premium for the medical and dental plans until they reach the age of sixty-five (65).

Resolution 2012-217 granted specific retiree medical benefits to employees who retired during the 2012 2013 fiscal year in order to provide an incentive for early retirement whereby the City authorized the payment of medical and dental insurance premiums for eligible retiring employees and their eligible dependents with at least ten (10) years of service plus 5% for each additional full year of service above the ten (10) years of service.

Resolution 2013-06 declared that the retiree medical benefits which had not been a vested right for employees will continue to be a nonvested right for employees who continue to be employed by the City on or after July 1, 2013, but will be a vested right for those who retire during the 2012-2013 fiscal year. The City’s plan is considered a substantive OPEB plan and the City recognizes costs in accordance with GASB Statement No 75. The City may terminate its unvested OPEB in the future.

Funding Policy and Contributions
The City has established an irrevocable OPEB trust with assets dedicated to paying future retiree medical benefits. The City intends to contribute 100% or more of the actuarially determined contribution for the explicit subsidy liability only. The portion of the liability due to the implicit subsidy is not prefunded but is paid as benefits come due. For the fiscal year ended June 30, 2022, the Water Fund’s proportionate share of contributions made was $94,830 ($49,746 contributed to the OPEB trust, $29,288 paid for retiree premiums, and the estimated implied subsidy of $15,796).

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(34)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Actuarial Assumptions (Continued)
Explicit subsidy benefit payments by employee group were allocated based on expected benefit payments. The following actuarial assumptions, applied to all periods included in the measurement unless otherwise specified:

Funding Method: Entry age normal level percent of pay cost method Inflation: 2.25%
Salary Increases: 2.75% annual increases
Long-Term Return on Assets: 6.25% net of investment expenses Discount Rate: 6.25%
Healthcare Cost Trend Rates: 6.3% for FY2022, gradually decreasing over several decades to ultimate rate of 3.8% in FY76 and later
years
Mortality: 2017 CalPERS Experience Study. Tables include 15 years of static mortality improvement using 90%
of scale MP-2016
Long-Term Expected Rate of Return
The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class.

Long-Term
Target Expected Real
Asset Class Allocation Rate of Return
CERBT Strategy 1:

Equity 59.00% 4.42%
Fixed Income 25.00 1.00%
TIPS 5.00 0.15%
Commodities 3.00 3.98%
REITs 8.00 1.73%
Total 100.00%
Discount Rate
The discount rate used to measure the total OPEB liability was 6.25%. The projection of cash flows used to determine the discount rate assumed that City’s contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(35)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Allocation of the Net OPEB Liability
The Water Fund’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2020 and 2021 was as follows:

Increase (Decrease)
Total Plan Net OPEB
OPEB Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2020 (MD) $ 241,617 938,946 $ 697,329 $ 3.45% Balance at June 30, 2021 (MD) 356,171 885,514 529,343 3.23% Net Changes during FY 2020-21 $ (53,432) $ 114,554 $ (167,986) -0.22% Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the net OPEB liability if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate:

Discount Rate
1% Decrease Current Rate 1% Increase
(5.25%) (6.25%) 7.25%)
Net OPEB Liability $ 529,343 628,426 $ 446,130 $
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the Water Fund’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate:

Healthcare Trend Rate
1% Decrease Current Rate 1% Increase
Net OPEB Liability $ 529,343 487,506 $ 570,961 $
OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the Water Fund recognized its proportionate share of the OPEB expense(revenue) of $(27,257). At June 30, 2022, the Water Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

CITY OF VERNON

WATER FUND

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
(36)
NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB (Continued)
Deferred Deferred
Outflows Inflows
of Resources of Resources
Contributions Between Measurement Date and
Reporting Date $ 94,830 $ -
Difference Between Expected and Actual Liability 4,487 (114,095) Changes of Assumptions 14,448 (121,225)
Net Differences Between Projected and Actual
Earnings on Investments - (35,787)
Total $ 113,765 $ (271,107)
The $94,830 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Deferred
Outflows
(Inflows)
Fiscal Year Ending June 30, of Resources
2022 $ (75,491)
2023 (75,491)
2024 (75,530)
2025 (72,853)
2026 50,007
Thereafter (2,814)
Payable to the OPEB Plan
At June 30, 2022, the Water Fund had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022.

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF VERNON

WATER FUND

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(37)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 Plan’s Proportion of the
Net Pension Liability 3.23% 3.45% 3.28% 3.11% 3.74% 3.80% Plan’s Proportionate Share of the
Net Pension Liability 2,845,943 $ 4,668,011 $ 3,964,339 $ 3,533,209 $ 4,100,788 $ 3,619,851 $ Plan’s Covered Payroll 792,625 891,592 925,620 1,100,727 1,038,438 499,838 Plan’s Proportionate Share of the
Net Pension Liability as a
Percentage of Covered Payroll 359.05% 523.56% 428.29% 320.99% 394.90% 724.20% Plan Fiduciary Net Position as a
Percentage of the Total
Pension Liability 85.45% 74.79% 76.15% 77.68% 77.85% 78.91% Notes to Schedule:

Benefit Changes:

There were no changes in benefits.

Changes in Assumptions:

From fiscal year June 30, 2017 to June 30, 2018:

The discount rate was reduced from 7.65% to 7.15%.

From fiscal year June 30, 2018 to June 30, 2019:

There were no significant changes in assumptions.

From fiscal year June 30, 2019 to June 30, 2020:

There were no significant changes in assumptions.

From fiscal year June 30, 2020 to June 30, 2021:

The inflation rate was increased from 2.5% to 2.625%
The payroll growth rate was reduced from 3.00% to 2.875%.

From fiscal year June 30, 2021 to June 30, 2022:

The inflation rate was decreased from 2.625% to 2.5%
The payroll growth rate was reduced from 2.875% to 2.75%.

The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Water Fund; therefore only six years are shown.

CITY OF VERNON

WATER FUND

SCHEDULE OF PLAN CONTRIBUTIONS

CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(38)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined
Contributions 459,607 $ 435,752 $ 404,765 $ 339,930 $ 354,831 $ 346,113 $ Contributions in relation to the
Actuarially Determined
Contributions (459,607) (435,752) (404,765) (339,930) (354,831) (346,113) Contribution :

Deficiency (Excess) - $ - $ - $ - $ - $ - $
Covered Payroll 819,206 $ 792,625 $ 891,592 $ 925,620 $ 1,100,727 $ 1,038,438 $ Contributions as a Percentage
of Covered Payroll 56.10% 54.98% 45.40% 36.72% 32.24% 33.33% Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 6/30/2014 Methods and Assumptions Used to
Determine Contribution Rates:

Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Entry Age Amortization Method (1) (1) (1) (1) (1) (1)
Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Inflation 2.625% 2.625% 2.625% 2.75% 2.75% 2.75%
Salary Increases (2) (2) (2) (2) (2) (2)
Investment Rate of Return 7.00% (3) 7.25% (3) 7.25% (3) 7.375% (3) 7.50% (3) 7.50% (3) Mortality (4) (4) (4) (4) (4) (4)
(1) Level percentage of payroll, closed.
(2) Depending on age, service, and type of employment.
(3) Net of pension plan investment expense, including inflation. (4) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board.
* Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Water Fund; therefore only six years are shown.

CITY OF VERNON

WATER FUND

SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS *
(39)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the
Net OPEB Liability 3.23% 3.45% 3.28% 3.11% 4.08%
Plan’s Proportionate Share of the
Net OPEB Liability 529,343 $ 697,329 $ 719,261 $ 719,107 $ 1,482,614 $ Plan’s Covered-Employee Payroll 1,093,781 1,048,734 1,095,236 1,368,166 1,368,760 Plan’s Proportionate Share of the
Net OPEB Liability as a Percentage
of Covered-Employee Payroll 48.40% 66.49% 65.67% 52.56% 108.32% Plan Fiduciary Net Position as a
Percentage of the Total OPEB Liability 40.22% 25.70% 16.30% 8.62% 2.83% Notes to Schedule:

Changes in Assumptions:
* Fiscal year 2018 was the first year of implementation; therefore only five years are shown.

In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after age 65.

The mortality improvement rates for the measurement periods ended June 30, 2017 and 2018 were based on the Scale MP-2016 and Scale-2018, respectively.

CITY OF VERNON

WATER FUND

SCHEDULE OF OPEB CONTRIBUTIONS
LAST TEN FISCAL YEARS *
(40)
Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined
Contribution 49,744 $ 53,086 $ 63,389 $ 83,829 $ 109,990 $ Contributions in relation to the
Actuarially Determined
Contribution (94,830) (108,041) (128,484) (93,060) (84,361) Contribution:

Deficiency (Excess) (45,086) $ (54,954) $ (65,095) $ (9,231) $ 25,629 $ Covered Payroll $ 1,024,922 $ 1,093,781 $ 1,048,734 $ 1,095,236 $ 1,368,166 Contributions as a Percentage
of Covered-Employee Payroll 9.25% 9.88% 12.25% 8.50% 6.17% Notes to Schedule:

Valuation Date 6/30/2019 6/30/2018 6/30/2018 6/30/2016 6/30/2016 Methods and Assumptions Used to
Determine Contribution Rates:

Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Amortization Method (1) (1) (1) (1) (1)
Amortization Period 28 years 28 years 27 Years 27 Years 29 Years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75%
Healthcare Trend Rates (7) (6) (3) (3) (2)
Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5) (5) (5) (5) (4)
(1) Level percentage of payroll, closed.
(2) 8.50% trending down to 5.00%.
(3) 6.90% trending down to 4.00%.
(4) CalPERS December 2014 experience study.
(5) CalPERS December 2017 experience study.
(6) 6.70% trending down to 3.80%.
(7) 6.30% trending down to 3.80%.
* Fiscal year 2018 was the first year of implementation; therefore five years year are shown.

City Council Agenda Report
Meeting Date: October 17, 2023
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Administrative Analyst
Subject
Vernon Public Utilities 2023 Integrated Resource Plan (IRP) Recommendation
A. Find that approval of the proposed action is exempt from California Environmental Quality Act (CEQA) review, because it is a continuing administrative activity that will not result in direct or indirect physical changes in the environment, and therefore does not constitute a “project” as defined by CEQA Guidelines Section 15378;
B. Approve and adopt the Vernon Public Utilities 2023 IRP; and C. Authorize the General Manager of Public Utilities to take all necessary actions to implement the IRP, consistent with California State law mandates, including but not limited to periodic updates and IRP revisions.

Background
Vernon Public Utilities’ (VPU) 2023 IRP is a comprehensive 20-year strategy that outlines the Utility’s plan for how it will continue to meet its customers’ need for reliable and cost-effective electric service while meeting various regulatory initiatives, generating and procuring clean energy, and the continuous investment in the distribution system infrastructure while addressing system constraints. Senate Bill (SB) 350 requires Publicly Owned Utilities (POUs), like VPU, to develop an IRP at least once every five years. The last IRP was filed in 2018.

The IRP outlines the process for developing a resource acquisition strategy that balances supply and demand. This roadmap aims to help make short-term and long-term decisions on how the utility will comply with several legislative requirements. Specifically, SB 350’s requirement to reduce greenhouse gas emissions by 40% to 1990 levels by 2030 and 100% of retail load with clean energy by 2045, as well as SB 1020, which mandates that 90% of the load be served by clean energy by 2035 and 95% a load with clean energy by 2045.

Over the past five years, the Utility’s Integrated Resource team has worked diligently to transform the power portfolio and can proudly share that VPU has met the goals identified in the 2018 IRP; increased its renewable generation by 43.3% and affirmed that more than 50% of its resources are carbon-free.

It’s important to know that VPU recently signed two Power Purchase Agreements (PPAs) for two large solar projects: Daggett Solar for 60 megawatts (MW) of capacity with an expected commercial operation of December 2023, and Sapphire Solar for 39 MW of capacity with an anticipated commercial operation date of December 2026. As part of these PPAs, VPU will also acquire a total of over 50 MW of four–hour energy storage: 30 MW from Daggett and 19.6 MW from Sapphire. These two solar agreements greatly surpass what was recommended in the 2018 IRP.

VPU’s goal for the 2023 IRP is to continue to procure reliable, affordable, renewable, and zerocarbon energy while addressing the growth of transportation and building electrification, demand for energy efficiency and demand side management initiatives, and the growing advancements with distributed energy technologies.

To assist with this effort, on March 21, 2023, the City Council approved a services agreement with Ascend Analytics (Ascend) to assist VPU staff with developing a comprehensive IRP Strategy. Ascend has assisted many of the neighboring POUs with designing Portfolio Options using their proprietary PowerSIMM modeling software that includes resource mixes, availability in the market, costs, and analyzes them to develop preferred portfolio options.

IRP Process
During the planning process, VPU engaged community stakeholders to seek guidance and direction on key decisions for preferred portfolios of generation, demand, and distributed resources, including cost. VPU spent several months on stakeholder outreach by conducting inperson meetings, circulating a comprehensive survey, informing them about the IRP process, and garnering input for developing Portfolio Options. Part of the outreach was to inform stakeholders of the challenges facing VPU and to obtain valuable insight into the customers’ needs and priorities.

VPU stakeholders included city residents, current and prospective property and business owners, property developers, business employees, the Vernon Business and Industry Commission, the Green Vernon Commission, the Vernon Chamber of Commerce, the City Council, and commissioners, to name a few.

Through the stakeholder meetings and feedback from the survey, Vernon customers made their priorities clear, which was to ensure that the utility continued to provide reliable electric service and maintained low rates. Responses from the survey also provided helpful insight; more than 80% of the respondents were either satisfied or very satisfied with the services provided by VPU, and more than 70% of respondents felt there was a direct correlation with rates increasing if VPU exceeded the state’s Renewable Portfolio Standards (RPS) target.

A total of three stakeholder meetings were held on March 15th, May 11th, and June 21, 2023.

Throughout the process, presentations were made that provided an overview of the survey results, explained the IRP process, summarized legislative requirements, described the scenario modeling process, and provided details regarding the final three scenarios for consideration, along with the associated costs.

VPU communicated information about both the community meetings, as well as a survey through several outreach channels which included advertisements in the paper, use of social media platforms, printed mail seeking participation in the survey and meetings, email updates, newsletters, as well as direct phone calls to customers.

Portfolio Options
IRP modeling is a multi-step process where staff worked with Ascend to gather data on VPU supply resources and load, including historical data, projections for resource updates, and expected changes in customer load. Ascend’s modeling provides several scenarios that vary in system costs, reliability, emissions, and resource operations. The Portfolio Options explored a different mixture of resource options, and renewable generation such as geothermal, solar photovoltaic (PV), wind, and clean energy like hydrogen, Carbon Capture Sequestration, hydroelectric, and nuclear, as well as battery storage for capacity.

Portfolio 1 includes procuring solar PV from northern and southern CA, the most cost-effective wind and four-hour battery storage options, and maintaining operations of the utility’s natural gas power plant, Malburg Generating Station (MGS), until 2035. Portfolio 2 is similar to Portfolio 1 but includes assumptions to procure nearly 70 MW of geothermal. Portfolio 3 does not include geothermal but considers fuel switching the MGS to produce an output of approximately 45 MW of green hydrogen and includes wind and battery storage.

Portfolio 1 was selected as the preferred portfolio primarily because geothermal and hydrogen are estimated to be much more expensive than the four-hour battery storage and the sheer volume of solar resources available in today’s market. The total supply costs for Portfolio 2 and Portfolio 3 are significantly higher than the total supply cost for Portfolio 1. These costs are a function of the expected resource costs 10 to 15 years from now, which include a significant amount of uncertainty and risk. Pursuing Portfolio 1 would achieve the renewable and zerocarbon generation goals, maintain the utility’s ability to provide reliable service and affordable rates, and meet all statutory requirements. VPU’s ongoing goal is to strive for competitive and stable rates and provide high reliability throughout the entire planning period of 2023 through 2045.

If adopted by the City Council (VPU’s governing board), the 2023 IRP will be submitted to the California Energy Commission as required by SB 350. Compliance filing must include the IRP, supporting information, and the four standardized tables.

Fiscal Impact
There is no fiscal impact associated with this report.

Attachments

1. Vernon Public Utilities 2023 Integrated Resource Plan

VERNON PUBLIC UTILITIES

CITY OF VERNON
October 17, 2023
City Council Meeting

INTEGRATED

RESOURCE PLAN (IRP)
October 17, 2023
Item 13
Staff Presentation
2023 IRP
W hat is the Purpose of the
IRP Document?
An IRP is a planning document that outlines how a utility plans to meet its energy and capacity needs, policies and regulations, physical and operational constraints, and
other priorities.

The City’s 2023 IRP will serve as a 20-year blueprint for ensuring reliable and environmentally-responsible
energy, at competitive and affordable rates.

Legislative Requirements
Updated every 5 years – last IRP was adopted
November 2018

INTEGRATED

RESOURCE PLAN
IRP
Senate Bill 350
• Reduce GHG
emissions by
40% from 1990
level by 2030
Senate Bill 100
• Requires at least 60%
of load served by
renewable energy in
2030 Requires 100%
retail load served by
clean energy by 2045
Senate Bill 1020
• Requires 90% of
load served by clean
energy by 2035
• Requires 95% of
load be served clean
energy by 2040
Policy and Regulation
Compliance Regulations

RESOURCE MIX
VPU

GEOTHERMAL GREEN HYDROGEN

ANALYZED PORTFOLIO OPTIONS

SOLAR, W IND & STORAGE
• MGS is kept in a 2x1 configuration
until the end of 2029 at a 139
MW capacity
• In 2030, convert to a 1x1
configuration at 67 MW capacity
• Solar and Wind additions to fill
RPS gap
• Resource Adequacy (RA) gaps
are filled with new battery
storage projects
• MGS is kept in a 2x1 configuration
until the end of 2029 at a 139
MW capacity
• In 2030, convert to a 1x1
configuration at 67 MW capacity
• Solar and Wind additions to fill
RPS gap
• Up to a 70MW¹ of Geothermal is
added by January 2036
• 70 MW of geothermal is the
estimated size required for
replacing MGS 1x1 capacity
starting in 2036
• MGS is kept in a 2x1 configuration
until the end of 2029 at a 139 MW
capacity
• In 2030, convert to a 1x1
configuration at 67 MW capacity
• Solar and Wind additions to fill RPS
gap
• Two 45 MW Combustion Turbine
Burning Hydrogen are installed at
MGS Site
• Hydrogen CT turbines come in 45
MW units; two units are required
to replace MGS 1x1 configuration
starting in 2036
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
Planning, Analysis, & Modeling Community Stakeholder Outreach • Understanding the priorities and concerns of
customers and stakeholders was crucial in
developing the IRP.
• VPU created a website, held in-person
meetings, and circulated an electronic survey.
• Customers made their top 2 priorities very
clear—reliable service and affordable rates.
• VPU contracted Ascend Analytics to assist
w ith utilizing forecasts, data modeling, and
developing a comprehensive strategy and an
optimal portfolio.
• The 2023 IRP is designed to smoothly
transition and address the goals and targets
outlined in the 2018 IRP to ensure the utility can
successfully meet the aggressive state energy
policies set by 2045.

IRP
Process
IRP

MARCH MAY JUNE OCT NOV/DEC
1st Community Meeting
Introduce IRP Process
and Survey Input
2nd Community Meeting
Present Survey Results
3rd Community Meeting
Present Survey Findings
and Scenarios to Model
IRP Presentation
at City Council
Meeting
Submit Final IRP
to CEC

TIMELINE

MARCH MAY JUNE
Questions

VERNON PUBLIC UTILITIES
www.cityofvernon.org/IRP2023

Vernon City CouncilOctober 17, 2023

Vernon City Council
October 17, 2023