ML22125A097

Independent Spent Fuel Storage Installation - 2021 Annual Financial Report

ML22125A097
Person / Time
Site:	07200011
Issue date:	04/20/2022
From:	Gacke B Sacramento Municipal Utility District (SMUD)
To:	Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
DPG 22-054
Download: ML22125A097 (72)

Text

Powering forward. Together.

April 20, 2022

DPG 22-054

Attn: Document Control Desk Director, Division of Fuel Management Office of Nuclear Material Safety and Safeguards U.S. Nuclear Regulatory Commission Washington, DC 20555-0001

Docket No. 72-11 Rancho Seco Independent Spent Fuel Storage Installation Renewed License No. SNM-2510

2021 ANNUAL FINANCIAL REPORT

Attention: Chris Allen

In accordance with 10 CFR 72.B0(b), I am submitting the Financial Statements - Report of Independent Auditors for the period ending December 31, 2021 and 2020 for the Sacramento Municipal Utility District (SMUD).

If you or members of your staff have questions requiring additional information or clarification, please contact me at (916) 732-4812.

• 1-100Lf

Brad Gacke /JtJJ5S20 Manager, Rancho Seco Assets f\\)ff 5 5 Zip

Enclosure cc : RIC : 1 F.099 tJlvf:55

Rancho Seco Nuclear Generating Station I 14440 Twin Cities Road I Herald, CA 95638-9799 I 916.452.3211 I smud.org Financial Statements Report of Independent Auditors

December 31, 2021 and 2020

0162 -22 SACRAMENTO MUNICIPAL UTILITY DISTRICT TABLE OF CONTENTS As of and for the Years Ended December 31, 2021 and 2020

Report of Independent Auditors

Required Supp lementary Information - Unaudited

Management's Discussion and Ana lysis 4

Financial Statements 14

Notes to Financial Statements

Note I. Organization 19

Note 2. Summary of Significant Accounting Policies 19

Note 3. Accounting Change 27

Note 4. Electric Uti lity Plant 27

Note 5. Inve stment in Joint Powers Authority 28

Note 6. Component Units 30

Note 7. Cash, Cash Equivalents, and Investments 33

Note 8. Regu latory Deferrals 36

Note 9. Derivative Financial Instruments 38

Note 10. Long-term Debt 44

Note 11. Commercial Paper Notes 49

Note 12. Fair Value Measurement 50

Note 13. Accrued Decommissioning Liability 52

Note 14. Pension Plans 54

Note 15. Other Postemployment Benefits 58

Note 16. Insurance Programs and Claims 62

Note 17. Commitments 63

Note 18. Claims and Contingencies 64

Note 19. Subsequent Events 65 SACRAMENTO MUNICIPAL UTILITY DISTRIT TABLE OF CONTENTS - CONTINUED As of and for the Years Ended December 3.1, 2021 and 2020

Required Supplementary Information - Unaudited

Schedule of Changes in Net Pension Liability and Related Ratios 67 During the Measurement Period - PERS Plan

Schedule of Plan Contributions for Pension - PERS Plan 68

Schedule of Changes in Net OPEB Asset or Liability and Related Ratios 69 During the Measurement Period

Schedule of Plan Contributions for OPEB 70 7

ose of expressing an opinion on the effectiveness of the Sac.ramento Municipal Utility District'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..

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Sacramento -Municipal Utility District's ability to continue as a going concern for a reasonable period of time.

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

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the required supplementary information, as. listed in the table of contents be presented to supplement the basic financial statements. Such information is the responsibility of management and ; although not a part.of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational,

economic or historical context. We have, applied certain limited procedures to the required supplementary information in accordance with auditing 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.

2

J Other Reporting Required by Government Auditing Standards

In accordance with Government Auditihg Standards, we have also issued our report dated March 1, 2022 on our consideration of Sacramento Municipal Utility District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is solely to desc ribe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Sacramento Mu nicipal Utility District's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Aud iting Standards in considering Sacramento Municipal Utility District's internal coritrol over financial reporting and compliance.

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Madison, Wisconsin March 1, 2022

3 Sacramento Municipal Utility District Management's Discussion and Analysis - Unaudited For the years Ended December 31, 2021 ~nd 2020

Using this Financial Report This annual fiAancial report for Sacramento Municipal Utility District (SMUD) consists of management's discussion and analysis and the financial statements, including notes to financial statements. The Financial Statements consist ofth~ Statements of Net Position, the Statements of Revenue, Expenses and Changes in Net Position and the Statements of Cash Flows.

SMUD maintains its accounting records in accordance with Generally Accepted Accounting Principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB). SMUD's accounting records generally folio the Uniform System of Accounts for Public Utilities

• and Licensees prescribed by the Federalinergy Regulatory Commission (FERC), except as it relates to accounting for contributions of utility property in aid of construction.

Overview of the Financial Statements

The following discussion and analysis of the financial performance of SMUD provides an overview of the financial activities for the years ended December 31, 2021 and 2020. This discussion and analysis should be read in conjunction with the financial statements, required supplementary information and accompanying notes, which follow this section.

The Statements of Net Position provide information about the nature and amount of resources and obligations at a specific point in time.

The Statements of Revenues, Expenses and Changes in Net Position report all SMUD's revenues and expenses for the periods shown.

The Statements of Cash Flows report the cash provided and used by operating activities, as well as other cash sources, such as investment income and debt financing, and other cash uses such as payments for debt service and capital additions.

The Notes to Financial Statements provide additional detailed information to support the financial statements.

Required Supplementary Information provides additional detailed disclosures as required by the GASB.

Organization and Nature of Operations SMUD was formed and operates under the State of California Municipal Utility District Act (Act). The Act gives SMUD the rights and powers to fix rates and charges for commodities or services it furnishes, and to incur indebtedness and issue bonds or other obligations. As a community-owned utility, SMUD is not subject to regulation or oversight by the California Public Utilities Commission.

SMUD is responsible for the acquisition, generation, transmission, and distribution of electric power to its service area, with a population of approximately 1.5 million - most of Sacramento County and small adjoining portions of Placer and Yolo Counties. The Board of Directors (Board) determines SMUD ' s rates.

SMUD ' s vision is to be the trusted partner with its customers and the community, providing innovative solutions to ensure energy affordability and reliability, improve the environment, reduce the region's carbon footprint, and enhance the vitality of the community. SMUD ' s business strategy focuses on serving its customers in a progressive, forward-looking manner, addressing current regulatory and legislative issues and potential competitive forces. This includes ensuring financial stability by

4 estab lishin g rates that provide acceptable cash coverage of a ll fixed charges, taking into consideration the impact of capita l expend itur es and other factors on cash flow.

2030 Zero Carbon Plan

In July 2020, the Board adopted a C lim ate Emergency Declaration to work toward an ambitious goal of delivering carbon neutral electricity by 2030 'and indicating a strong commitment to finding additional opportunities to accelerate decarbonization in our energy supply. Building on the Board ' s Climate Emergency Declaration, SMUD's 2030 Clean Energy Vision calls for absolute zero carbon emission in its power supply by 2030.

In 2021, SMUD ' s 2030 Clean Energy Vision was translated into the 2030 Zero Carbon Plan, the flexible road map to achieve a zero-carbon power

• supply by 2030. The plan g uid es elimination ofGHG emissions from SMUD's power plants, development of new distributed energy resource business models, research of emerging grid-scale carbon-free technologies, and expansion of investments in proven clean technologies wh il e ensuring a ll communities benefit from the plan.

COVID-19 Global Pandemic

In 2021, SMUD continued to support its customers during the COVID-19 pandemic. At the start of the pandemic in March 2020, SMUD provided its electric customers with suspension of disconnections and stopped collections, late fee, and security deposit processes for a ll customers to support them during this difficult time. Starting in February 2022, normal payment,

late fees, and disconnection policies have resumed with poss ible disconnections occurring no sooner than mid-April 2022.

SMUD is working proactively with e lectric customers to create payment arrangements for those who need.them. The effects of the pandemic have resulted in an increase in the number of past due customer accounts.

In 2021, SMUD received $41.4 million in California Arrearage Payment Program (CAPP) funding that was applied to customers' bills in November, to support customers amid the ongoing challenges of the COVID - 19 pandemic. The CAPP offers financial assistance for California energy utility customer s to help reduce past due energy bill balances that increased during the COVID-19 pandemic. The CAPP program dedicated $1 billion in federal American Rescue Plan Act funding to address Californian ' s energy debts. The $41.4 million fu1_1ding is reported in Other income (.expense) - net in the Statements of Revenues, Expenses and Changes in Net Position. As of °December 31, 2021, the uncollectible re s erve for account write-offs was $69 million. Other financial and operational impacts to SMUD associated with COVID-19 are noted throughout this report.

Requests for Information

For more information a~out SMUD, visit our website at www.smud.org or contact us at customerservices@smud.org.

• I

5 FINANCIAL POSITION

The following table summarizes the financial position as of December 31 (in millions).

CONDENSED STATEMENTS OF NET POSITION

2021 2020 2019

Assets Electric Utility Plant - net $ 3, 835 $ 3,747 $ 3,626 Restricted and Designated Assets 289 188 173 Current Assets 1,244 1,239 933 Noncurrent Assets 1 475 1 515 1 606 Total Assets 6, 843 6,689 6,338 Deferred Outflows of Resources 143 271 238 Total Assets and Deferred Outflows of Resources $ 6.986 $ 6.960 $ 6.576

Liabilities Long-T!!rm Debt - net,* $ 3,081 $ 3,259 $ 2,944 Current Liabilities 468 437 491 Noncurrent Liabilities 185 694 731 Total L'iabilities 3,734 4,390 4, 166 Deferred Inflows of Resources 955 613 606 Net Position 2,297 1 957 1 804 Total Liabilities, Deferred lnflows of Resources,

and Net Position $ 6 286 $ 6,260 $ 6 516

TOT AL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Total assets in 2021 increased $154 million.or 2.3% over 2020, primarily due to the following :..

• An increase of$88 million in electric utility plant - net. See Capital Program below for further information.

• A $101 million increase in restricted and designated assets primarily due to a $28 million increase in a net pension asset and a $57 million increase in net Other Postemployment Benefits (OPEB) asset based on the most recent actuarial results, and the $35 million deferral of2021 operating revenues for recognition in future years to offset one-time expenditures not identified in the annual budget, offset by a $19 million Hydro Rate Stabilization Fund (HRSF) transfer to revenue for below average precipitation.

• A $40 million decrease in noncurrent assets primarily due to a $39 million decrease in regulatory costs for future recovery due to recognition of those costs, a $26 million decrease in prepaid gas supply due to gas delivered, offset by a

$29 million increase in hedging derivative instruments due to the gas hedging program.

Deferred outflows ofresources in 2021 decreased $128 million or 47.2% from 2020, primarily due to decreases in the unrealized pension and OP EB losses.

TOT AL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES

Total liabilities in 2021 decreased $656 million or 14.9% over 2020, primarily due to a decrease in long-te rm debt-net of $178 million and a decrease in noncurrent liabilities of$509 million, primarily due a $470 million reduction in net pension liability based on the most recent actuarial results.

Deferred inflows of resources in 2021 increased $342 million or 55.8% from 2020, primarily due to increases in the unrealized pension and OPEB gains.

6 OTHER REVENUES

Total other revenues (net) were $108 million for 2021, an increase of $45 million or 71 ) per,cent over 2020. In 2021, SMUD recorded $41 million as grant revenues from CAPP funding received for delinquent customer balances and a $15 million settlement related to Rancho Seco,

CAPITAL PROGRAM

SMUD's electric utility plant includes production, tran s mission and distribution, and general plant facilities. The following table summarizes the balance of the electric utility plant as of December 3 1 (in millions).

202 1 2020 20 19

Electric Utility Plant $ 7, 150 $ 6,886 $ 6,581 Accumulated Depreciation and Amortization (3,315) (3,139 ) (2,955)

E lectric Utility Plant - Net $ 3, 835 $ 3,24:Z $ 3, 626

The following chart shows the breakdown of2021 Electric Utility Plant - net b~ major p,lc'.l-11t category:

2021 ELECTRIC UTILITY, PLANT

Transmission Distribution

• 12% ----- 43% Distribution

Other

-. Generation ii Transmission

Other 26%

The following chart shows the breakdown of 2021 Electric Utility Plant capitalized additions by major plant category:

2021 ELECTRIC UTILITY PLANT ADDITIONS

Generation Distribution 13%

• 41% Iii Distribution

la Transmission

Other Generation

Transmission 31%

9 Details of SMUD's electric utility plant asset balances and activity are included in Note 4 in the Notes to Financial Statements.

SMUD's capital program includes investment in generation, transmission, distribution, buildings, vehicles, technology, and other assets critical to meeting the energy needs of our customers. Capital investments are financed with revenues from operations, bond proceeds, investment income and \\;ash on hand.

• The following table shows actual capital program expenditures for the last two years and budgeted capital expenditures for 2022 (in millions).

Budget Actual Actual 2022 2021 2020 Capital Program:

Transmission & Di.stribution $ 184 $ 183 $ 189 Generation 104 52 52 Other 71 49 56 Total $ 359 $ 284 $ 297

In 2021 and 2020, SMUD actual expenditures included work for Substation E and G, Slab Creek, White Rock Tunnel Bolt Replacement, the purchase and opeiationalizati~ri cif Chili Bar Hydroelectric facility, Substation J land purchase, distribution line work and continued work on UARP relicensing projects.

Major capital expenditures planned in 2022 i~~l~de continuing work for Station G, starting development work for additions to our wind farm with Solano Phase IV, and ongoing improvements in our UARP area as part of our hydro relicense. Programmatic capital planned in 2022 includes cable and*polereplacement program~, }nstalling new meters, and new fleet purchases.

Technology investments ipcluded in the 2021 Proposed Budget are to complete the Advanced Distribution Management System, ongoing work for Workforce Optimization, and improvements to Human Resource systems and network communications systems with our Talent Technology Transformation project.,

LIQUIDITY AND CAPITAL RESOURCES

SMUD maintains a strong liquidity position by setting a minimum number of days cash on hand and managing a $400 million commercial paper program. Our current days cash threshold is 1'50 days, the minimum amount of cash on hand before triggering a new debt or commercial paper issuance to replenish cash balances. On December 31, 2021, the days cash on hand was 243 days. The commercial paper program allows for short-term borrowing when needed in lieu of issuing long-term debt, similar to a credit card or line of credit. On December 31, 2021, there were no commercial paper notes outstanding which further enhances our liquidity position. A strong liquidity positioh is imp&tant in°demonstrating to investors and rating agencies that SMUD can withstand various financial stresses.

In addition, SMUD targets strong financial metrics in cash flow coverage with its fixed charge ratio. The Board sets a minimum fixed charge of 1.50 times operating cash flo"'.; h9wever, we aim for a minimum of 1.70 as a standard. On December 31, 2021, the fixed charge ratio was 2.42. This higher performance standard.has proven valuable during the last two years' economic,'

uncertainty stemming from the pandemic. *:~

FINANCING ACTIVITIES

In July 2021; SMUD issued $106.9 million of2021 Series'IRevenue Refunding,Bonds. The purpose of this transaction was to refund the fixed rate debt associated with 2011 Series X bonds and funded tbe't~tmination of the associated interest rate swap ; ' '*, ' ~ ~,

entered in 2019 that Jocked in the refunding's interest rates, genera:ting $22.5 million in Net Present Value (NPV) savings.

DEBT SERVICE COVERAGE Debt service coverage for long-term debt was 2.50 times and 2.07 tinies in 2021 and 2020, respectively. SMUD's bond resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios of at least 1.40 times, certain other financial ratios, stipulated minimum funding *of revenue bond rese~es,' and various other requirements including a rate covenant to raise rates to maintain minimum debt service coverage. SMUD* is _in compliance with all debt covenants.

CREDIT RATINGS

I We proactively manage our strong financial position to maintain high credit ratings. These strong credit ratings improve access to credit markets and result in a lower cost of borrowing. Both quantitative (financial strength) and qualitative (business and operating characteristics) factors are considered by the credit rating agencies in establishing a company's credit rating. As of December 31, 2021, SMUD's bonds had an underlying rating of"AA" from Standard & Poor's, "AA" from Fitch, and "Aa3" from Moody's. Some of SMUD's bonds aie insured and are rated by the rating agencies* at the higher of the insurer's rating or SMUD's underlying rating.

COMPETITIVE RA TES The Board has independent authority to ~et SMUD's rates and charges. Changes, in.~ates requi~e a public hearing and formal action by the Board. SMUD has committed to our customers in keeping rates lp_w,~hile. continuing to deliver safe, reliable, and environmentally responsible power and the products and services they value.

In June 2019, the Board approved the 2020 and 2021 rate proposals including a 2.50 percent rate increase.effective January 1, 2021, and a 2.0 percent rate increase effective October 1, 2021, for all customer classes. In October *202( SMUD started transitioning commercial customers to the new restructured rates. While the' restructi.ite 'is revenuii nerttral, if will improve SMUD's revenue stability and better align electric charges with costs.

• In 2021, the Board approved the Solar and Storage Rate (SSR), which will reduce the cost shift from Net Energy Metering (NEM) and will incentivize customers to irivest in solar pa1red with storage, providing greater benefits to.SMUD and our customers. In 2021, the Board approved the 2022 and 2023 rate proposals inchiding rate increases of 1.5% in 2022 and 2% in 2023, which is well below the estimated rate of inflation. This ensures the necessary revenue to 1neet ~MUD' s. financial obligations, key financial metrics, and delivery of our 2030 Zero Carbon Plan.

Progress on several key rates and programs, including the Virtual Solar (VSYprograin: ind our optional residential Critical Peak Pricing (CPP) rate, both of which will be available in June 2022. The VS program will provide the benefits of solar to our under-resourced customers living in multi-family housing, and our residential CPP rate will provide customers the opportunity to reduce their bills and help the environment while contiibutin:g to the 2030 Zero Carbon Plan.

Even with these increases, SMUD's rates continue to remain amongst the fowestin the state: In 2021, the average system rate was 36.7 percent below the average rate of the nearest investor-owned utility.

ENERGY RISK MANAGEMENT

SMUD's commodity costs have prices locked in for most of our expected energy re~u-~rements to ensure cost and rate stability for customers. Only a small portion of budgeted energy purchases are exposed to shorts term market price fluctuations - a beneficial practice, especially during the price volatility currently reflected in California power and energy prices.

SMUD has mitigation measures in place for higher commodity costs due to reduced hydroelectric production that will lead to higher purchased power. In April 2021, $18.6 million was transferred from the HRSF to revenue as a result oflow precipitation.

At December 31, 2021, the HRSF was $56.lmillion and $62.9 million in the Rate Stabilization Fund (RSF), net of Low Carbon

11 Fuel Standard and Cap and Trade funds. These reserve funds help absorb higher energy costs*.wheh hydroelectric production-is down and serve as a buffer against une.xpe,e:tedfinm;icial developments.

RESOURCE PLANNING AND GENERATION UPDATE

In March 2021, the Board adopted the 2030 Zero Carbon Plan,'a flexible road map to achieving its zero carbon goal while ensuring all customers and communities that are served share in the benefits of decarbonization. While SMUD has always had an Integrated Resource Plan target to meet or exceed goals established by the State for renewable energy and the reduction of carbon emissions, the 2030 Zero Carbon Plan greatly accelerates these efforts, working toward eliminating cltrbon emissions from SMUD's power supply by 2030..

SMUD is focused on reimagining it_s,gener!ltio_n portfolio through retiring or retooling its n11tural gas assets, expanding: local investments in proven clean technqlogies, an~ launching pilot projects ~nd programs for new and emerging technologies, all while continuing to work to improve,e(!uity for u~dercresottrced communities and minimizing ;the cost of implementing the 2030 Zei;o Carbon Plan.

The projects planned in 2022 are foundational to the decarbonization of the grid and achieving the zero carbon goal. These,,

include planning, developing, and implementing renewable projects and customer offerings, including building and vehicle electrification and energy efficiency progrAms, renewable energy, and reliability projects. SMUD is also prepari'ng the distribution system for the future by beginning implementation of ohr Integrated Distributed Resource Pia~ and continuing its grid modernization work.

DECOMMISSI0NING

SMUD has made significant prqg_ress to.war4 comp_leting the Decommissioning Plan for its Rancho Seco nuclear facility, which was shut down in 1989. The plan consists of two phases that allow SMUD to terminate its possession-only license. Phase I of the decommissioning was completed at the end of 2008. Phase II consists of a storage period for the Class B and Class C radioactive waste ovprseen by the existing facility staff, followeq b~ shipment of the waste for disposal, and then complete termination of the pqssession-only license. SMUD also ~stablished and funded an.external decommissioning trust fund as part of its assurance to the Nuclear.Regul11tof):' Comni;issii::n;i (NRG) to pay for the_cost of decommissioning. Shipment of the previously stored Class B and Class C radioactiye wast~,was c9mpleted in November 2014 to a low-level radioactive waste facility located in Andrews,Texas. The remaining Phase II decc;,mi;n,i_ssioning activities required for termination of the possession-only license commenced in 2015. In September 2017, SMUD formally requested the termination of the possession-only license and termination of the possession-only, Vc;~nS\\;! 'Yas c9mpleted in 2018.

As part of the Decommissioning Pjan, the, nuclear fuel and Qreater Than Class C (QTCC) radioactive waste is being stored in a dry storage facility constructed by SMIJD, and licens_ed separately by th<;: NRC. The U.S. Department of Energy (DOE), under the Nuclear Waste Policy Act of 1982, was responsible for permanent disposal of used nuclear fuel and GTCC radioactive waste and SMUD contract_ed with, the D_DEfor rt?moval and disposal oft~at waste. The DOE has yet to fulfill its contractual obligation to provide a permanent waste disposal site. SMUD has filed a series qfsuccess~ul lawsuits against the federal government for recovery of the past spent fuel costs, with recoveries to date in excess of$104.0 million. SMUD will continue to pursue cost recovery claims until the DOE fulfills its obligation.

The total Accrued Decommissioning balance in the Statements of Net Position, including Rancho Seco and other ARO's, amounted to $95.1 million as of December 3 I, 2021:

• 12 SIGNIFICANT ACCOUNTING POLICIES

In accordance with GASB No. 62, the Board has taken regulatory actions for ratemaking that result in the deferral of expense and revenue recognition. These actions result in regulatory assets and liabilities. SMUD has regulatory assets that cover costs related to decommissioning, derivative financial instruments, debt issuance costs, pension costs, and OPEB costs. As of December 31, 2021, total regulatory assets were $703.8 million. SMUD also has regulatory credits that cover costs related to contributions in aid of construction, the RSF and HRSF, EAPR reserves, SB-1, grant revenues, and Transmission Agency of Northern California operations costs. As of December 31, 2021, total regulatory credits were $543.0 million.

13 SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF NET POSITION

December 31, 2021., *2020'

'(thousands of dollars)

ASSETS

ELECTRIC UTILITY PLANT '

• 1 ) ' ~*,

Plant in service $ 6,782,493 $

• 6,425,366 Less accuµmlated depreciation and depletion,. (3,314,820) (3,139,526)

Plant in service - net 3,467,673 3,285,840 Construction work in progress 367,297 461,319 Total electric utility plant - net 3,834,970 3,747,159

RESTRICTED AND DESIGNATED ASSETS Revenue bond and debt service reserves 120,024 121,845 Nuclear decommissioning trust fund 8,874 8,873 Rate stabilization fund 188,992 168,726 Net pension asset 27,738 Net other postemployment benefits asset 57,532 770 Other funds 22,411 23,246 Less current portion (136,663) (135,550)

Total restricted and designated assets 288,908 187,910

CURRENT ASSETS Unrestricted cash and cash equivalents 584,998 680,618 Unrestricted investments 45,378 33,798 Restricted and designated cash and cash equivalents 46,828 44,014 Restricted and designated investments 89,835 91,536 Receivables - net:

Retail customers 190,987 175,777 Wholesale and other 58,202 38,863 Regulatory costs to be recovered within one year 38,303 38,162 Investment derivative instruments maturing within one year 1,354 Hedging derivative instruments maturing within one year 36,620 4,913 Inventories 99,941 84,037 Prepaid gas to be delivered within one year 26,059 23,261 Prepayments and other 25,331 23,915 Total current assets 1,243,836 1,238,894

NONCURRENT ASSETS Regulatory costs for future recovery 703,748 742,588 Prepaid gas 666,452 692,511 Prepaid power and capacity 380 588 Investment derivative instruments 803 33 Hedging derivative instruments 37,753 8,606 Energy efficiency loans - net 1,298 18,503 Credit support collateral deposits 11,650 5,650 Due from affiliated entity 29,687 28,370 Prepayments and other 23,576 18,268 Total noncurrent assets 1,475,347 1,515,117 TOT AL ASSETS 6,843,061 6,689,080

DEFERRED OUTFLOWS OF RESOURCES Accumulated decrease in fair value of hedging derivative instruments 22,600 51,580 Deferred pension outflows 81,334 176,340 Deferred other postemployment benefits outflows 25,113 26,136 Deferred asset retirement obligations outflows 1,775 1,734 Unamortized bond losses 12,261 15,216

TOT AL DEFERRED OUTFLOWS OF RESOURCES 143,083 271,006

TOT AL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 6,986,144 $ 6,960,086

The accompanying notes are an integral part of these financial statements.

14 SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF NET POSITION

• \\ ' I

December 31, 2021 2020 (thousands of dollars)

LIABILITIES

LONG-TERM DEBT-net $ 3,081,707 $ 3,259,312

CURRENT LIABILITIES Accounts payable 121,925 101,396 Purchased power payable 30,103 33,335 Credit support collateral obligation 3,575 4,413 Long-term debt due within one year 132,150 127,390 Accrued decommissioning 6,889 6,751 Interest payable 50,709 52,940 Accrued salaries and compensated absences 60,433 44,703 Investment derivative instruments maturing within one year 2,757 1,401 Hedging derivative instruments maturing within one year 18,232 22,284 Customer deposits and other 41,003 41,887 Total current liabilities 467,776 436,500

NONCURRENT LIABILITIES Net pension liability 469,820 Accrued decommissioning 88,168 92,723 Investment derivative instruments 4,786 7,903 Hedging derivative instruments 4,368 29,296 Self insurance and other 87,617 94,238 Total noncurrent liabilities 184,939 693,980

TOTAL LIABILITIES.; i., ; 3,734,422 4,389,792

DEFERRED INFLOWS OF RESOURCES Accumulated increase in fair value_ of hedging derivative instruments 74,374 13,519 Regulatory credits 543,027, 516,209 Deferred pension inflows 229,707' 14,212 Deferred other postemployment benefits inflows 94,902 58,854 Unamortized bond gains 9,246 6,504 Unearned revenue 3,369 3,484

TOT AL DEFERRED INFLOWS OF RESOURCES 954,625 612,782

NET POSITION Net investment in capital assets 1,350,709 1,112,982 Restricted:

Revenue bond and debt service 64,823 63,351 Net pension asset 27_,738 Net other postemployment benefits asset 57,532 ' 770 Other funds. 18,836 18,833 Unrestricted 777,459 761,576

TOT AL NET POSITION 2,297,097 1,957,512

COMMITMENTS, CLAIMS AND CONTINGENCIES (Notes 17 and 18)

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION $ 6,986,144 $ 6,960,086

The accompanying notes are an integral part of these financial statements.,

15

,I'~,,

SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITIOl"i

Year Ended December 31, 2021. 2020 (thousands of dollars)

OPERATING REVENUES Residential $ 721,228 $ 710,912 Commercial and industrial 773,311 712,495 Street lighting and other 42,031 38,493 Wholesale 248,001 135,522 Senate Bill - 1 revenue deferral 784 2,276 AB-32 revenue 17,880 LCFS revenue 7,599 9,762 Public good deferral 3,501 Rate stabilization fund transfers (20,266) (25,056)

Total operating revenues 1,790,568 1,587,905

OPERATING EXPENSES Operations:

Purchased power 420,350 348,040 Production 358,162 278,236 Transmission and distribution 81,484 83,236 Administrative, general and customer 153,978

• 241,581 Public good ',~6,519 57,198

• Maintenance,: 136,849 138,734 Depreciation 216,940 206,452 Regulatory am~mnts collected in rates 35,369 34,915 Total operating expenses 1,449,651 1,388,392

OPERATING INCOME 340,917 199,513

NON-OPERA TING REVENUES AND EXPENSES Other revenues and (expenses):

Interest income 6,501 14,291 Investment income (expense) 8,035 (3,455)

Other income - net 93,432 52,186 Total other revenues and (expenses) 107,968 63,022..

Interest charges:

Interest on debt 109,300 109,300 Total interest charges 109,300 109,300 Total non-operating revenues and (expenses) (1,332) (46,278)

CHANGE IN NET POSITION 339,585 153,235

NET POSITION - BEGINNING OF YEAR 1,957,512 1,804,277

NET POSITION - END OF YEAR $ 2,297,097 $ 1,957,512

The accompanying notes are an integral part of these financial statements.

16 SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF CASH FLOWS

'Year Ended December 31, 2021 2020 (thousands of dollars)

CASH FLOWS FROM OPERA TING ACTIVITIES Receipts from customers $ 1,498,982 $ 1,426,267 Receipts from surplus power and gas sales 242,767 134,080 Other receipts,,, 35,173 23,660 Payments to employees - payroll and other (417,475) (406,810)

Payments for wholesale power and gas purchases (621,944) (491,480)

Payments to vendors/others (320,710) (315,982)

Net cash provided by operating activities 416,793 369,735

CASH FLOWS FROM NONCAPITAL FINANCING ACTMTIES Repayment of debt (18,450) (16,675)

Receipts from,federal and state grants 41,601 10,214 Proceeds from insurance settlements 3,135, 5,500 Interest on debt (29,385}', (30,122)

Net cash used in noncapital financing activities (3,099) (31,083)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Construction expenditures (297,179) (357,650)

Contributions in aid of construction 24,414 19,551 Net proceeds from bond issues.';.**.**/" 130,248 483,456

,'I;, (235,970). (101,630)

Repayments and refundings of debt Repayments of commercial paper '.' (50,000)

Other receipts 9,253 Interest on debt {120,874) (113,864)

Net cash used in capital and related financing activities (490,108) (120,137)

CASH FLOWS FROM INVESTING ACTIVITIES Sales and maturities of securities 215,153 386,898 Purchases of securities (106,889) (197,811)

Proceeds from termination of prepaid gas contracts 2,000 'I 10,915 Interest and dividends received 8,151 15,406 Investment revenue/expenses - net 1.' 8,036 (3,420)

Net cash provided by investing activities 126,451 211,988

Net increase in cash and cash equivalents 50,037 430,503 Cash and cash equivalents at the beginning of the year 738,611 308,108

Cash and cash equivalents at the end of the year $ 788,648 $ 738,611

Cash and cash equivalents included in:

Unrestricted cash and cash equivalents $ 584,998 $ 680,618 Restricted and designated cash and cash equivalents 46,828 44,014 Restricted and designated assets ( a component of the total of $288,908 and $187,910 at December 31, 2021 and 2020, respectively) 156,822 13,979

Cash and cash equivalents at the end of the year $ 788,648 $ 738,611

The accompanying notes are. an in,tegral part of these, fin~?ia~ statements.

17 SACRAMENTO MUNICIPAL UTILITY DISTRICT SUPPLEMENTAL CASH FLOW INFORMATION

A reconciliation of the statements of cash flows operating activities to operating income as follows:

Year Ended December 31, 2021 2020 (thousands of dollars)

Operating income $ 340,917 $ 199,513 Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation 216,940 206,452 Regulatory amortization 35,369 34,915 Other Amortizations 20,278 24,307 Revenue deferred to (recogniz~d fro~) regulatory credits - net 19,483 19,279 Other (receipts) payments - net. 15,951 (3,549)

Changes in operating assets, deferred outflows, liabilities and deferred inflows:

Receivables - retail customers, wholesale and other (15,543) (16,631)

Inventories, prepayments and other (27,140) (15,440)

Net pension and other postemployment benefits assets (84,499)

Deferred outflows.of recources. 96,029. (69,950)

Payables and accruals 22,693 41,500 Decommissioning (5,358) (4,814)

Net pension Hability (469,820) 2,173 Net other postemployment benefits liability (32,211)

Deferred inflows ofresources 251,493 (15,809)

Net cash provided by operating activities $ 416,793 $ 369,735

The supplemental disclosure ofnoncash financing and investing activities is as follows:

Year Ended December 31, 2021 2020 (thousands of dollars)

Amortization of debt related (expenses) and premiums - net $ 34,969 $ 37,939 Write-off unamortized premium and loss 4,465 (Loss) Gain on debt extinguishment and refundings 3,925 Unrealized holding g~in (loss) (2,201) 1,768 Change in valuation of derivative financial instruments 93,719 31,661 Amortization of revenue for assets contributed in aid of construction 18,208 14,250 Construction expenditures included in accounts payable 43,470 39,196 (Loss) Gain on sale and retirement of assets - net (439) (287)

Write-off capital projects and preliminary surveys (2,057) (1,329)

The accompanying notes a~e an integral part of these financial statements.

18 Sacramento Municipal Utility.District Notes to FinancialStatements As of and for the Years Ernded December 31, 2021 and 2020

NOTE 1. ORGANIZATION

The Sacramento Municipal Utility District (SMUD) was formed and operates under the State of California Municipal Utility District Act (Act). The Act gives SMUD the rights and powers to fix: rates and charges for commodities or services it furnishes, and to incur indebtedness and issue bonds or other obligations. As a community-owned utility, SMUD is not subject to regulation or oversight by the California Public Utilities Commission. -

SMUD is responsible for the acquisition, generation, transmission, and distribution of electric power to its service area, which includes most of Sacramento County and small adjoining portions of Placer and Yolo Counties. The Board of Directors (Board) determines SMUD's rates.

SMUD is exempt from payment of federal and state income taxes and, under most circumstances, real and personal property taxes. SMUD is not exempt from real and personal property taxes on assets it holds outside of its service territory. In addition, SMUD is responsible for the payment of a portion of the property taxes associated with its real property in California that lies outside of its service area.

NOTE 2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES --

Method of Accounting. SMUD's accounting records are maintained in accordance with Generally Accepted Accounting Principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GA!SB).,SMUD's accounting records generally follow the,Uniform System of Accounts for Public Utilities ahd Licensees prescribed by the Federal Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions of utility property in aid of construction. SMUD'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 rec0rded when a liability is incurred, regardless of the timing of the related cash flows. Electric revenues and costs that are_ dire_ctly related to the acquisition; generation, transmission, and distribution of electricity are reported as operating revenues and expenses. All other revenues and expenses are reported as non-operating revenues and expenses.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S.) requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates. -

The Financial Reporting Entity. These Financial Statements include SMUD and its component units. Although the component units are legally separate from SMUD, they are blended into,and reported-as part ofSMUD because of the extent of their operational and financial relationships with SMUD. All significant inter-component transactions have been eliminated in consolidation.

Component Units. The component units include the Central Valley Financing Authority (CVFA), the Sacramento Cogeneration Authority (SCA), the Sacramento Municipal Utility District Financing Authority (SFA), the Sacramento Power Authority (SPA), the Northern California Gas Authority No. 1, (NCGA), and the Northern California Energy Authority (NCEA). The primary purpose of CVF A, SCA, SF A and SPA is to own and operate electric utility plants that supply power to SMUD. On October 26, 2021, SFA entered into Assignment andAssumption Agreements(theAgreements) with CVFA, SCA, and SPA. The Agreements transfer the assets and obligations, including ownership of the Carson Power Plant, Procter and Gamble Power Plant, Campbell Power Plant, and McClellan Power Plant (assigned Power Plants) to SFA as of

19 November 1, 2021 (see Note 3). The,primary*ptirpose ofNCGA isto prepay for natural gas to sell to SMUD. The primary purpose ofNCEA is to prepay for commodities in the form-of natural gas and electricity to sell to SMUD. SMUD's Board comprises the Commissions thatgoverri these entities (see Note 6).

Plant in Service. Capital assets are generally defined by SMUD as tangible assets with an initial, individual cost ofmory than five thousand dollars and an estimated useful life in excess of two years. The cost of additions to Plant in Service and replacement property units is capitalized. Repair and maintenance costs are charged to expense.when incurred. When SMUD retires portions of its Electric Utility Plant; retirements are recorded against Accumulated Depreciation and the retired portion of Electric Utility Plant is removed from Plant in Service. The costs ofremoval and the related salvage value, if any, are charged or credited as appropriate to Accumulated Depreciation. SMUD generally computes depreciation on Plant in Service on a straight-line, service-life basis. The average annual composite depreciation rates for 2021 and 2020 was 3.3 percent.

Depreciation is calculated using the following estimated lives:

Generation 8 to 80 years Transmission and Distribution 7 to 50 years Gas Pipeline 10 to 90 years General 3 to 60 years

Investment in Joint Powers Authority (JPA). SMUD's investment in the Transmission Agency ofNorthern California (TANC) is accounted for under the equity method of accounting and is reported as a component of Plant in Service. SMUD's share of the T ANC debt service costs and operations and maintenance expense, inclusive of depreciation, is included in Transmission and Distribution expense in the Statements of Revenues, Expenses and Changes in Net Position (see Note 5).

- :.\\.;*

SMUD's investment in the Balancing Authority of Northern-California (BANC) is accounted for under the equity method of accounting.* SMUD's share of the BANC operations and maintenance expense is included in Transmission and Distribution expense in the Statements of Revenues, Expenses and Changes in Net Position (see Note 5).

Restricted and Designated Assets; Cash, cash equivalents, and investments, which are restricted by regulation or under terms of certain agreements for payments to third parties are included as restricted assets. Restricted assets include Revenue bond and debt service reserves; Nuclear decommissioning trust fund, and $21.8 million and $22.6 million of Other funds as of December 31, 2021 and 2020, respectively. Board actions limiting the use of such funds are included as designated assets.

Designated assets include the Rate stabilization fund and $0.6 million of Other funds as of December 31, 2021 and 2020.

When SMUD restricts or designates funds for a specific purpose, and restricted and designated and unrestricted resources are available for use, it is SMUD's policy to use restricted and designated resources first, then unrestricted resources as they are needed.

Restricted Bond Funds. SMUD's Indenture Agreements (Indenture) requires the maintenance of minimum levels ofreserves for debt service on the 1997 Series K Bonds.

Nuclear Decommissioning Trust Fund. SMUD made annual contributions to its Nuclear Decommissioning Trust Fund (Trust Fund) through 2008 to cover the cost of its primary decommissioning activities associated with the Rancho Seco.

facility. Primary decommissioning excludes activities associated with the spent fuel storage facility after 2008 and most non-radiological decommissioning tasks. Interest earnings on the Trust Fund assets are recorded as Interest Income and are accumulated in the Trust Fund.

l I* 1 *I*,

Asset Retirement Obligations (ARO). SMUD records asset retirement obligations (ARO) for tangible capital assets when an obligation to decommission facilities is legally.required.* SMUD recognizes AROs for its Rancho Seco nuclear power plant and for the CVF A power plant facility (see Note 13). The Rancho Seco ARO is recorded as Accrued Decommissioning and the unfunded portion of the ARO is recorded:as current and noncurrent Regulatory Costs for Future Recovery (see Note 8) in

20 the Statements of Net Position. Other AROs are.recorded as Accrued Decommissioning and a corresponding Deferred Asset Retirement Obligation Outflows in the Statements of Net Position.

SMUD.has identified potential retirement obligations related to certain generation, distribution and transmission facilities.

SMUD's non-perpetual leased land rights generally are renewed continuously because SMUD intends to utilize these facilities indefinitely. GASB No. 83 requires the measurement of the ARO to be based on the probability weighting of potential outcmp.es. Due to the low probability that these leases will be terminated, aijabiljty has not been recorded.

Cash and Cash Equivalents. Cash and cash equivalents include all debt instruments purchased with an original maturity of 90 days or.less, deposits held at financial institutions, all investments in the Loc.al.Agenc;y Investment Fund (LAIF), and money market funds. LAIF has an equity interest in the State of California (St~te) Pooled Money.Investment Account (PMIA). PMIA funds are on deposit with the State'.s Centralized Treasury System and are managed in compliance with the California Government Code according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters, and maximum maturity of inyestments.,

Investments. SMUD's investments are reported at fair value in acconfance with SGASNo. 72, "Fair Value Measurement and Application" (see Note 12). Realized and.unrealized gains and losses an, iqcluded in,Oth,er income (expense) - net in the Statements of Revenues, Expenses and Changes.in Net Position. Premiums and. d.iscounts. on zero coupon bonds are amortized using the effective interest method. Premiums and discounts on other seGurities,are amortize<;l using the straight;line method, which approximates the effective interest method.

Electric Operating Revenues. Electric revenues are billed on the basis pfmonthly,cycle.bills and are recorded as,.revenue when the electricity is delivered. SMUD records an estimate for unbilled revenues earned from the dates its retail customers were last billed to the end of the month. At December 31, 2021 and 2020, unbilled revenues were $93.6 and $68.8 million, respectively.

Purchased Power Expenses. A portion ofSMUD's power needs are provided through power purchase agreements (PPA).

Expenses from such agreements, along with associated transmission costs paid to other utilities, are charge,d to Purchased Power expense in the Statements of Revenues, Expenses and Changes in Net Position in the period the.power is received. The costs or credits, associated with energy swap agreements (gas and electric) or other arrangements that affect the net cost of Purchased Power are recognized in the period in which the underlying power delivery occurs. Contract termination payments and adjustments to prior billings are included in Purchased Power expense once the payments or adjustments can be reasonably estimated.

Advanced Capacity Payments. Some long-term agreements to purchase energy or capacity from other providers call for up-front payments. Such costs are generally recorded as an asset and amortized over the length of the contract in Operations -

Production expense on the Statements of Revenues, Expenses and Changes in Net Position.

Credit and Market Risk. SMUD enters into forward purchase and sales commitments for physical delivery of gas and electricity with utilities and power marketers. SMUD is exposed to credit risk related to nonperformance by its wholesale counterparties under the terms of these contractual agreeml,!nts. ln.order to,limit the risk of counterparty default, SMUD has a wholesale counterparty risk policy which includes. using the credit agency, :ratings of SMUD's counterparties and other credit services, credit enhancements for counterparties.that do, not meet an acceptable.risk level, a11d the use of standardized.

agreements that allow for the netting of positiv~ and n~gat.iye exposures.associated ~itµ a ~ingle counterparty. SMUD is also subject to similar requirements for many of its gas and pow,er purchase agre!!meqts. SMU:Q uses a combination of cash and securities to satisfy its collateral requirements to counterparties.

SMUD's component units, NCGA and NCEA, entered into guaranteed investment contracts and are exposed to credit risk related to nonperformance by its investment provider. For NCG,(\\, the jny~tm,ent provider,provides collateral if their credit

21 ratings fall below agreed upon levels: SMUD holds deposits by counterparties and an investment provider and records the

• amounts as Credit Support Collateral Obligation in the Statements of Net Position,

Collateral deposits that SMUD has with countetparties are recorded as Credit Support Collateral Deposits in the Statements of Net Position.

Accounts Receivable, Allowance for Doubtful'Accounts and Energy Efficiency Loans. Accounts receivable is recorded at the invoiced amount and does not bear interest, except for accounts related to energy efficiency loans. SMUD recognizes an estimate ofuncollectible accounts for its receivables related to electric service, energy efficiency loans, and other non-electric billings, based upon its historical experience with collections and current energy market conditions. For large wholesale receivable balances, SMUD determines its bad debt reserves based on the spe'Cific credit issues for each account. In the Statements of Net Position, SMUD reports its receivables net of the allowance for uncollectible as current assets, and its energy efficiency loans net:ofthe allowance for uncollectible as noncurreht assets. Due to COVID-19, SMUD suspended disconnections for non-payment beginning in March 2020 through April 2022. At December 31, 2021, SMUD estimated its uncollectible retail customer accounts at $69.0 million based on non-payment behaviors by aging category. SMUD records bad debts for its estimated uncollectible*accounts related to electric service as a reduction to the related operating revenues in the Statements of Revenues, Expenses and Changes in Net Position. SMUD records bad debts for its estimated uilcollectible accounts related to energy efficiency loans and other non-electric billings in Administrative, General and Customer expense in the Statements of Revenues, Expenses arid Changes in Net Position. During 2021; SMUD sold the majority of its energy efficiency loan portfolio to a local bank.

SMUD's receivables, allowance:Hor urtcollectible and energy efficiency loans are*presented below:

December 31 2021 2020 (thousands of dollars)

Retail customers:

Receivables $ 259,987 $ 220,777 Less: Allowance'for tincollectibie (69,000) (45,000)

Receivables - net 190,987 "'=$====='1='=7 5""""'77"""'7

Wholesale and other:

Receivables $ 60,457 $ 42,493 Less: Allowance for uncollectible (2,255) (3,630)

Receivables - net $ 58.202 $ 38,863

Energy efficiency loans:

Receivables $ 1,517 $ 19,172 Less: Allowance for uncollectible (219) (669)

Energy efficiency loans - net $ 1,298 $

• 18,503

Regulatory Deferrals. Tlie Board has the'autho'rity to establish the level o°f rates charged for all SMUD services. As a regulated entity, SMUD's financial statemerifs are prepared in accordance with SGAS Statement No. 62, "Codification of Accounting and Financial Reporting Guidance' Contained in Pre-_November 30, 1989 Financial Accounting Standards Board (F ASB) and American Institute of Certified Public :4.ccountants Pronouncements," which requires that the effects of the ratemaking process be recorded in the financial statements. Accordingly, certain expenses and credits, normally reflected in Change in Net Position as incurred, are recognized when inchided in rates and recovered from or refunded to customers.

• SMUD records various regulatory assets and credits to reflect ratemaking actions of the Board (see Note 8).

Materials and Supplies.

• Materials and supplies ate stated at average cost, which approximates the first-in, first-out method.

22 Compensated Absences. SMUD accrues v,acation leave and compensatory time when employees earn the rights to the benefits. SMUD does not record sick leave. as a liability until it is taken by the employee, since there are no cash payments made for sick leave when employees terminate or retire. Compensated absences.are.recorded as Accrued Salaries and Compensated Absences in the, Statements of Net Position. At December.31,.2021 and 2020, the total estimateq liability for vacation and other compensated absences was $41.9 million and $37.7 million,.respectively.

Pu.blic Good. Public Good expenses consist of non-capital expenditures for energy efficiency programs, low income subsidies, renewable energy resources and technologies, and research and development.,

qains/Losses on Bond Refundings. Gains and )osses resulting from bond refundings are included as a component of Deferred Inflows of Resources or Oeferred Outflows of Resources in the Statements ofNetPosition and amortized as a component oflnterest on Debt in the Statements of Revenues, Expenses,and Changes in Net Position over the shorter of the life of the refunded debt or the new debt using the effective interest method.

Gains/Losses on Bond Defeasances or Extinguishments. Gains and losses resulting from bond defeasances or extinguishments that were not financed with the issuance of new debt are include<;! as a component of Interest on Debt in the Statements of Revenues, Expenses and Changes.in.Net Position.

Derivative Financial Instruments. SMUD records derivative financial instrume.nt.s (iqterest rate swap and gas price swap agreements, certain wholesale sales agreements, certainapower purchase.agreem~nts.anq,option,agreements) at fair value in its Statements of Net Position. SMUD does not enter into agreements for speculative pur,poses.,Fair value is estimated by comparing contract price.s to forward market prices quoted by third party market participan{s:3nd/or provided.in relevant industry, publications. SMUD is exposed to risk of nonperformance if the countei:partjes default o.r if the swap agreements are terminated. SMUD reports derivative financial instruments with remain,ing maturities of one year orJ~ss and the.portion of long-term contracts with scheduled transactions over the next twelve months as current in the, Statements;ofNet Position (see Note 9).

Interest Rate Swap Agreements.. SMUD enters into interest rate swap agreements to modify the,effective interest rates on outstanding debt (see Notes 9 and 10).

Gas and Electricity Price Swap and Option Agreements. SMUD uses forward contracts to hedge the impact of market volatility on gas commodity prices for its natural gas-fueled power plants and for energy prices on purchased power for SMUD's retail load (see Note 9).

Precipitation Hedge Agreements. SMUD enters into non-exchange traded precipitation hedge agreements to hedge the cost ofreplacement power caused by low precipitation years (Precipitation Agreements)., SMUD records the intrinsic value of the Precipitation Agreements as Prepayments and Other under Current Assets in the Statements of Net Position. Settlement of the Precipitation Agreements is not performed until the end of the period covered (water year ended September 30). The intrinsic value of a Precipitation Agreement is the difference betweep. the expected results.from a monthly allocation of the cumulative rainfall amounts, in an average rainfall year, and the actual rainfall during the same perjod.

Insurance Programs. SMUD records liabilities for unpaid claims at their present value when they are probable in occurrence and the amount can be reasonably estimated. SMUD records a liability for unpaid.claims associated with general, auto, workers' compensation, and short-term and long-term disability.based upon estimates derived by SMUD's claims administrator or SMUD staff. The liability comprises the present value, of the dahns, outstimding and incb1des an amount for claim events incurred but not reported based upon SMUD's experience (see Note 16).

Pollution Remediation. SGAS No. 49, "Accounting and Financial Reporting/or Pollution Remediation Obligations,"

(GASB No. 49) requires that a liability be recognized for expected outl~ys for, remediating existing pollution when certain triggering events occur. SMUD recorded a pollution remediation, obligation for its North City substation, which was built on a

23

former landfill, for the former Community Linen* Rental Services Property, and for obligations for several land sites, including a few sites where it will be building a substation.* 'At December 31, 2021 and 2020, the total pollution remediation liability was $20.4 million and $19.3 million, respectively, and recorded as either Current Liabilities, Custom*er Deposits and Other or Noncurrent Liabilities, Selfinsurance and Other in the Statements of Net Position. Costs were estimated using the expected cash flow technique prescribed under,GASB No. 49, including only amounts that are reasonably estimable.

Hydro License. SMUD owns and operates the Upper American River Hydroelectric Project (UARP). The original license to construct and operate the UARP was issued-in 1957 by FERC. Effective July 1, 2014, SMUD received a 50-year hydro license. As part of the hydro licensing process, SMUD entered into four contracts with government agencies whereby SMUD makes annual payments to them for*variotis services for the term of the license. At December 31, 2021 and 2020, the liability for these contract payments was $65.lmillicin and $64:8 million, respectively, and recorded as either Current Liabilitie*s, Customer Deposits and Other or Noncurreilt Liabilities, Selfinsurance and Other in the Statements of Net-Position (see Note 17).

Assembly Bill 32. California Assembly'.Bill (AB) 32 was an effort by the State of California to set a greenhouse gas (GHG) emissions reduction goal into law, and initially was set through 2020. In 2015, the state established a 2030 goal-for GHG emissions at 40 percent below 1990 levels, and in July of 2017 AB-398 was approved by the Governor. Central to these initiatives is the Cap and Trade program, which covers major sources of GH G emissions in the State including power plants.

AB-398 extended Cap and Trade through 2030. The Cap and Trade program includes an enforceable emissions cap that will decline over time. The State distribute*s allowances, which are tradable permits, equal to the emissions allowed under the cap. Sources under the cap are req*uired'tci-surrender allowances and offsets equal to their emissions at the end of each*

compliance period. SMUD is subject to AB-32*and has participated in California Air Resources Board (CARB) administered quarterly auctions in the past.' In a:normal water year, SMUD expects its free allocation of allowances from the CARB to cover its compliance costs associated with electricity delivered to its retail-customers. SMUD expects to recover compliance costs associated with wholesale power sales costs through its wholesale power sales revenues. SMUD continues to monitor new legislation and proposed programs that could impact AB-32 and its subsequent extensions.

In addition, the Low Carbon Fuel Standards'(LCFS) was enacted through AB~32. CARB is responsible for the implementation ofLCFS and has established a program for LCFS credits. The LCFS program is designed to reduce greenhouse gas emissions associated with the lifecycle of transportation fuels used in California. SMUD participates in the program and receives LCFS credits-from CARB for the electricity used to power electric vehicles. The LCFS credits are sold to parties (oil companies) that have a compliance obligation. CARB re*quires that electricity LCFS credit sales proceeds be spent in a way to benefit current or future Electric Vehicle drivers in California, for both commercial a:nd residential vehicles.

Net Pension Asset (NPA) or Liability (NPL); The NPA or NPL is the difference between the actuarial present value of projected pension benefitpayments attributable to employees'*past service and the pension plan's fiduciary net position (see Note 14).

Net Other Postemployment Benefit (OPEB)Asset (NOA) or Liability (NOL). The NOA or NOL is the difference between the actuarial present value of projected OPE'B benefit payments attributable to employee's past service and the OPEB plan's fiduciary net position (see Note 15).

Net Position. SMUD classifies its net positibri into three cbmponents as follows:

• Net investment in capital assets - This com portent of net position consists of capital assets, net of accumulated depreciation, reduced by ttie outstanding *debt balances, net *of unamortized debt expenses. Deferred inflows and outflows ofresources that are attributable to the acquisition, construction or improvement of those assets or related debt are also included.

• Restricted - This component of rtet position consists *of assets with constraints placed on their use, either externally or internally. Constraints include those'imp*osed*by debt indentures (excluding amounts considered in Net investment in capital assets, above), grants or laws and regulations of other governments, or by law through constitutional

24 provisions or enabling legislation or by the Board. These restricted assets are reduced by liabilities and deferred inflows of resources related to those assets.

• Unrestricted -This component of net position consists of net amount of the ctssets, deferred outflows of resources, liabilities, and deferred inflows ofresources that do not meet the.definition of'~et invest!llent in capital assets" or

."Restricted."

Coutributions in Aid of Construction (CIAC). SMUD records CIAC from custo.mer contributions, primarily relating to expansions to SMUD's distribution facilities, as Other income (expense) - net in the Statements of Revenues, Expenses and Changes in Net Position. Contributions of capital are valued at acquisition value. For ratemaking purposes, the Board does not recognize such revenues when received; rather, CIAC is included in revenues as such costs are amortized over the estimated useful lives of the related distribution facilities.

Revenues and Expenses. SMUD distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods ii:i connection with SMUD's principal ongoing operations. The principal operating revenues ofS)\\1UD are charges to customers for sales and services. Operating expenses include the cost of sales and services, admini.strative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as Non~,Operating Revenues and Expenses in the Statements of Revenues, Expenses and Changes in Net Position.

Grants. SMUD receives grant proceeds from federal and state assisted programs for its projects which include, but are not limited to, advanced and renewable technologies, electric transport!ltion, and energy efficiency. SMUD,also periodically receives grant_ proceeds from federal or state assistance programs as partialreimbursemep.ts for costs it has incurred as a result of natural disasters, such as storm or fire damages. During 2021, SMUD receive9 ;$;41.4 million from the California Arrearage Payment Program (CAPP), which offers financial assistance to help reduce past_clue energy balanc;es accruecl quring the COVID-19 pandemic. The State Budget Act of2021 appropriated $1.0 billion from the.federal American Rescue Plan Act of 2021 to support the establishment of CAPP. When applicable, these programs may be subje_ct to financial and c;ompliance audits pursuant to regulatory requirements. SMUD recorcls grant proceeds related to capital projects as a Regulatory Credit (see Note 8).

SMUD has taxable Build America Bonds in which it receives an interest subsidy from the federal government equal to 35 percent of the interest paid (see Note 10). SMUD received reduced subsidy payments in 2021 and 2020 due to budget sequestration by the federal government. SMUD recognized $9.3 million. in revenues in 2021 and 2020 for its Build America Bonds,. as a component of Other income (expense) - net, in the Statements of Revenues; Expenses and Changes in Net Position.

Customer Sales and Excise Taxes. SMUD is required by various governmental ctuthoriti~s, including states and municipalities, to collect and remit taxes on certain customer sales. Such taxes are _prese_nted on a net basis and excluded from revenues and expenses in the Statemeuts of Revenues, E-xpenses and Changes in Net,Position.

Subsequent Events. Subsequent events for SMUD have been evaluated.through _March 1, 2022 (see Note 19).

Reclassifications. Certain amounts in the 2020 Financial Statements have been reclassified in order to conform to the 2021 presentation.

Recent Accounting Pronouncements, adopted. In May 2020, GASH.issued SGAS No. 95, "Postponement of the Effective Dates of Certain.Authoritative Guidance" (GASB No. 95).. The primary objective of this statement is to provide temporary relief to governments and other stakeholders as a result ofthe:COVIP-19 pandemic. GASB No. 95 postpones the effective dates of certain provisions in statements and implementation guides that first beca_me effec,tive or are scheduled to become effective for periods beginning after June 15, 2018, and later. This statement was effective for $MUD in 2,020. SM1)D has postponed the implementation ofGASB No. 87, "Leases" and GASB No. 93, "Replacen:zentpf Interbank Offered Rates."

25 Recent Accounting Pronouncements, n'ot yet-adopted. In June 2017, GASB issued SGAS No: 87, "Leases" (GASB No. 87).

The objective of this statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. The statement requires recognition of certain lease assets and liabilities for leases that previously were 0 classified as operating leases and recognized as inflows ofresources or outflows ofresources based on the payment provisions of the contract. GASB No. 87 establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under GASB No. 87, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. This statement is effective for SMUD in 2022. SMUD is currently assessing the financial statement impact of adopting this statement.

In March 2020, GASB issued SGAS No. 93, "Replacement of Interbank Offered Rates" (GASB No. 93). The objective of this statement is to address accounting and financial reporting implications that result from the replacement of an interbank offered rate (IBOR), most notably, the London Interbank Offered Rate (LIBOR), which is expected to cease to exist in its current form at the end of 2021. This statement provides exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced as the reference rate of the hedging derivative instrument's variable payment.

By removing LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap, GASB No. 93 identifies the Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates to replace LIBOR. This statement is effective for SMUD in 2022. SMUD is currently assessing the financial statement impact of adopting this statement but does not expect it to be material.

)! :. 1 In March 2020, GASB issued SGAS' Nb. 94, "Public-Private and Public-Public Partnerships and Availability Payment Arrangements" (GASB No: '94). The primary objective of this Statement is to provide guidance for accounting and financial reporting related to *public-private and public~pliblic p~rtnership arrangements (PPPs) and availability payment arrangements (AP As). A PPP is an arrangement in which*a government (the transferor) contracts with an operator (a governmental or nongovernmental entity)to provide public services by conveying control of the right to operate or*use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP*asset), for a period of time in an*exchange or exchange-like transaction. An AP A is an arrangement in which a government compensates *an operator for services that may' include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. This statement is effective for SMUD in 2023. SMUD is currently assessing the financial impact of adopting this statement but does' not expect 'it to be material.

In May 2020, GASB issued SGAS No: 96, "Subscription-Based Information Technology Arrangements" (GASB No. 96).

This statement provides guidance.on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for governments. The statement (1) defines a SBITA as a contract that conveys control of the right to use another party's information technology software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an:exchange or exchange-like transaction; (2) establishes that a SBIT A results in a right-to-use subscription asset and a corresponding subscription lia:bility; (3) provides the*capitalization criteria for outlays other than subscription payments, including implementation costs ofa SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in GASB No. 87, Leases, as amended. This statement is effective for SMUD in 2023. SMUD is currently assessing the financial statement impact of adopting this statement.

In June 2020, GASB issued SGAS No. 97, "Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans" (GASB No. 97). The primary objectives of this statement are to (1) increase consistency and comparability related to*the reporting of fiduciary component units in circumstances in-which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) miti'gate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployrrient benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans as fiduciary component units in :fiduciary fund-financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code Section 457 deferred compensation plans that

26 meet the definition of a pension plan and for benefits provided through those plans.. This statement is effective for SMUD in 2022. SMUD is currently assessing the financial statement impact of adopting this statement but does not expect it to be material.

NOTE 3. COMPONENT UNITS ASSIGNMENT AND ASSUMPTION AGREEMENTS

The Agreements between SF A and CVF A, SCA and SP A transferred the operation and ownership,of the assigned Power Plants to SFA for operational and administrative efficiencies. On November 1, 2021, CVFA, SCA and SPA transferred assets and obligations to SF A and ceased operations. The transfer meets the definition of a transfer of operations under GASB Statement No. 69 "Government Combinations and Disposals of Government Operations" (.GASB No. 69). In.accordance with GASB No. 69, SFA reported 2021 operations of the assigned Power Plants as of November 1, 2021. Since these are blended component units, there was no impact to the assets, liabilities, and net position ofSMUD (see Notes 2 and 6).

NOTE 4. ELECTRIC UTILITY PLANT

The summarized activity ofSMUD's Electric Utility Plant during 2021 is presented below:

Balance Transfers Balance January 1, and December 31, 2021 Additions Dis12osals 2021 (thousands of dollars)

Nondepreciable Electric Utility Plant:

Land and land rights $ 159,515 $ 10,835 $ (806) $ 169,544 CWIP 461 319 298,426 (392,448) 367 297 Total nondepreciable electric utility plant 620 834 309 261 (393,254) 536 841

Depreciable Electric Utility Plant:

Generation. 1,710,420 49,594 (8,094) 1,751,920 Transmission 410,567 113,776 (1,578) 522,765 Distribution 2,498,526 162,177 (9,664) 2,651,039

Investment in JP As 30,012 4,749 34,761 Intangibles 517,415 18,0lq (8,598) 526,923 General 1,098,911 39 861 (13,231) 1,125,541 6,265,851 388,173*. (41,075) 6,612,949

Less: accumulated depreciation and depletion. (3,132,247) (216,336) 41,355 (3,307,228)

Less: accumulated amortization on JPAs (7,279) (313) (7,592)

(3,139,526) (216,649) 41,355 (3,314,820)

Total depreciable plant 3,126,325 lZl,524 280 3,298,129 Total Electric Utility Plant - net. L____l, 7 4 7, 15 9 $. 480,785 $ (322,274) $ 3,834,970

27 The summarized activity of SMUD's Electric Utility Plant during 2020 is presented below:

• Balance Transfers Balance January 1, and December 31, 2020 Additions DisQosals 2020 (thousands of dollars)

Nondepreciable Electric Utility Plant: '

Land and land rights $ 142,291 $ 17,471 $ (247) $ 159,515 CWIP 353 802 318354 (210,837) 461 319 Total nondepreciable electric utility plant 496 093 335,825 (211,084) 620,834

Depreciable Electric Utility Plant:

Generation 1,670,224 43,017 (2,821) 1,710,420 Transmission 390,296 21,255 (984) 410,567 Distribution 2,427,408 76,335 (5,217) 2,498,526

Investment in JP As 22,844 7,168 30,012 Intangibles 495,651 21,764 517,415 General ;1,078,660 31 463 (11,212) 1,098,911 6,085,083 201,002 (20,234) 6,265,851

• .*!i,..

Less: accumulated depreciation and depletion (2,948,350) (204,088) 20,191 (3,132,247)

Less: accumulated amortization on JPAs (6,966) (313) (7,279)

(2,955,316) (204,401) 20,191 (3,139,526)

Total depreciable plant

• 3,129,767 (3,399) (43) 3,126,325 Total Electric Utility Plant - net $ 3,625.860 $ 332,426 $ (211,127) $ 3,747.159

NOTE 5. INVESTMENT IN JOINT POWERS AUTHORITY

TANC. SMUD and fourteen other California municipal utilities are members ofTANC, aJPA. TANC, along with the other California municipal utilities, own and operate the California-Oregon Transmission Project (COTP), a 500-kilovolt transmission line between central California and southern Oregon. SMUD is obligated to pay approximately 39 percent of TANC's COTP debt service and operations costs in exchange for entitlement to approximately 536 megawatts (MW) of TANC's 1,390 MW transfer capability. Additionally, SMUD has a 48 MW share ofTANC's 300 MW firm, bi-directional transmission over Pacific Gas and Electric Company's (PG&E) system between PG&E's Tesla and Midway substations (SOT). The total entitlement shares for the COTP and SOT described above include the long-term agreements listed below.

In 2009, SMUD entered into a 15-year long-term layoffagreement with T ANC and certain members, expiring January 31, 2024. This agreement provides for the assignment of all rights and obligations of the City of Palo Alto and the City of Roseville related to their COTP and SOT entitlements. This agreement increased SMUD's COTP entitlement by 36 MW and SOT entitlement by 2 MW. On July 1; 20i4, an amendmentretuhled to the City of Roseville all rights and obligations related to the COTP entitlements, which decreased SMUD's COTP entitlement by 13 MW.

Effective July 1, 2014, SMUD entered into a 25-year long-term layoff agreement with T ANC and certain members that provides for the assignment of all rights and obligations of Northern California Power Agency and partial rights and obligations of the City of Santa Clara related to their COTP entitlements. This agreement increased SMUD's COTP entitlements by 130 MW.

28 The long-term debt ofTANC, which totals $169.9 million (unaudited) at December 31, 2021, is collateralized by a pledge and assignment of net revenues ofTANC supported by take or pay commitments ofSMUD and other members. Should other members default on their obligations to T ANC, SMUD would be required to m,a\\(e additional payments to cover a portion of

.such defaulted payments, up to 25 percent of its current obligation. SMUD recprded transmission expenses related to T ANC of $16.5 million and $17.5 million in 2021 and 2020, respectively.

Summary financial information for T ANC is presented below:

December 31 2021 2020 (Unaudited) (Unaudited)

(thousands of dollars)

Total Assets $ 368,180 $ 356,807 Total Deferred Outflows of Resources 349 731 Total Assets and Deferred Outflows of Resources $ 368 529 $ 357 538

Total Liabilities $ 304,379 $ 305,096 Total Net Position 64150 52442 Total Liabilities and Net Position $ 368.529 $ 357,538

Changes in Net Position for the Six.Months Ended December 31. $ (292) $ (564)

.,... ~: *, '**' : 5 Copies of the TANC annual financial reports may be obtained from SMUD at P.O. Box 15830, Sacramento, California 95852 or online at www.tanc.us.

BANC. SMUD, City of Redding, City of Roseville, Modesto Irrigation Distric~ (MID), City of Shasta Lake, and Trinity Public Utilities District are members of BANC, a JPA formed in 2009. In 20.11, operational contro\\ ofB.ajancing Authority Area (BAA) operations was transferred from SMUD to BANC. BANC performs FERC approved BAA reliability functions that are managed by North American Electric Reliability Corporation (NERC), nationally, and by Westt;rn Electricity Coordinating Council functions in the west. SMUD recorded expensesrelate.d.tq BANC of$3.7 milliqnin 2021 and $1.7 million in 2020.

Summary financial information for BANC is presented below:

December 31 2021. 2020

. (Audited) (Audited)

(thousands of dollars)

Total Assets $, 7,097 $ 8.125

Total Liabilities $ 7,097 $ 8,125 Total Net Position Total Liabilities and Net Position $ 7.097 $ 8,125

Changes in Net Position for the Year Ended December 31 $ $

Copies of the BANC annual financial reports may be obtained from SMUD at P.O. Box 15830, Sacramento, California 95852.

29 NOTE 6. COMPONENT UNITS

CVFA Carson Power Plant. Cogeneration Project. CVF A is a JPA formed by SMUD and the Sacramento Regional County Sanitation District. CVF A operates the Carson Power Plant Project, a 65 MW (net) natural gas-fired cogeneration facility and a42 MW (net) natural gas-fired simple cycle peaking plant. On November I, 2021, CVFA transferred the assets and obligations, including the ownership of the Carson Power Plant to SFA (see Notes 2 and 3).

SCA Procter & Gamble Power Plant Cogeneration Project. SCA is a JP A formed by SMUD and the SF A. SCA operates the Procter & Gamble Power Plant Project, a 136 MW (net) natural gas-fired cogeneration facility and a 50 MW (net) natural gas-fired simple cycle peaking plant. On November 1, 2021, SCA transferred the assets and obligations, including the ownership of the Procter & Gamble Power Plant to SFA (see Notes 2 and 3).

SFA Cosumnes Power Plant Project. SFA is a JPA formed by SMUD and MID. SFA operates the Cosumnes Power Plant Project, a 602 MW (net) natural gas-fired, combined cycle facility. The revenue stream to pay the SFA bonds' debt service is provided by a "take-or-pay" power purchase agreement between SMUD and SFA. On November 1, 2021, CVFA, SCA and SPA assets and obligations, including ownership of the assigned Power Plants, were transferred to SFA (see Notes 2 and 3).

SPA Campbell Soup Power Plant Cogeneration Project SPA is a JPA formed by SMUD and the SFA. SPA operates the Campbell Soup Power Plant Project, a 160 MW (net) natural gas-fired cogeneration facility, and the McClellan Power Plant Project, a 72 MW (net) natural gas-fired simple cycle peaking plant. On November 1, 2021, SPA transferred the assets and obligations, including the ownership of the Campbell and McClellan Power Plants to SFA (see Notes 2 and 3).

NCGA. NCGA is a JP A formed by SMUD and the SF A. NCGA has a prepaid gas contract with Morgan Stanley Capital Group (MSCG) expiring in 2027, which is financed primarily by NCGA revenue bonds. SMUD has contracted with NCGA to purchase all the gai'delivered by MSCd io NCGA', based on market prices. NCGA is obligated to pay the principal and interest on the bonds. Neither SMUD nor SF A is obligated to make debt service payments on the bonds. NCGA can terminate the' prepaid gas contract under certain circumstances, including a failure by MSCG to meet its gas delivery obligation to NCGA"or a drop in:MSCG's credit rating below a specified level. If this occurs, MSCG will be required to make a termination paymentto'NCGA based on the unamortized*prepayment proceeds received by MSCG.

NCEA. NCEA is a JPA formed by SMUD and the SFA. NCEA has a prepaid natural gas and electricity (commodity) contract with J. Aron & Company LLC (J. Aron) expiring in 2049, which is financed primarily by NCEA revenue bonds.

SMUD has contracted with NCEA to purchase all the commodity delivered by J. Aron to NCEA, based on market prices.

NCEA is obligated to pay the principal and interest on the bonds. Neither SMUD nor SF A is obligated to make debt service payments on the bonds. NCEA can terminate the prepaid commodity contract under certain circumstances, including a failure by J. Aron to meet its commodity delivery obligation to NCEA. If this occurs, J. Aron will be required to make a termination payment to NCEA based on the unamortized prepayment proceeds received by J. Aron.

30 The summarized activity ofSMUD's component units for 2021 is presented below:'

CONDENSED STATEMENTS OF NET POSITION December 31, 2021 (thousands of dollars)

SFA NCGA NCEA Assets Electric Utility Plant - net $ 303,591 $ $ Current Assets 133,673 39,938 2/l,879 Noncurrent Assets 790 138,186 528,808 Total Assets 438,054 178,124 557,687 Deferred Outflows of Resources 3 267 Total Assets and Deferred Outflows of Resources $ 441.321 $ 178.124 $ 557.687

Liabilities Long-Term Debt - net $ 99,421 $ 142,935 $ 551,8,15 Current Liabilities 49,158 25,351 12,277 Noncurrent Liabilities 9,020 160 Total Liabilities 157,599 168,286 564,252 Net Position 283,722, 9 838,,(6,565),

Total Liabilities and Net Position $ 441.321 $ 178.124 $ 557.687

' ' ',x

• I

CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION December 31, 2021 (thousands of dollars)

• SFA NCGA NCEA Operating Revenues $ 143,050 $ 27,092 $ 21,406

,Operating Expenses 137,206 19 980 3 573 Operating Income (Loss) 5,844 7,112 17,833 Non-Operating Revenues and Expenses Other Revenues 51 492, 459 Interest Charges and Other (3,386} (7,449) (16,774)

Change in Net Position Before Distributions, Contributions and Special Item 2,509 155 1,518 Distribution to Member (544) (843)

Member Contributions 81 79 Special Item. 161,298 Change in Net Position 1,63,807 (308) 754 Net Position - Beginning of Year 119,915 10 146 (7,319)

Net Position - End of Year $ 283.722 $ 9.838 $ (6,565)

31 CONDENSED STATEMENTS OF CASH FLOWS.

December 31, 2021 (thousands of dollars)

SFA NCGA NCEA Net Cash Provided by Operating Activities $ 25,206 $ 26,145 $ 21,405 Net Cash Provided by (Used in)

Noncapital Financing Activities 37,999 (26,626) (22,595)

Net Cash Used in Capital Financing Activities (17,497) Net Cash Provided by Investing Activities 56 492 1 190 Net Increase in Cash and Cash Equivalents 45,764 11 Cash and Cash Equivalents at the Beginning of the Year 23,866 14,812 10 877 Cash and Cash Equivalents at the

• End of the Year $ 69,630 $ 14,823 $ 10,877

i

The summarized activity of SMUD's component units for 2020 is presented below:..

CONDENSED STATEMENTS OF NET POSITION December 31, 2020 (thousands of dollars)

CVFA SCA SFA SPA NCGA NCEA Assets Electric Utility Plant - net $ 31,264 $ 48,502 $ 207,058 $ 48,351 $ $ Restricted Assets 90 Current Assets '12,373 31,823 60,107 21,285 37,271 27,857 Noncurrent Assets 2 1 892 1 160,648 532,525 Total Assets 43,639 80,326 268,057 69,637 197,919 560,472 Deferred Outflows of Resources 1 733 1,829 Total Assets and Deferred Outflows of Resources $ 45,372 $ 80,326 $ 269.886 $ 69,637 $ 197,919 $ 560,472

Liabilities Long-Term Debt - net $ $ $ 113,152 $ $ 163,485 $ 556,794 Current Liabilities 3,441 5,515 36,819 5,190 24,288 10,876 Noncurrent Liabilities 8 633 121 Total Liabilities 12;074 5,515 149,971 5,190 187,773 567,791 Net Position 33,298 74,811 119,915 64447 10 146 (7,319)

Total Liabilities and Net Position $ 45.372. $ 80,326 $ 269,886 $ 69,637 $ 197.919.$ 560,472

32 CONDENSE!) STATEMENTS OF REVENUES, EXPENSES AND ;CHANGES IN NET POSITION December 31, 2020.

(thousands of dollars)

CVFA SCA SFA SP A NCGA NCEA Operating Revenues $ 16,599 $ 35,932 $ 1141;874 * $ 26,818 $ 25,935 $ 20,053 Operating Expenses 22;073 39,624*' 1'37;415' 32,545 17 810 3 366 Operating Income (Loss) (5,474) (3,692) *_4,459 (5,727) 8,125 16,687 Non-Operating Revenues and Expenses *',t; Other Revenues 48 205.. ')79 113 533 530 Interest Charges and Other ___ --" ___ --" (3,670) ___ -~0-(8,205) (16,727)

Change in Net Position Before Distributions and Contributions (5,426) (3,487) 968 I*; (5;614) 453 490 Distribution to Member * * (507) (1,090)

Member Contributions and Adjustments ___ -~0- ___ -~0- ___ *~~0- ___ -~0- __ ~8=6 127 Change in Net Position (5,426) (3,487) 968 (5,614) 32 (473)

Net Position - Beginning of Year 38,724

• 78,298 118 947' 70 061 10 114 (6,846)

Net Position - End of Year $ 33.298 $ 74.811 $ fi'9,915 $ 64.447 $ 10.146 $ (7,319)

CONDENSED STATEMENTS 0.E CASH FLOWS December 31, 2020.,,,,.

(thousands of dollars)

.,,Ii l ;'" 10 NCGA NCEA CVFA SCA SFA SPA.

Net Cash Provided by Operating Activities $ 1,232 $ 4,462 $ 19,?73 $ 1,929 $ 26,597 $ 20,053 Net Cash Used in Noncapital Financing Activities (25,550) (22,843)

Net Cash Used in Capital _Financing Activities (500) (54) (16,683) (748) Net Cash Provided b~

Investing Activities 46 242 226 138 450 2 714 Net Increase in Cash and Cash Equivalents 778 4,650 3,216 1,319 1,497 (76)

Cash and Cash Equivalents at the Beginning of the Year 4 311 16,003 20,650 9 586 13,315 10,953 Cash and Cash Equivalents at the End of the Year $ 5.089 $ 20.653 f 23.866 $ 10.905 $ 14,812 $ 10.877

As described in Note 2, all of the activities and balances of the component units are blended into and reported as part of SMUD because of the extent of their operational and financial relationships with SMUD. Copies of CVF A's, SCA' s, SF A's, SP A's, NCGA's and NCEA's annual financial reports may be obtained from their Executiye Office at P.O. Box 15830, Sacramento, California 95852 or online at www.smud.org.

NOTE 7. CASH, CASH EQUIVALENTS, AND INVESTMENTS

Cash Equivalents aitd Investments. SMUD's investment policy is governed by the California State and Municipal Codes and its Indenture, which allow SMUD's investments to include: obligations*whichare unconditionally guaranteed by the U.S.

Government or its agencies or instrumentalities; direct and general obligations of the State or any local agency within the State; bankers' acceptances; commercial paper; certificates bfdeposit;'reprirchase artd reverse*reptirchase agreements; medium

33 term corporate notes; LAIF; and money hlarket funds. SMUD's investment policy includes restrictions for investments relating to maximum amounts invested as a percentage oft?tal portfolio and with a single issuer, maximum maturities, and minimum credit ratings.

Credit Risk. This is.the risk that an issuyr* of an investment will not fulfill its obligation to the holder of the investment. To mitigate this risk, SMUD limits investments to those rated, at a minimum, "A-1" or equivalent for short-term investments and "A" or equivalent for medium-term corporate notes by a:nationally recognized rating agency, with the exception of the Guaranteed Investment Contracts (GICs) held by NCEA. NCEA GICs are rated at the credit rating of the commodity supplier, or, if not rated, the guarantor of the commodity suppl\\er which is currently Goldman Sachs rated as "BBB+".

Custodial Credit Risk. This is the risk that, in the event of the failure of a depository financial instituti.on. or counterparty to a transaction, SMUD's deposits and investl)lents may not be returned or SMUD will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of another party. SMUD does no,t have a deposit or investment policy for custodial credit risk.

As of December 31, 2021 and 2020, $21.9.n;iillion and $12.2 million in deposits were uninsured, respectively. The bank balance is also, per a depository pl~dge agreement between SMUD and SMUD's bank, collateralized at 129 percent and 134 percent of the collective funds on deposit (increased by the amount of accrued but uncredited interest, reduced by deposits covered by Federal Deposit Insurance Corporation) at December 31, 2021 and 2020, respectively. SMUD had money market funds of$141.6 million and $128.4'milliori wJ-iichwere uninsured at December 31, 2021 and 2020, respectively. SMUD's investments and money market funds are held in SMUD's name.

l,,., '

Concentration of Credit Risk. This is the ri.sk of loss attributed to the magnitude of an entity's investment in a single issuer.

SMUD places no limit on the amounts in~-ested in any one issuer for r~purchase agreements and federal agency securities.

The following are the con~entrations of risk greater than five percent in either year:

December 31, 2021 2020 Investment Type:

Federal Home Loan Banks 30% 17%

Freddie Mac 13% 7%

Municipal Bond - CA Department of Water Resources 18% 10%

Municipal Bond - State ofFlorid~

• 16% 9%

Municipal Bond - State of Californi3: 7% 4%

Federal Farm Credit Bank NIA 5%

Corporate Note -Tennessee Vall~y Authori:tY NIA 7%

Corporate Note-Wells Fargo Bank NIA 7%

Corporate Note - Microsoft Corporation NIA 9%

Corporate Note -Apple In~ - *

• 3% 11%

EbufY; 7% NIA Guaranteed Investment Contracts 7% 4%

Interest Rate Risk. This is the risk of loss due to the fair ':'alue of an investment declining due to interest rates rising.

Though SMUD has restrictions as to the maturities of so~e

• of the investments, it does not have a formal poi'icy that limits investment maturities as a means of managing its exposure to,fair ':'alue losses arising frol)l increasing interest rates. SMUD is exposed to interest rate risk on its in~erest raty swaps (se_e.l~fote 9).

I, The following schedules indicate the crydit anc) jntetest-rate. risk at December 31, 2021 and 2020. The credit ratings listed are from Standard & Poor's (S&P) or Moody's. (NIA is defined as not applicable to the rating disclosure requirements.)

34 At December 31, 2021, SMUD's cash, cash equivalents, and investments c;onsjst of the following:

Remaining Maturities (in years)

Credit Less More Total Fair Description Rating Than 1 1-5 Than 5 Value (thousands of dollars)

Cash and Cash Equivalents:

Cash NIA $ 4,931 $ $ $ 4,931 LAIF Not Rated 526,297 526,297 Money Market Funds AAAm 141,605 141,605 Deposit at Notice NIA. 105,922 -Oc 105,922 Commercial Paper A-1 9 893 9 893 Total cash and cash equivalents 788,648 788,648

Investments:

Federal Home Loan Bank AA+ 44,992 44,992 Freddie Mac AA+ 20,013 20,013 U.S. Treasury Obligations AA+.39,9.93, "0- 39,993 Corporate Notes AA+ 3,975 3,975 Municipal Bonds AAA/ AA+/ AA-37/J47 * ~ 1 -~* 24,851 62,798 Guaranteed Investment Contracts BBB+ 10,258 10,258 Total investments 146 920. 35,109 182,029 Total cash, cash equivalents, and investments $ 935.568,, $, 35;109 $, $ 970.677

At December 31, 2020, SMUD's cash, cash equivalents, and investments consist of the following: _

Remaining Maturities (in yeai,s)

. Credit_ Less More Total Fair Description Rating :Than 1. 1-5 ' Than.5. Value (thousands of dollars)

Cash and Cash Equivalents:

Cash NIA $ 8;607 $ $ $ 8,607 LAIF. NotRated 512,682, 512,682 Money Market Funds AAAm 128,406 128,406 Deposit at Notice NIA :80,062 80,062 Commercial Paper A-1+/A-1 8 854 8 854 Total cash and cash equivalents 738,611

• 738,611

Investments:

Federal Farm Credit Bank AA+ 15,.188., cO-15,188 Federal Home Loan Bank AA+ 49,986 49,986 Freddie Mac AA+ -Os...20,462 20,462 U.S. Treasury Obligations, AAA 20,248, I 20,248 Corporate Notes AAA/AA+/A+/A-/A 113,980 4,035 118,015 Municipal Bonds AAA/AA+/AA-63,647 63,647 Guaranteed Investment Contracts BBB+ -. ~o- - 10 949 10 949 Total investments 199 402 l 99 093 298,495 Total cash, cash equivalents, and investments $ 938.013 $ 99,093 $ $ 1 037,106

35 SMUD's cash, cash equivalents, and'investments are classified in the Statements ofNet Position as follows:

December 31 2021 2020 (thousands of dollars)

Cash, Cash Equivalents, and Investments:

Revenue bond reserve and debt service funds:

Revenue bond reserve fund $ 2,931 $ 3,813 Debt service fund 78,922 80,022 Component unit bond reserve and debt ser~ice funds 38 171 38 010 Total revenue bond reserve and debt service funds 120,024 121,845 Nuclear decommissioning trust fund, 8,874 8,873 Rate stabilization fund 188,992 168,726 Component unit other restricted funds 6,575 7,413 Escrow fund 15,182 15,179 Other restricted funds 654 654 Unrestricted funds 630 376 714 416 Total cash, cash equivalents, and ifivestinents $ 970.677 $ 1 037.106

NOTE 8. REGULATORY DEFERRAUS.

The Board has taken various.regulatory actions that result in differences between the recognition of revenues and expenses for ratemaking purposes and their treatment'lihoer generally accepted accounting ptinciples for non-regulated entities (see Note 2). These actions result in regulatory assets and deferred inflow ofresources, which are summarized in the tables below.

Changes to these balances, and their inclusioncin rates, occur only at the direction of the Board.

Regulatory Assets (Costs)*

Decommissioning. SMUD's regulatory asset relating to the unfunded portion of its decommissioning liability for the Rancho Seco nuclear power plant is being collected through interest earnings on the Trust Fund. Nuclear fuel storage costs and non radiological decommissioning costs have been collected in rates since 2009.

Derivative Financial Instruments. SMUD;s regulatory costs and/or credits relating to investment derivative instruments are intended to defer the net difference between the fair value of derivative instruments and their cost basis, if any. Investment derivative instruments are reflected in rates at contract cost and as such, the balance is charged or credited into fates as the related asset or deferred inflow ofresource is utilized (see Note 9).

Debt Issuance Costs. SMUD established a regulatory asset for costs incurred in connection with the issuance of debt,

obligations, principally underwriter fees and legal costs. The regulatory asset is amortized through 2021 for the portion related to SMUD's debt issuance costs and over the life of the bonds for the portion related to the component units' debt issuance costs. Debt issuance costs after December 31, 2013 are exp'ensed.

Pension. SMUD established a regulatory asset for pension costs related to the implementation ofGASB No. 68 which requires SMUD to record a net pension asset' br a net pension liability. The regulatory asset is being amortized over a period of25 years starting in 2018.

OPEB. SMUD established a regulatory,asset for OPEB coi.ts'related to the implementation of GASB No. 75 which requires SMUD to record a net OPEB asset or net OPEB liability. The regulatory asset will be amortized over a period of 25 years starting in 2020.

36 SMUD's total regulatory costs f01; future recovery are presented below:

December 31 2021 2020

( thousands of dollars)

Regulatory Costs:

Decommissioning $,,83,846,_ $ 88,652 Derivative financial instruments 5,387 9,270 Debt issuance costs.1:,,: 1,464 1,673 Pension 357,571 374,599 OPEB 293 783 306 556 Total regulatory costs 742,051 780,750 Less: regulatory costs to be recovered within one year (38,303) (38,162)

Total regulatory costs for future recovery - net $ 703,748 $ 742,588

Regulatory Credits CIAC. In 2021 and 2020, SMUD added CIAC totaling $24.2 mjllion and $25.1 million; respectively, to Regulatory Credits in the Statements ofNet Position and recorded $14.2 million and $B.3 million of amortization, respectively, to Other income (expense) - net in the Statements of Revenues, Expenses and Changes in Net Position. SMUD's regulatory credit relating to CIAC is intended to offset the revenue and expense associated with this accounting t~eatment.. Thus, th.is regulatory credit is being ~mortized into rates over the depreciable lives ofth~ related assets in ordert9 1 offset th!'} earnings.effect of these non exchange transactions.

Rate Stabilization. SMUD's regulatory credit relating to Rate Stabilization is intended to defer the need for future rate increases when costs _exceed existing rates. At the direction of the Board, amounts.may be eithi::r deferred into this fund (which reduces revenues), or amounts are recognized out of this fund (which increases revenues). The Board authorizes Rate Stabilization Fund (RSF) deferrals on an event driven basis.

In 2021, $11.4 million was recognized as revenue from the RSF as a result of lower than budgeted energy deliveries from the Western Area Power Administration (Western). In 2020, $1.6 million was deferred from revenue to the RSF as a result of higher than budgeted energy deliveries from Western.

SMUD participates in the carbon allowance auctions under AB-32, the Global Warming Solutions Act (see Note 2). The Board authorized deferral of AB-32 auction proceeds to match the revenue recognition with the related expen_ses. The difference between the auction proceeds received and the funds spent on AB-32 programs are deferred into future years. In 2021, the Board authorized deferring the difference into the RSF and $16.2 million was deferred from revenue to the RSF. In 2020, the Board authorized transferring the difference out of the RSF and $4.1 million was recognized from the RSF to revenue.

SMUD sells LCFS credits under AB-32, the Global Warming Solutions Act (see Note 2). In 2019, the Board authorized deferral ofLCFS credit sales to match the revenue recognition with the related expep~es. The difference between the LCFS credit sales and the funds spent on LCFS programs are deferred into future years. In 2021, the Board authorized recognizing the difference and $0.9 million was recognized from the RSF to revenue. In 202Q, tµe Board authori_zed deferring the difference into the RSF and $0.3 million was deferred from revenue to the RSF.

In 2021 and 2020, the Board authorized S_MUD _to defer $35.0 million from revenu~ to the RSF to offset future one-time specific expenses which may have a significant financial impact on SMUD. This,wi,11 provide reserves to cover large contingencies while limiting or leveling out the impact of cost in_cr~ases to. ratepayers.

Hydro Rate Stabilization. The Hydro Rate Stabilizatipn Fun_d (HRSF)was established through the Hydro Generation Adjustment (HGA) mechanism, which helps manage volatility in energy costs. The HGA mechanism applies a formula based

37 on precipitation and wholesale electricity prices to calculate needed withdrawals from or deposits to the HRSF. The maximum balance of the HRSF is 6 percent of the budgeted retail revenue and the maximum annual transfer in or out of the HRSF is 4 percent of budgeted retail revenue. If the HRSF is depleted, SMUD will apply a hydro rate surcharge to customers' bills up to 4 percent. When the HRSF reaches the 6 percent cap, the Board may authorize a hydro rebate to customers or direct the funds for another purpose. In 2021 and 2020, $18.6 million and $7.7 million, respectively, was recognized from the HRSF to revenue as a result of low precipitation.

Energy Assistance 'Program Rate (EAPR). In 2016, the Board authorized SMUD to transfer $10.0 million ofrevenue to a regulatory credit related to EAPR. This regulatory credit is intended to offset future expenditures for energy efficiency programs for EAPRcustomers from the period 2018-2020. In 2020, $3.5 million was spent on energy efficiency programs for EAPR customers, respectively.

Senate Bill 1. SMUD implemented a per kilowatt hour solar surcharge, effective January 1, 2008 in order to fund investments in solar required by Senate Bill 1 (SB-1). The difference between the surcharge revenues received and the funds spent on solar initiatives will be recognized or deferred into future years. SMUD has spent less than it collected in SB-1 revenues and has recorded a regulatory credit. Collection of the solar surcharge ended in December 2017 when total collections reached

$130.0 million. In 2021 and 2020, $0.8 million and $2.3 million was spent for SB-I programs, respectively.

Grant Revenues. In 2009, SMUD was awatded several large grants under the American Recovery and Reinvestment Act, which provided significant reimbursetrients-fof capital expenditures: In 2010, the Board authorized the deferral of grant income for capital expenditures as regulatory liabilities. Thus, this regulatory credit was deferred to match the depreciable lives of the related capital assets in order to offset the earnings effect of these non-exchange transactions.

TANC Operations Costs. SMUD's cash payments to TANC exceeded TANC's accrual-based costs and SMUD has recorded a regulatory credit.

SMUD's total regulatory credits for future revenue recognition are presented below:

December 31 2021 2020 (thousands of dollars)

Regulatory Credits:

CIAC $ 288,856 $ 278,791 Rate stabilization

• 132,876 94,006 Hydro rate stabilization 56,H7 74,720 Senate Bill 1 3',470 4,254 Grant revenues 32,021 36,068 T ANC operations costs 29 687 28370 Total regulatory credits $ 543,027 $ 516,202

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS,

To help provide stable electric rates and*to meet the forecasted power needs of its retail customers reliably, SMUD enters into various physical and financial fixed price purchase cbntracts for electricity and natural gas. These fixed price contracts and swap agreements are intended to hedge the exposure due to highly volatile commodity prices. SMUD also enters into interest rate swap agreements to reduce interest rate risk. SMUD utilizes these derivative financial instruments to mitigate its exposure to certain market risks associated with o'ngoirtg operations. SMUD has established policies set by an executive committee for the use of derivative financial instruments for trading purposes.* These contracts are evaluated pursuant to SGAS No. 53, "Accounting and Financial Reporting for Derivative Instruments," (GASB No. 53) to determine whether they meet the definition of derivative instruments, and if so,' whether they effectively hedge the expected cash flows associated with interest rate and commodity price risk exposures.

38 SMUD applies hedge accounting for derivative instruments that are deemed,effective hedges. Under hedge accounting, the increase,or ( de9rease) in the fair value of a hedge is reported as a Deferred.Inflow or Deferred Outflow in the Statements of Net Position. Accumulated gains and losses from derivative instruments that do not meet the effectiveness tests are deferred for ratemaking purposes as regulatory assets on the Statements of Net Position (see Note 8).

SMUD executed numerous new gas and power related purchase agreements, some of which are recorded as hedging or investment derivative instruments and are therefore included in the following table *..All hedging or investment derivative instruments are recorded at fair value in the Statements of Net Position.

For electricity and gas derivative instruments, fair values are estimated by comparing contract prices to forward market prices quoted by an independent external pricing service. When external quoted market prices are not available for derivative instrument contracts, SMUD uses an internally developed valuation model utilizing short term observable inputs. For interest rate derivative instruments, SMUD calculates the fair value by discounting the expected,cash flows at their corresponding zero coupon rate.

39 The following is a summary of the fair value, changes in fair value and notional amounts of derivative instruments, grouped by trading strategy, outstanding at December 31, 2021' (amounts in thousands; gains shown as positive amounts, losses as *negative):

2021 Changes in Fair Value at Fair Value December 31, 2021

' : ' ' Current Noncurrent Current Noncurrent Amount Amount Amount Amount Notional Cash Flow Hedges:

(thousands of dollars)

(thousands ofDekatherms (Dth))

Asset: Investment Derivative Instruments,

Gas - Commodity $ 1,174 $ 770 $ 1,174 $ 803 2,445 Dth Gas - Storage Gas - Transportation 180 180 78 Dth Total Investment Derivative Instruments $ 1,354 $ 770 $ 1,354 $ 803

Asset: Hedging Derivative Instruments Gas - Commodity $ 29,964 $ 30,356 $ 31,293 $ 32,681 76,850 Dth Gas - Storage 190 491 380 Dth Gas - Transportation 2,062 3,552 9,395 Dth Interest Rate (509) (1,209) 1 284 5072 $263,535 Total Hedging Derivative Instruments $ 31,707 $ 29,147 $ 36,620 $ 37,753

Liability: Investment Derivative Instruments Gas - Commodity $ 4 $ 24 $ 5 $ 239 1,223 Dth Gas - Storage -0--0- Gas - Transportation Interest Rate (1,360) 3 093 2 752 4 547 $74,375 Total Investment Derivative Instruments $ (1,356) $ 3,117 $ 2,757 $ 4,786

Liability: Hedging Derivative Instruments Gas-Commodity $ 5,314 $ 17,210 $ 15,352 $ 1,488 12,983 Dth Gas - Storage 479 618 380 Dth Gas - Transportation (1,562) 1,562 3,805 Dth Interest Rate (179) 7 718 700 2 880 $157,785 Total Hedging Derivative Instruments $ 4,052 $ 24,928 $ 18,232 $ 4,368

40 The following is a summary of the fair value, changes in fair value and notional amounts of derivative instruments, grouped by trading strategy, outstanding at December 31, 2020 (amounts in thousands; gains shown as positive amounts, losses as negative):

2020 Changes in Fair Value at Fair Value December 31, 2020 Current Noncurrent Current Noncurrent Amount Amount Amount Amount Notional Cash Flow Hedges:

(thousands of dollars)

(thousands ofDekatherms (Dth))

Asset: Investment Derivative Instruments Gas - Commodity $ (69) $ 33 $ $ 33 305 Dth Gas - Storage (141) Gas - Transportation (278), Total Investment Derivative Instruments $ (488) $ 33 $ $ 33

Asset: Hedging Derivative Instruments Gas - Commodity $ (189) $ 2,311, $., 1,32,9. *;. _$

• 2,325 39,730 Dth Gas - Storage (90)

• 30 L *, ~o900 Dth Gas - Transportation (3,836) *,, 1,490. cOc 11,958 Dth Interest Rate 295 -----'(-""1,=6=92=.,.) 1 793,, 6 281, $280,320 Total Hedging Derivative Instruments $ (3,820) $ 619 $ 4,913 $ 8,606

Liability: Investment Derivative Instruments Gas-Commodity $ 1,164, $, 1,402 $, ' 9,* ', $ 263 1,675 Dth Gas - Storage 191.-0-,,,*, Gas - Transportation 93 Interest Rate (614) (536), 1392,, 7 640 $80,100 Total Investment Derivative Instruments $ 834 $ 866 $ 1,401 $ 7,903

Liability: Hedging Derivative Instruments Gas -Commodity $ 20,193 $ 23,002.$ Z0,666 $ 18,698 47,778 Dth Gas - Storage. (583) ' 1,097 1,210 Dth Gas - Transportation, ' Interest Rate (521) (8,478) j 521, 10 598 $284,815 Total Hedging Derivati\\'.e Instruments $ 19,089 $ 14,524,$.,22,284 $ 29,296

41 Objectives and Terms of Hedging Derivative Instruments, The objectives and terms ofSMUD's hedging derivative instruments that were outstanding at December 31, 2021 are summarized in the table below. The table is aggregated by the trading strategy. Credit ratings of SMUD' s counterparties can be found in the table under Credit Risk. Details of SMUD' s interest rate derivative instruments can be found in Note 10.

Notional Beginning* Ending Minimum Maximum AmountDth Date Date Price/Dth Price/Dth Gas - Commodity 95,478 01/01/08 12/31/25 $ 1.00 $ 7.80 Gas - Storage 760 01/01/22 02/28/22.85 6.20 Gas - Transportation 13,278 01/01/22 12/31/22 (1.30) 1.35

The objectives and terms of SMUD' s hedging derivative instruments that were outstanding at December 31, 2020 are summarized in the table below. The table is aggregated by the trading strategy.

Notional Beginning Ending Minimum Maximum AmountDth Date Date Price/Dth Price/Dth Gas - Commodity 89,565 01/01/08 12/31/24 $.89 $ 7.17 Gas - Storage 2,110 01/01/21 03/31/21.26 3.13 Gas - Transportation 11,958 01/01/21 12/31/21 (0.82).43

SMUD hedges its interest rate: exposure with swaps. One swap is used to convert some of the interest expense associated with fixed rate bonds to a variable rate interest expense. SMUD has three forward starting swaps that are designed to synthetically fix the interest expense associated with refunding bonds that are expected to be issued to refund the 2012 Series Yin 2022, and the 2013 Series A and 2013 Series B bonds in 2023 (see Note 10). SMUD also has a swap that is designed to fix the int~rest expense associated with commercial paper (see Note 11 ).

SMUD hedges its power and natural gas costs so that it can offer predictable rates to its retail electric customers and support its credit rating. SMUD maintains a risk management program to control the price, credit, and operational risks arising from its power and natural gas market activities. Under the program, authorized SMUD employees assemble a portfolio of swaps, futures, and forward contracts over time with the goal of making SMUD's purchased power and fuel budget more predictable.

The hedged risks include those related to interest rate and commodity price fluctuations associated with certain forecasted transactions, including interest rate risk on long-term debt, and forward purchases of gas and electricity to meet load.

Derivative Instruments Not Designated as Hedging Derivative Instruments Gas and Electric Contracts. SMUD utilizes certain gas swap and electric swap agteements under GASB No. 53 not,

designated as hedging derivative instruments to mitigate exposure to changes in the market price of natural gas and electricity.

The fair value of each agreement, excluding the actual settlements to be paid or received as of the end of the period, is recorded in the Statements of Net Position in either Current or Noncurrent Assets, Investment Derivative fostrumelits if in an asset position or Current or Noncurrent Liabilities, Investment Derivative Instruments if in a liability position. An offsetting amount is included in Current or Noncurrent Regulatory Costs or Regulatory Credits for future recovery in the Statements*of Net Position. The actual settlement payable is recorded in Accounts Payable in the Statements of Net Position, and the actual settlement receivable is recorded in Receivables - net: Wholesale and Other in the Statements of Net Position. The payments and receipts of the actual settlement are recorded as Investment Expense in the Statements of Revenues, Expenses and Changes in Net Position.

Interest Rate Contracts. SMUD utilizes certain interest rate swap agreements not designated as hedging derivative instruments under GASB No. 53 to mitigate exposure to fluctuations in interest rates. The fair value of each agreement, excluding the balance of interest to be paid or received as of the end of the period, is recorded in the Statements of Net Position in either Current or Noncurrent Assets, Investment Derivative Instruments if in an asset position or Current or

• 42 Noncurrent Liabilities, Investment Derivative Instruments if in;a liability position, An offsetting amount is included in Current or Noncurrent Regulatory Costs or Deferred Outflows or Inflows of Resources in the Statements of Net Position. The interest r~ceivable is recorded in Receivables - net: Wholesale and Other in the Statements of Net Position and the accrued interest is recorded in Interest Payable in the Statements ofNet Position. The payments or receipts of the actual settlement are recorded as Investment Expense in the Statements of Revenues, Expenses and Changes in Net Position.

The Board has deferred recognition of the effects ofreporting the fair value oflnvestment Derivative Instruments for ratemaking purposes and maintains regulatory accounts to defer the accounting impact of these accounting adjustments (see Note 8). Fair values may have changed significantly since December 31, 2021.

Basis Risk. This is the risk that arises when a hedged item and a derivative instrument that is attempting to hedge that item are based on different indices. SMUD is exposed to basis risk when it hedges its natural gas purchases, which are priced at various locations, and with NYMEX futures contracts, which settle based on the price at Henry Hub, Louisiana. SMUD enters into basis swaps to hedge against this risk.

Termination Risk. This is the risk that a derivative instrument will terminate prior to its scheduled maturity due to a contractual event. Contractual events include bankruptcy, illegality, default, credit events upon merger, and other events. One aspect of termination risk is that SMUD would lose the hedging benefit of a derivative instrument that becomes subject to a termination event. Another aspect of termination risk is that, if at the time of termination, the mark to market value of the derivative instrument was a liability to SMUD, SMUD could be required to pay that a.mount to the counterparty. Termination risk is associated with all of SMUD's derivative instruments up to the fair value amounts. _,

Counterparty Credit Risk. This is the risk of loss resulting when the counterparty is unable or unwilling to fulfill its present and future financial obligations. SMUD can be exposed to significant counterparty credit risk on all derivative.instruments.

SMUD seeks to minimize credit risk by transacting with creditworthy counterparties. SMUD has established and maintained strict counterparty credit guidelines. SMUD continuously monitors counterparty credit risk and utilizes numerous counterparties to diversify the exposure to potential defaults. Under certain conditions as outlined in SMUD's credit risk management policy, SMUD may require additional credit support under its trading agreements.

Some of SMUD's derivative instrument master agreements contain credit contingent provisions that enable SMUD to maintain unsecured credit as a result of positive investment quality credit ratings from* each of the major credit rating agencies. If SMUD's credit rating was to be downgraded, there could be a step-down in SMUD's unsecured credit thresholds, and SMUD's counterparties would require additional collateral. If SMUD's credit rating was* to decrease below investment grade, SMUD's unsecured credit thresholds would be reduced to*zero, and counterparties to the derivative instruments would demand ongoing full collateralization on derivative instruments in net out of the money positions (see Note 2).

43 The counterparties' credit ratings at December 31-, 2021

• and 2020 are shown in the table beldw. The credit ratings listed are from S&P or Moody's.

December 31 2021 2020 Counterparty Gas Contracts:

Bank of Montreal A+ A+

Barclays Bank PLC A A Citigroup Inc.,.

• BBB+ BBB+

EDF Trading Group Baa2 Baa2 J.P. Morgan Ventures Energy Corp. A-A-Merrill Lynch A2 A2 Mitsui Bussan A A Morgan Stanley Capital Group, Inc. BBB+ A+

Nextera A-A-Royal Bank of Canada AA-AA-Shell Trading Market Risk A A+

Interest Rate Contracts:*

Barclays Bank PLC A A Goldman Sachs Capital Markets,.L'.P*: (J; <Aron) BBB+: BBB+

Morgan Stanley Capital Services, Irie. A+ A+

NOTE 10. LONG-TERM DEBT*

SMUD's total longcterm debt is presented below:

December 31 2021 2020.

(thousands of dollars)

Electric revenue bonds, 2.0%-6.32%,2022-2050 $ 1,966,925 $ 2,085,120 Subordinated electric revenue bonds, '5.0%, 2022-2049 200 000 200,000 Total electric revenue bonds*. 2,166,925 2,285,120 Component unit project revenue bonds, 5..0%; 2022-2030 101,185 112,085 Gas and Commodity supply revenue bonds, index rates and 4.0%-5,0%, 2022-2049 703 100 721 550 Total long-term debt outstanding 2,971,210 3,118,755 Bond premiums - net 242 647 267 947 Total long-term debt 3,213,857 3,386,702 Less: amounts due within one year (132,150) (127,390)

Total long-term debt - net $ 3,081 707 $ 3,259,312

44 The Sl:lmmarized activity ofSMUD's long-term debt during 2021 is presented below:

Defeasance Amounts January 1, Payments or December 31, Due Within 2021 Additions Amortization 2021 One Year (thousands of dollars)

Electric revenue bonds $ 2,085,120 $ 106,875 $ (225,070) $ 1,966,925 $ 100,150 Subordinate electric revenue bonds 200,000 0 0 200,000 0 Component unit project revenue bonds 112,085 0 (10,900) 101,185 11,450 Gas and Commodity supply revenue bonds 721 550 0 (18,450) 703 100 20,550 Total 3,118,755 106,875 (254,420). 2,971,210 $ 132,150 Unamortized premiums - net 267 947

• 23,373 (48,673) *. 242 647 Total long-term debt $ 3,386,702 $ 130,248 $ (303,093) $ 3,213,857

The summarized activity ofSMUD's long-term debt during 2020,ispresented below:

Defeasance Amounts January 1, Payments or.* December 31, Due Within 2020 Additions Amortization 2020 One Year (thousands.of dollars),

Electric revenue bonds $ 1,778,040' $ 400,000 $ (92*,920) $. 2,085,120 $ 98,040 Subordinate electric revenue bonds 200,000 200,000 Component unit project revenue bonds 120,795 *.. (8,719}, u2,085 10,900 Gas and Commodity supply revenue bonds 738 225 (16,675)., 721 550 18 450 Total 2,837,060 400,000 (118;305). 3;118,755 $ 127,390 Unamortized premiums - net 225 040 83 457 (40,550) 267 947 Total long-term debt $ 3 062,100 $ 483,457 $ (158,855) $ 3 386,702

At December 31, 2021 scheduled annual principal maturities and* interest are as follows:

Princi12al Interest Total

, (thousands of dollai:s) 2022 $ 132,150 $. l46,198 $. 278,348 2023 140,870 139,221,

• 280,091 2024 141,150. 130,656 271,806 2025 153,025 123,363 276,388

. 2026 159,580 114,478 274,058 2027 - 2031 ( combined)

• 611,665. 463,969, 1,075,634 2032 - 2036 ;( combined) 598,925 309,985 908,910 2037 - 2041 (combined) 416,905 177,661 594,566 2042-2046 (combined) 358,260 92,786 451,046 204 7 - 2051 ( combined) 258;680. 23 573 282,253 Total requirements $' 2,271;210,. $,

• 1,721,890 $ 4,693,100

Interest in the preceding table includes interest requirements for fixed rate debt at their stated rates, variable rate debt covered by interest rate swaps at their fixed rate, and variable rate debt not covered by interest rate swaps using the debt interest rate of 70.0 percent of 1 month London Interbank Offered Rate (LIBOR) plus a fix~d fee; '.(he LIBOR rate is based on the rate in effect at December 31, 2021 for, the issues. The 2019 Series A anq 2019,Ser.ies,B P1.1tBonds assume a 3.0 percent fixed rate coupon after mandatory remarketing. The 2018 NCEA Put Bonds assume. a 4.0 pei:c~nttixed rate coupon after mandatory

45 remarketing. Principal in the preceding table includes known principal payments and the amortization schedule for mandatory remarketing bonds.

The following bonds have been issued and* are outstanding at December 31, 2021:

Final Interest Original Outstanding Date Issue Maturi!Y Rate Amount Amount (thousands of dollars)

Electric Revenue Bonds 06/15/1997 1997 Series KBonds 07/01/2024 5.25% $ 131,030 $ 55,835 05/15/2009 2009 Series V* Bonds

• 05/15/2036 6.322% 200,000 200,000 07/29/2010 20 IO Series W Bonds 05/15/2036 6.156% 250,000 250,000 05/31/2012 2012 Series Y Bonds '08/15/2033. 3.0%- 5.0% 196,945 163,765 05/21/2013 2013 Series A Bonds 08/15/2041 3.75%- 5.0% 132,020 132,020 05/21/2013 2013 Series B Bonds 08/15/2033 3.0%- 5.0% 118,615 81,880 07/14/2016 2016 Series D Bonds 08/15/2028 2.125%- 5.0% 149,890 124,160 12/14/2017 2017 Series E Bonds 08/15/2028 5.0% 202,500 132,870 07/12/2018 2018 Series F Bonds 08/15/2028 5.0% 165,515 127,645 07/25/2019 2019 Series G Bonds, * * -08/15/2041 2.375% - 5.0% 191,875 191,875 05/07/2020 2020 Series H *Bo nos', 08/15/2050 4.0%- 5.0% 400,000 400,000 07/14/2021 2021 Series I Bonds.. 08/15/2028 5.0% 106,875 106,875

Subordinated Electric Revenue Bonds 07/25/2019 2019 Series A Bonds 08/15/2049 5.0% 100,000 100,000 07/25/2019

• 2019 Series BBonds' 08/15/2049 5.0% 100,000 100,000

JP A Revenue Bonds 06/03/2015 2015 SFA Bonds 07/01/2030 5.0% 193,335 101,185 05/31/2007 2007B NCGA#I Bonds 07/01/2027 'Index Rate 668,470 163,485 12/19/2018 2018 NCEA Bonds 07/01/2049 4.0%- 5.0% 539,615 539,615

2021 Bond Issuances. In July 2021°,,-SMUD issued $106.9 million of2021 Series I Revenue Refunding Bonds. The purpose of this transaction was to refund the fixed rnte debt associated with 2011 Series X bonds. Proceeds from the 2021 Series I bonds defeased all the outstanding Series '2011 Series X bonds and funded 'the associated swap termination payment. A total of $127.0 million 'of bonds were defeased through a legal defeasance, and accordingly, the liability for the defeased bonds has been removed from Long-Term Debt - net in the Consolidated Statements of Net Position. The refunding resulted in the reco*gnition of a deferred accounting gain of $3.9 million, which is being amortized over the life of the refunding issue. The termination payments *of the interest rate swaps are being amortized over the life of the refunding issue. The 2021 refunding reduced future aggregate debt service payments by $23.8 million and resulted in a total economic gain of $22.5 million, which is the 'clifference between the present value of the old* and new debt service payments.*

2020 Bond Issuances. In May 2020, SMUD issued $400.0 miIIion of2020 Series H Revenue Bonds. The 2020 Series H Bonds have a fixed coupon rate of 4.0 percent to 5.0 percent and amortize from 2029 to 2050. Proceeds from the 2020 Series H Bonds were used to refund all outstanding commercial paper and reimburse SMUD for capital projects in 2018, 2019 and through February 2020.,

Component Unit Bond Defeasances.* '1n September 2019, SCA defeased $12.9 million of2009 Series Bonds maturing July 2020 and July 2021, along with the-accrued interest using SCA?s available funds and $7.9 million from SMUD. The

• corresponding amount was placed in an irrevocable trust which>had a remaining balance of $6.9 million as -of December 31, 2020. In July 2021, the remaining balance was paid down to zero.

46 Terms of Debt Indentures. Debt indentures contain a provision that in an event of default, the holders of the majority of the

. debt outstanding are entitled to declare the outstanding amounts due immediately.

Interest Rate Swap Agreements. A summary ofSMUD's five interest rate swap agreements as of December 31, 2021 are as follows. The credit ratings listed are from S&P.

Notional Counterparty Amount SMUD Fixed Floating,,. *,Termination Credit (thousands) Pays Rate Rate. Date Rating

$ 55,835 Variable 5.166% SIFMA 07/01/24 BBB+

.74,375 Fixed 2.894% 63% of 1 M LIBOR 08/15/28 A+

157,785 Fixed 1.607% SIFMA 08/15/33 A+

132,020 Fixed 0.7179% 70% of IM LIBOR 08/15/41 A 75,680 Fixed 0.5543% 70% of IM LIBOR 08/15/33 A

A summary of SMUD's six interest rate swap agreements as of December 31, 2020. are as follows:

Notional Counterparty Amount SMUD Fixed,. Floating;., "' Termin~tion Credit (thousands) Pays Rate Rate Date Rating

$ 72,620 Variable 5.166% SIFMA 07/01/24 BBB+

80,100 Fixed 2.894% 63% of 1 M LIBOR 08/15/28 A+

127,030 Fixed 1.099% 67% of IM LIBOR 08/15/28 BBB+

157,785 Fixed 1.607% SIFMA 08/15/33 A+

132,020 Fixed 0.7179% 70% of IM LIBOR 08/15/41 A 75,680 Fixed 0.5543% 70% of IM LIBOR 08/15/33 A

At.December 31, 2021 and 2020, SMUD had a fixed-to-variable interest rate swap agreement with a notional amount of$55.8 million and $72.6 million, respectively, which is equivalent to the principal amount of SMUD's 1997 Series K Electric Revenue Bonds. Under th\\s swap agreement, SMUD pays a variable rate equivalent to the Securities Industry and Financial Markets Association (SIFMA) Index (.10 percent and.09 percent at December 31, 2021 and 2020, respectively) and receives fixed rate payments of 5.166 percent as of December 31, 2021 and 2020. In connection withthe swap agreement, SMUD has a put option agreement, also with a notional amount of$55.8 million and $72.6 million as of December 31, 2021 and 2020, respectively, which gives the counterparty the right to sell to SMUD, at par, either the 1997 Series K Bonds, or a portfolio of securities sufficient to defease the 1997 Series K Bonds: SMUD receives fixed rate payments of0.01 percent as of December 31, 2021 and _2020, in connection with the put option agreement. The exercts.e of the option terminates the swap at no cost to SMUD. The term of both the swap and the put is eqµal to the maturity oftlJ_e 1997 Series. K Bonds.

At December 31, 2021 and 2020, SMUD had one variable 7to-.fixed intere1?t rate swap agreement with a notional amount of

$74.4 million and $80.1 million, respectively. This swap was originally entered_ into for the purpose of fixing the effective interest rate associated with certain of its subordinated bon.ds that were refunded during 2008. The notional value of the swap is amortized over the life of the swap agreement. SMUD can terminate the swap agreement at any time, with payment or receipt of the fair market value of the swap as of the date.of termination. _The qbligat,ioµs ofSMUD under the swap agreement are not secured by a pledge of revenues of SMUD's electric sy1?temor any other prop,erty of SMUD.

Additionally, in June 2020, SMUD executed.a variable-to-fixed interest rate swap agre~m,ent with Barclays Bank PLC with a notional amount of $132.0 million for the purpose of fixing the effective interest ~ate. m;sociated with the potential refunding of the 2013 Series A Bonds. The Barclays 2013 Series A swap becom~s effective.in.July 2023. Also, in June 2020, SMUD executed a variable-to-fixed interest rate swap agreement with Barclays Bank PLC with a notional amount of$75.7 million for

47 the purpose of fixing the effective interest rate associated with the potential refunding of the 2013 Series B Bonds. The Barclays 2013 Series B swap becomes effective' in July 2023. The*notional values of the two swaps are amortized over the life of their respective swap agreements. SMUD can terminate both swap agreements at any time, with payment or receipt of the fair market value of the swaps as of the date *0ftermination. The obligations of SMUD under the swap agreements are not **

secured by a pledge ofrevenues ofSMUD's electric system or any other property ofSMUD.

In December 2019, SMUD executed a variable-to-fixed interest rate swap agreement with J. Aron with a notional amount of

$127.0 million for the purpos*e of fixing the effective-interest rate associated with the potential refunding of the 2011 Series X Bonds. The J. Aron swap becomes effective in.July 2021. The J. Aron swap was terminated in July 2021. As part of the termination, SMUD made a termination payment to J. Aron in the amount of$3.0 million. Also, in December 2019, SMUD executed a variable-to-fixed interest rate swap agreement with Morgan Stanley Capital Services with a notional amount of

$157.8 million for the purpose of fixing the effective interest rate associated with the potential refunding of the 2012 Series Y Bonds. The Morgan Stanley'Capital Services swap becomes effective in July 2022. The notional values of the two swaps are amortized over the life of their respective swap agreements. SMUD can terminate both swap agreements at anytime, with payment or receipt of the fair market value of the swaps as of the date of termination. Additionally, on August 15, 2026, and for the remaining life of the Morgan Stanley Capital Services swap associated with 2012 Series Y Bonds, the swap can be terminated at no cost to SMUD: The* obligations of SMUD uhder the swap agreements are not secured by a pledge of revenues ofSMUD's electric system or any other property ofSMUD.

Component Unit Interest Rate Swap Agreements. NCGA had one interest rate swap agreement as of December 31, 2021, which is summarized as follows. The credit ratings listed are from S&P.

Credit Support Notional Provider Amount NCGA Fixed Floating Termination Credit (thousands) Paxs:* Rate Rate Date Rating

$ 163,485 'Fixed* 4.304% 67% ofLIBOR +.72% 07/01/27 A+

NCGA had one interest rate swap agreement as of December 31, 2020, which are summarized as follows:

,. u.* i* Credit Support Notional Provider Amount NCGA 'Fixed Floating Termination Credit (thousands) Paxs ; Rate Rate Date Rating

$ 181,935 Fixed**,.

• l,4.304% 67% ofLIBOR +.72% 07/01/27 A+

I ' ~.:'*1 At December 31, 2021 and 2020, NCGA had a variable-to-fixed interest rate swap agreement with a counterparty for the"purpose of fixing the effective interest rate associated with the 2007 SeriesB Bonds. NCGA pays the coub.terparty a fixed *rate on the notional amount and receives a floating rat'e equal to 67 p'ercerit ofthe'three-month LIBOR (0.10 percent and 0.23 percent at December 31, 2021 and 2020, respectively j plus a:n interest rate spread; as specified in the swap agreement. The total notional amount of the swap at December 31, 2021 and 2020 was $163.5 million and $181.9 million, respectively, and was equivalent to the outstanding principal balance oh the NCGA Bonds. The swap is amortized over the life of the swap agreement in a manner corresponding to the principal'repayment schedule of the NCGA Bonds. Early termination of the swap would occur upon termination of the prepaid agreement for ariy reason. Upon early termination, the swap would have no value to either party.*

Subordinated Electric Revenue Bonds. Paytnentofand* intetest:on the Subordinated Electric Revenue Bonds is subordinate to the payment of the principai and interest *ori*SMUD's Electric Revenue Bonds.

Component Unit Bonds. The component units of:SMUD have each*issued bonds to finance their respective projects. The revenue stream to pay SFA bonds' debt service is provided by 'a*"take-or-pay" power purchase ag'reement and is therefore not dependent on the successful operation of the project. SMUD guarantees to make payments suffici'ent to pay principal and interest and all*other payments required to be madeunder'SFNs indenture of trust. SFA is not required to repay SMUD for

48 any amounts paid under this guarantee. The revenue stream to pay NCGA and NCEA bonds'. debt service is provided by "take-and-pay" purchase agreements. Therefore, principal and interest associated with these bonds are paid solely from the revenues and receipts collected in connection with the operation of the project. Most operating revenues earned by NCGA and NCEA are collected from SMUD in connection with the sale of gas or electricity to SMUD. The ability for NCGA and NCEA to service debt is dependent on various parties (particularly MSCG, as gas supplier for NCGA and J. Aron, as commodity supplier for NCEA) meeting their contractual obligations.

Callable Bonds. SMUD has $488.8 million of Electric Revenue Bonds that are currently callable, $450.0 million of which are fixed rate Build America Bonds debt and $38.8 million of2016 Series D Bonds. SMUD also has $365.5 million of bonds that become callable from 2022 through 2027, and these bonds can be called until maturity. SMUD also has a four-month call period on the 2019 Series A and 2019 Series B Bonds in advance of their mandatory remarketing purchase date in 2023 and 2025, respectively.

Collateral. The principal and interest on SMUD's bonds are payable exclusively from, and are collateralized by, a pledge of the net revenues of SMUD's electric system. Neither the credit nor the taxing power of SMUD is pledged to the payment of the bonds and the general fund of SMUD is not liable for the payment thereof.

Covenants. SMUD's bond resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios, certain other financial ratios, stipulated minimum funding ofrev~nue bond reserves, and various other requirements including *a rate covenant to raise rates to maintain minimum debt ser~ice coverage.

SMUD has pledged future riet electric revenues, component unit net projectreveri:ues;*arid net gas supply prepayment revenues to repay, in electric revenue, component unit project revenue; and gas supply prepaym*ent revenue bonds issued from 1997 through 2021. Proceeds from the bonds provided financing for various capital improvement projects; component unit capital projects, and the prepayments ofa twenty-year supply*ofnatural gas and a thirty-year siipply of commodity; The bonds are payable solely from the net revenues generated by SMUD's electrical sales, component unit project revenues, and gas supply prepayment revenues and are payable through 2050 at December 31, 2021.

GASB Statement No. 48, "Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues;" disclosures for pledged revenues are as follows:

December 31 2021 2020 (thousands of dollars)

Pledged future revenues $

• 2,971.210 $ 3.118.755 Principal and interest payments for the year ended $ 404.679 $ 262.291 Total net revenues for the year ended $ 720.414 $ 632 572 Total remaining principal and interest to be paid $ 4.693.100 $ 4,997.204 Annual principal and interest payments as a percent ofnet revenues*

for the year ended 56% 41%

NOTE 11. COMMERCIAL PAPER NOTES

SMUD issues Commercial Paper Notes (Notes) to finance or reimburse capital expenditures. In February 2019, SMUD expanded its commercial paper program from $288.8 million to $400.0 million. A:t December 31, 2021 and 2020, there were no Notes outstanding. SMUD's commercial paper program is backed by $409.9 milliori in letter*of credit agreements (LOCs) with three separate banks. The LOCs are calculated as the sum of the maximum principal amount of the Notes plus interest thereon at a maximum rate often percent per annum for a period of90 days calculated on'the basis of a year of 365 days and the actual number of days elapsed. There have not been any term advances under the LOCs. The LOCs contain a provision that in an event of default, the outstanding amounts may become immediately (Jue.

49 The summarized activity ofSMUD's Notes during 2021 and 2020 is presented below:

• Balance at Balance at Beginning of End of Year Additions Reductions Year

• (thousands of dollars)

December 31, 2021 $ $ $ December 31, 2020 50,000 $ $ (50,000) $

NOTE 12. FAIR VALUE MEASUREMENT

GASB No. 72 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the mea~urement date (an exit price). SMUD utilizes market data or assumptions that market participants would use in pricing th~.asset or liaJ;>ility, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

GASB No. 72 establishes.a fair va,lue h,ier.ar~~y that pri~rit,izes tpe inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted pric~s)n actiye mark1/t~ for.identical assets or liabilities (Level 1) and tl,le lowest priority to unobservable inputs (Level 3).. The t4ri,:e levels_ofthe fai_r valu_e hierarchy defined by GASB J;fo. 72 are as follows:

• Level I inputs are quoted P,ri~,es (un!ldjusted) ip active markyt~ for identical assets or liab_ilities.

• Level},inputs are inp))is ()t~er th.an quoted J?ri~es included in Level I that are observable for an ass~t or liability, either directly or indirectly..

• l *,

• Level 3 inputs are unob~ervable ii;iputs that reflec! SMUD,'~ own assumptions about fa~tors that market participants would use in pricing the asset or liability.

The valuation methods of the fair value measurements are as follows:

• LAIF - uses the fair value of the pool's share price multiplied by the number of shares held. This pool can include a variety of investments such as U.S. government securities, federal agency securities, negotiable certificates of deposit, bankers' acceptances, commercial paper, corporate bonds, bank notes, and other investments. The fair values of the securities a\\e generally based on quoted and/or observable market prices.

• U.S. Government Agency Obligations - uses a market based approach which considers yield, price of comparable securities, coupon rate, maturity, credit quality and dealer-provided prices.

• U.S. Treasury Obligations - uses a market approach based on institutional bond quotes. Evaluations are based ()n various market and industry inputs.

• Corporate Notes - uses a market based approach. Evaluations are based on various market and industry inputs.,

• Municipal Bonds - uses a market approach based on institutional bond quotes. Evaluations are based on variou~ market and industry inputs.

• Investment Derivative Instruments:

o Interest rate swap agreements - uses the present value technique. The fair value of the interest rate swap agreements are calculated by discounting the expected ca~h flows. The.cash flows and discount rates are estimated based on a I-month LIBOR forward curve from Bloomberg and assuming SIFMA is equal to 70.0 percent of I-month LIBOR.

o Gas related agreements,-:-uses,the market apprqach based on monthly quoted prices from an independent external pricing service. The fair vahJes for natural gas and electricity derivative financial instruments are calculated based on prevailing market quotes in active marke~s (i.e., Henry Hub and So Cal) where identical contracts are available.

The following tables identify the level within the fair value hiel"archy that SMUD's financial assets and liabilities were accounted for on a recurring basis as of December 31, 2021 and 2020, respectively. As required by GASB No. 72, financial assets and

50 liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

SMUD's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation ofthe fair value ofliabilities and their placement within the fair value hierarchy_ levels.

Recurring Fair Value Measures At-fair value as of December 31, 2021 Level 1 Level2 Total (thousands of dollars)

Investments, including cash and cash equivalents:

LAIF $ -,, -0, $ 526,297 $, 526,297 U.S. Government Agency Obligations 65,005 65,005 U.S. Treasury Obligations 39,993 39,993 Corporate Notes 3,975, 3,975 Municipal Bonds " 62 798 62 798 Total Investments, including cash and cash equivalents $ 39 993 $ 658,075 $ 698.068

Investment Derivative Instrument Assets:

Gas related agreements $ 2,157 $ $ 2,157 Total Investment Derivative Instrument Assets $ 2,157 $ $ 2.157

Hedging Derivative Instrument Assets:

Gas related agreements $ 68,017 $ $ 68,017 Interest rate*swap agreements 6 356 6 356 Total Hedging Derivative Instrument Assets $,,68.017 $ 6.356 $ 74 373

Investment Derivative Instrument Liabilities:

Gas related agreements $ 245 $ ' ', $ 245 Interest rate swap agreements,,. 7 298 7 298 Total Investment Derivative Instrument Liabilities $ '* 245,$ 7,298 $ 7.543

Hedging Derivative Instrument Liabilities:

Gas related agreements $ 19,020 $ $ 19,020 Interest rate swap agreements 3 580 3 580 Total Hedging Derivative Instrument Lialiilities $ 19.020 $ 3.580 $ 22 600 f,'

51 Recurring Fair Value Measures At fair value as of December 31,.2020 Level 1 Level2 Total (thousands of dollars)

Investments, including cash and cash equivalents:

LAIF $ $ 512,682 $ 512,682 U.S. Government Agency Obligations.. 85,636 85,636 U.S. Treasury Obligations 20,248 20,248.. 118,015 118,015 Corporate Notes,

Municipal Bonds 63 647 63 647 Total Investments, including cash and cash equivalents $ 20,248 $ 779.980 $ 800.228

Investment Derivative Instrument Assets:

Gas related agreements $ 33 $ $ 33 Total Investment Derivative Instrument Assets $ 33 $ $ 33

Hedging Derivative Instrument Assets:

Gas related agreements $ 5,445 $ $ 5,445 Interest rate swap agreements 8 074 8 074 Total Hedging Derivative Instrument Assets $ 5.445 $ 8.074 $ 13,519

Investment Derivative Instrument Liabilities:

Gas related agreements $ 272 $ *$ 272 Interest rate swap agreements,. 9 032 9 032 Total Investment Derivative Instrument Liabilities $ 272 $ 9.032 $ 9,304

Hedging Derivative Instrument Liabilities:

Gas related agreements $ 40,461 $ $ 40,461 Interest rate swap agreements* 11 119 11119 Total Hedging Derivative Instrument Liabilities $ 40.461 $ 11.119 $ 51.580

NOTE 13. ACCRUED DECOMMISSIONING LIABILITY

Asset Retirement Obligations (ARO). SMUD recognizes AROs for its Rancho Seco nuclear power plant facility and the CVF A power plant facility. This statement requires measurement of the ARO be based on the best estimate of the current value of outlays expected to be incurred. The best estimate should be determined using all available evidence and requires probability weighting of potential outcomes when sufficient evidence is available. This statement also requires the current value be adjusted for the effects of the general inflation or deflation and an evaluation ofrelevant factors that may significantly change the estimated asset retirement outlays at least annually.

Rancho Seco Nuclear Power Plant. With the completion of nuclear decommissioning of the former 913 MW nuclear power plant, and the subsequent termination of the 10 Code of Federal Regulations (CFR) 50 license by the Nuclear Regulatory Commission (NRC) effective August 31, 2018, all remaining Rancho Seco decommissioning liability relates to the Independent Spent Fuel Storage Installation (ISFSI) licensed under 10 CFR Part 72. Nuclear decommissioning is the process of safely removing nuclear facilities from service and reducing residual radioactivity to a level that permits termination of the NRC licenses and release of the property for unrestricted use. Final decommissioning of the ISFSI will occur after the spent nuclear fuel (SNF) and Greater Than Class C (GTCC) radioactive waste are removed from the site and SMUD demonstrates that the site is suitable for release in accordance with release criteria specified in 10 CFR 20, Subpart E and an approved License Termination Plan.

The Department of Energy (DOE), under the Nuclear Waste Policy Act (NWPA) of 1982 as amended, is responsible for permanent disposal of spent nuclear fuel and GTCC radioactive waste, which are currently stored in the Part 72 licensed ISFSI. SMUD has a contract with the DOE for the removal and disposal ofSNF and GTCC waste. All SMUD's SNF and GTCC waste are currently stored in sealed canisters in the ISFSI. However, the date when DOE will remove the fuel and

52 GTCC waste is uncertain. In 2010, the DOE formally withdrew the application for licensing of Yucca Mountain as a high level waste repository. While the court-ordered reinstatement ofNRC license review activities of Yucca Mountain have yielded generally positive results, Yucca Mountain remains speculative as a disposal option for SMUD's used nuclear fuel. The DOE also announced in January 2010. the creation of a Blue-Ribbon Commission to study alternatives for developing a repository for the nation's used nuclear fuel. The Commission provided a final report on alternatives in January 2012. The DOE evaluated the recommendations and published the report '.'Strategy for.the Management and Disposal of Used Nuclear Fuel and High-Level Radioactive Waste" in January 2013.. ;l

The next phase of the process will be for Congress and the President of the United States to consider the recommendations and enact legislation to implement the recommendations.* At this time, two licen*se applications have been submitted to the NRC for-the construction and operation of Consolidated Interim Storage Facility(s) that would store SNF and GTCC waste on an interim basis. One of these applications has been approved (and a license issued) arid one application is currently under

'review by the NRC. Should the NRC license one or both facilities, Congress will have td modtfy the NWP A to allow for its use. In May 2018, the U.S. House of Representatives passed H.R. 3053 - the Nuclear Waste Policy Amendments Act, which was co-sponsored by Representative Doris Matsui and 109 other members of Congress. This bill includes a provision to allow a Consolidated Interim Storage Facility to store fuel from permanentiy shut down sites like Rancho Seco. The U.S. Senate did not act on the bill. Until legislation is passed which includes a significant step towards removal of the used-nuclear fuel at the Rancho Seco facility, SMUD is committed to the safe and secure storage of its SNF and GTCC waste under its Part 72 license until DOE fulfills its obligation to dispose of this material in acc*ordance withNWPA: Iri support of this commitment, SMUD submitted its ISFSI license renewal application to the NRC in March of,2018. The NRG issued Renewed Licensee No. SNM-2510 on March 9, 2020. This renewed license authorizes the continued storage ofSMUD's SNF and GTCC until June 30, 2060.

The Rancho Seco decommissioning liability is based on an internal study of the remaining decommissioning costs, which consist of: 1) annual spent fuel management costs, 2) transportation of the canisters in the ISFSI and 3) termin~tion of the Part 72 license. The largest part of the decommissioning estimate is the annual spent fuel management costs; next year's annual budget is used for the estimate. The other costs were estimated based on prior experience and studies and prepared *by management representatives of the nuclear power plant facility. The costs in the estimate were in 2019 dollars. An employment cost index was used to adjust the other costs portion of the obligation for inflation in 2021. Probability weighting was assigned for two scenarios: 1) spent nuclear fuel will be removed from the site by 2028 and_ 2) spent nuclear fuel will be removed from the site by 2035. SMUD uses its Trust Fund (see Note 2)to demonstrate financial assurance to the NRC that *.

there are enough funds to complete the termination of the Pait 72 licehse; the balance of the Trust Fund at December 31, 2021 is $8.9 million.

CVF A Power Plant. CVF A's ground lease agreement with the Sacramento Regional County Sanitation District requires CVF A

• to restore the premises to its originaf;condition upon termination of the contract. A new study to determine the current value of the asset retirement obligation was conducted by an external contractor who specializes in decommissioning studies. The expected costs and scope of work were based on the most recent cost estimate and assumes a contractor will be responsible for the work and that decommissioning would take place between 2025 and 2027.

• The estimated costs were in 2018 dollars. The result of this study was used to determine the new balance of the ARO and the deferred outflows at January 1, 2018, in order to account for the 2018 activity. CVF A used the an'riual All Urban Consumer Price index to adjust this obligation for inflation in 2021. The remaining useful life of the Agency's assets is four-years at December 31; 2021.

The current portion of the Accrued Decommissioning' liability represents' SMDD's estimate' of actual expenditures for Rancho Seco in the next year, as set forth in the annual budget.

At December 31, 2021 and 2020, SMUD's Accrued Deco*mmissionin:g balance hi tlie Statements ofNet Position was $95.1 million and $99.5 million, respectively.

'i

53 NOTE 14. PENSION PLANS

Summary of Significant Accounting Policies;,For purposes of measuring net pension liability, deferred outflows of resources and deferred inflows ofresources relatedto pensions, and pension expense, information about the fiduciary net position of the pension plans and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by the California Public Employees' Retirement System (PERS) Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Plan Description and Benefits Provided,, SMUD participates in PERS, an agent multiple-employer public employee defined benefit pension plan (PERS Plan).. PERS provides,retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries.,PERS acts as a common investment and administrative agent for participating public entities within the State. Benefit provisions and all other requirements are established by State statute and SMUD policies.* The pension plan provides retirement benefits, survivor benefits, and death and disability benefits based upon employee's years of credited service, age, and final compensation. A full description of the pension plan regarding number of employees covered, benefit provision, as,sumptions (for funding, but not accounting purposes), and membership information are included in the annual actuarial valuation reports as of JmJ,e;30, 2020 and June 30, 2019.

GASB No. 68 requires that the reported results.must pertain to liability and asset information within certai1;1 defined timeframes.

The following ti)lleframes are µse,dJorthe year ended: i,

PERS Plan December 31 2021 2020 Valuation date June 30, 2020 June 30, 2019 Measurement date June 30, 2021 June 30, 2020

Employees Covered_ by Benefit Ter~s. The following employees we,re covered by the benefit terms for the year ended:

PERS Plan December 31 2021. 2020 Inactive employees or beneficiari!;!s currently receiving benefit payments 3,068 3,003 Inactive employees entitled to but npt, yet rec.eiving benefit payments 974 979 Active employees 2 214, 2 265 Total employees covered by benefit terms 6 256 6 247

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 the July 1 foHowing notice ofa change in the rate. The total plan contributioi:is are determined through PERS' annual actuarial valuation prpcess.

The actuarially determined rate i~ the estimated amount necessary to finance the costs of benefits earned by employet?s.during the year, with an additional amom,1t to,finan,ce an:r, unfun,ded accrued liability. The employer is required to contribute. the difference between the actuarially deterq1ined rate and the contribution rate of employees. For the PERS fiscal years ended June 30, 2021 and 2020, the average active, ~mployee contributionra!e is 6.8 percent and 6.6 percentofannual pay, respectively.

For the PERS fiscal year ended June 30, 2021, the employer's contribution rate is 9.1 percent of annual payroll plus $33.5 million for the unfunded accrued liability c::ontribution.. For, the PERS fiscal year ended June, 30, 2020, the emp,loyer's contribution rate is 8.7 percent of annual payroll plus $31.1 million for the unfunded accrued liability, contribution. Employer contribution rates may change if plan contracts are amended. For the fiscal years ended June 30, 2021 and 2020, SMUD made contributions recognized by the PERS Plar, jn the amou,nt of~229.4 million.and $98.3 million, respectively.

Net Pension Asset (NPA) or Liability (NPL). SMUD's NPA orNPL at December 31, 2021 and 2020 was measured at June 30, 2021 and 2020, respectively. The total pension liability used to calculate the NPA or NPL was determined by

54 actuarial valuations as of June 30, 2020 and 2019 rolled forward using generally accepted actuarial procedures to the June 30, 2021 and 2020 measurement dates for the PERS Plan.

Actuarial Methods and Assumptions. The actuarial methods and assumptions used for the December 31, 2021 and

. December 31, 2020 total pension liabilities are as follows for the PERS Plan:

Actuarial Cost Method Entry age normal Discount Rate 7.15%

Inflation 2.50%

Salary Increases Varies by entry age and service Mortality Rate Table The mortality table used was developed based on PERS' specific data. The probabilities of mortality are based on the 2017 PERS' Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 15 years of projected mortality improvement using the Society of Actuaries Scale 90% of scale MP-2016.

Post Retirement Benefit Increase For 2021 and 2020, the lesser of contract COLA or 2.50% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.50% thereafter

Discount Rates. For the PERS Plan, the discount rate used t.o measure the total pension liability for the years ended December 31, 2021 and 2020 was 7.15 percent for both years. For the year ended December 31, 2021, 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 PERS Plan was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate ofreturn on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

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

The expected real rates ofreturn by asset class used for December 31, 2021 are as follows:

Current Target Real Return Real Return Asset Class Allocation Years 1-10 Years 11+

Global Equity 50.0% 4.80% 5.98%

Global Fixed Income 28.0% 1.00% 2.62%

Inflation Assets 0% 0.77% 1.81%

Private Equity 8.0% 6.30% 7.23%

Real Estate 13.0% 3.75% 4.93%

Liquidity 1.0% 0% (0.92%)

The expected real rates ofreturn by asset class used for December 31, 2020 are as follo\\Vs:

Current Target Real Return Real Return Asset Class Allocation Years 1-10 Years II+

Global Equity 50.0% 4.80% 5.98%

Global Fixed Income I 28 1.0%* 1.00% 2.62%

Inflation Assets 0% 0.77% 1.81%

Private Equity 8:0% 6.30% 7.23%

Real Estate 13.0% 3.75% 4.93%

Liquidity 1.0% 0% (0.92%)

55 Changes in the NP A or NPL. The following table shows the changes in NPA or NPL recognized over the year ended December 31, 2021:

Increase (Decrease) Net Pension Total Pension* Plan Fiduciary Net (Asset) Liability Liabilijy (a) Position (b) (a)- (b)

(thousands of dollars)

Balances at January 1, 2020 $ 2,415,034 $ 1,945,214 $ 469,820 Changes recognized for the measurement period:

Service cost 38,900 38,900 Interest 168,984 168,984 Changes in assumptions Differences between expected and actual experience (5,875) (5,875)

Contributions - employer 229,440 (229,440)

Contributions - employee 17,552 (17,552)

Net investment income 454,518 (454,518)

Benefit payments (130,376) (130,376) Administrative expense (1,943) 1943

Net changes 71 633 569 191 (497,558)

Balances at December 31, 2020 $ 2,486,667 $ 2,514.405 $ (27,738)

,*1 '* !*1, *,,:"/*, ;-,.

The following table shows the changes in NPA or NPL recognized over the year ended December 31, 2020:

Increase (Decrease) Net Pension l Plan Fiduciary Net:. Liability

• Total Pension

• ' Liabili!Y (a)

• Position (b) (a)- (b)

(thousands of dollars)

Balances at January 1, 2020 $ 2,332,097 $ 1,864,450 $ 467 647 Changes recognized for the measurement period:

Service cost 38,901 38,901 Interest 164,044 164,044 Changes in assumptions

• Differences between expected and actual experience 9,981. 9,981 Contributions - employer 98,344 (98,344)

Contributions - employee 18,095 (18,095)

Net investment income 92,534 (92;534)

Benefit payments (125,581) (125,581) Administrative expense (2,628) 2,628 Other - GASB 73 pension liability write off.. (4,408) ' (4,408)

Net changes 82 937 80 764 2 173 Balances at December 31, 2020 $ 2,415.034 $ 1,945.214 $ 469,820

Sensitivity of the NP A or NPL to Changes *in the Discount Rate. The following presents the NP A or NPL of the Plan as of the measurement date, calculated using the current discount rate, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower or 1 percentage-point higher than the cmTent discount rate:

56

!%Decrease,. Current Discount 1% Increase PERS Plan (6.15%). Rate (7.15%) (8.15%)

- (thousands of dollars)

Plan's (NPA) NPL, December 31, 2021 $.286,474., *$,.,, (27,738) $ (289,153)

Plan's.NPL, December 31, 2020 777,072-, 469,820 214,331

Pension Plan Fiduciary Net Position. Detailed information about the PERS Plan's fiduciary net position is available in the separately issued PERS Plan financial statements. This report, the audited financial st~tements, and other rep,orts can be obtained at the PERS' website at www.calpers.ca.gov.

Pension Expense or Income. and Deferred Outflows of Resources and Deferred. Inflows of Resources Related to Pensions. For the year ended December 31, 2021 SMUD recognized a credit to pen~ion expense of$27.9 million and for the year ended December 31, 2020, SMUD recognized pension expense of$79.7 million.

At December 31, 2021 and 2020, SMUD reported deferred outflows of resources and deferred inflows ofresources related to pensions from the following sources:

December 31 2021 2020 (thousands of dollars)

Deferred outflows of resources:.*:,.;

Differences between expected and actual experience 9,710 17,222 Differences between projected and actual earnings on pension plan investments !'"J 16,985 Employer;!; contributions to the Plan subsequent to the measurement,, * *. *,'/, *,**

of total pension liability *, C 71624 142,133

• Total deferred outflows ofresdurces $

• 81,334 $ 176,340

Deferred inflows of resources:

Changes of assumptions $ $ 14,212 Differences between expected and actual experience 4,406 Differences between projected and actual earnings on pension plan investments* 225,301 Total deferred inflows of resources $ 229 707 $ 14,212

. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in

.. pension expense as follows:

Year ended December 31:

2022 $ (50,731) 2023 (51,226) 2024 (55,738) 2025 (62,302) 2026,., Thereafter Other Plans. SMUD provides its employees with two cash deferred compensation plans: one pursuant to Internal Revenue Code (IRC) Section 401(k) (401(k) Plan) and one pursuant t0 IRC Section 457 (457-Plan)'(collectively, the Plans). The Plans are contributory plans in which SMUD's employees contribute the funds. Each.of SMUD's eligible full-time-or permanent part-time employees may participate in either or both Plans, and amounts contributed are vested immediately. Such funds are held by a Trustee in trust for the employees upon retirement from SMUD service and, accordingly, are not subject to the general claims of SMUD's creditors. SMUD is responsible for ensuring compliance with IRC requirements concerning the

57 Plans and has the fiduciary duty of reasonable care in the selection of investment alternatives, but neither SMUD, nor its Board or officers have any liability for market variations in the Plans' asset values. SMUD employees are responsible for

• determining how their funds are to be invested and pay all ongoing fees related to the Plans. The Plans are currently not subject to discrimination testing, nor the requirements of the Employee Retirement Income Security Act of 1974. *SMUD employees participating in the Plans are allowed to contribute a portion of their gross income not to exceed the annual dollar limits prescribed by the IRC.

SMUD makes annual contributions to the 401 (k) Plan on behalf of certain employees pursuant to a memorandum of understanding with both of its collective bargaining units. SMUD also matches non-represented employee contributions to the 401(k) Plan up to a set amount. SMUD made contributions into the 401(k) Plan of$6.l million in 2021 and $5.8 million in 2020. SMUD does not match employee* contriHutions, nor make contributions on behalf of its employees to the 457 Plan:

Participating employees made cml.tributioils into both Plans totaling $30.6 million in 2021 and $28.8 million in 2020.

NOTE 15. OTHER POSTEMPLOYMENT BENEFITS

Summary of Significant Accounting Policies. For purposes of measuring the net OPEB asset or liability, deferred outflows of resources and deferred inflows ofresources related to OPEB, and OPEB expense, information about the fiduciary net position of the 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 California Employers' Retiree Benefit Trust (CERBT). For this purpose, SMUD recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value,

Plan Description and Benefits Provided. SMUD is a member of CERBT., The CERBT Fund is an IRC Section.115 Trust set up for the purpose of receiving employer contributions to prefund OPEB for retirees and their beneficiaries., CERBT is an agent multiple-employer defined benefit OPEB plan (OPEB Plan) administered by PERS. The OPEB Plan provides medical, dental

• and long-term disability*benefitsfor retirees and their beneficiaries, in accordance with SMUD policy and negotiated agreements with employee representation groups. The benefit, benefit levels, retiree contributions and employer contributions are governed by SMUD and can be amended by SMUD through its personnel manual and union contracts. Any changes to these benefits would be approved by SMUD's Board and unions.

Employees Covered by Benefit Terms. The following.employees were covered by the benefit terms:

December 31 2021 2020 Inactive employees or beneficiaries currently receiving benefit payments 2,302. 2,286 Inactive employees entitled to but not yet receiving benefit payments 42 46 Active employees 2114 2 136 Total employees covered by benefit terms 4 458 4 468

Contributions. OPEB contributions are elective and not required. In December 2018, SMUD split its CERBT assets across two asset strategies to better align trust assets with liabilities (Strategy 1 for active employees and retirements after June 30, 2018 and Strategy 3 for retirements before July I, 2018). SMUD contributes the normal cost to the CERBT, but annually receives reimbursement for cash benefit payments from the CERBT. SMUD may also elect to put additional contributions into the OPEB Plan. For the OPEB Plan's fiscal years ended June 30, 2021 and 2020, SMUD made contributions recognized by the OPEB Plan in the amounts of$0.8 million and $13.3 million, respectively.

Net OPEB Asset (NOA) or Liability (NOL). SMUD's NOA'at December 31, 2021 and December 31, 2020 was measured as of June 30, 2021 and 2020 respectively, and the total OPEB liability used to calculate the NOA was determined by actuarial valuations as of those dates. '/,.

58 Actuarial Methods and Assumptions.,The actuarial methods and assumptions used for the December 31, 2021 and December 31, 2020 total OPEB liabilities are as follows:

Discount Rate 5.84% (2021). Blended discount rate based on projected benefit streams expected to be paid from each Strategy. 6.37% (2020)

Inflation 2.50% (2021), 2.75% (2020)

Salary Increases Aggregate -2.75% (2021), 3.0% (2020); Merit - PERS 1997-2015 Experience Study Mortality, Retirement, Disability, Termination PERS 1997-2015 Experience Study Mortality Improvement Mortality projected fully generational with Scale MP-20 (2021), MP-19 (2020)

Healthcare Cost Trend Rates Non-Medicare: 6.5% for 2022, decreasing to an ultimate rate of3.75% in 2076 (2021);

7.0% for 2022, decreasing to an ultimate rate of 4.0% in 2076 (2020)

Medicare: 5.65% for 2022, decreasing to an ultimate rate of3.75% in 2076 (2021);

6.1 % for 2022, decreasing to an ultimate rate of 4.0% in 2076 (2020)

Kaiser Medicare: 4.6% for 2022, decreasing to an ultimate rate of3.75% in 2076 (2021);

5.0% for 2022, decreasing to an ultimate rate of 4.0% in 2076 (2020)

Discount Rates. For the OPEB Plan, the discount rate used to measure the total OPEB liability was 5.84 percent and 6.37 percent for th~ years ended December 31, 2021 and 2020, respectively., This,rat\\! is w b\\ended dis.count rate based on projected benefit streams expected to be paid from Strategies 1 and 3. The projection of cash flows used to determine the discount rate assumed that SMUD contributes the full normal cost to the trust and only takes reimbursement from the trust of the cash benefit payments. Because the implied subsidy benefit payments have a larger present value than the payments toward the unfunded accrued liability, there should be sufficient plan assets to pay all benefits from the trust. Based on those assumptions, the OPE~ Plan's fiduciary net position.was projected to be available to make all projected OPEB payments for current active and inactive employees. The long-term expected rate ofreturn of6.25 and 6.75 percent for Strategy 1 and 4.75 and 5.50 percent for Strategy 3 was applied to all periods of projected benefit payments to determine the total OPEB liability for the years ended December 31, 2021 and 2020, respectively.

The expected real rates ofreturn by asset class used and presented as geometric means for December 31, 2021 are as follows:

Target Allocation Expected Real Asset Class CERBT Strategy 1 Rate of Return Global Equity 59% 4.56%

Fixed Income 25% 0.78%

TIPS 5% (0.08%)

Commodities 3% 1.22%

.REITS 8% 4.06%

Target Allocation Expected Real Asset Class CERBT Strategy 3 Rate of Return Global Equity 22% 4.56%

Fixed Income 49% 0.78%

TIPS 16% (0.08%)

Commodities 5% 1.22%

REITS 8% 4.06%

59 The expected real rates ofreturn by asset class used and presented as geometric means for December' 31, 2020 are as follows:

Target Allocation Expected Real Asset Class CERBT Strategy 1 Rate of Return Global Equity 59% 4.82%

Fixed Income 25% 1.47%

TIPS 5% 1.29%

Commodities 3% * '0.84%

REITS 8% '3.76%

Target Allocation Expected Real Asset Class CERBT Strategy 3 Rate of Return Global Equity 22% 4.82%

Fixed Income 49% 1.47%

TIPS 16% 1.29%

Commodities 5% 0.84%

REITS 8% 3.76%

Changes in the NOA or NOL. The following tablJ shows the changes in NOA or NOL recognized over the year ended December 31, 2021: 1'.,:., *

'Increas*e (Decrease) NetOPEB

. Total OPEB '.Plan Fiduciary Net (Asset) Liability Liability '(a) Position (b)' * (a) - (b)

(thousands of dollars)

'/ * * (770)

Balances at January 1, 2021 ' $ 396 209 $ 396,979 $

Changes recognized for the measurement period:

• Service cost 8,426 8,426 Interest 25,008 25,008 Changes in assumptions' 5,895 5,895

.

• Differences between* expected :;and actual experience (18,938) ('18;938)

Contributions - employer 818 * (818)

Net investment income 76,479 (76,479)

Benefit payments (24,081) (24,081)

• Administrative expense (144), 144 Net changes (3,690) 53 072 (56,762)

Balances at December 31, 2021 $ 392.519 $ 450.051 $ (57,532)

60 The foll?w,ing table shows the changes in in NOA or NOL recognized over the year ended,December 31, 2020:

Increase (Decrease) NetOPEB Total OPEB Plan Fiduciary Net (Asset) Liability Liability (a). Pos,ition (b) (a) - (b)

(thousan,ds of dollars)

Balances at January 1, 2020 $ 419 483 $ 387,272 $ 32,211

<;:'.hanges recognized for the me!lsurement period:

Service cost 8,903 -0~ 8,903 Interest 26,653 26,653 Changes in assumptions (11,453) (11,453)

Differences between expected and actual experience (23,529) (23,529)

Contributions - employer 13,299 (13,299)

Net investment income 20,447 (20,447)

Benefit payments (23,848) (23,848) Administrative expense (191) 191 Net changes (23,274) 9 707 (32,981)

Balances at December 31, 2020 $ 396.209.,$ :1,,. 396.979 $ (770)

,.,lj.

Sensitivity of the NOA or NOL to Changes in the Discount Rate. The following pr,esents the NOA or NOL of SMUD as of the measureme11t date, calculated using the c,urrent discount rate, as_ well al'\\ "".hat the NOA.or N~I,, \\Vould be if it were calculated using a discount rate that is 1 percentage-point lower or I percentage-point higher than the current discount rate:

1% Decrease Curre11t Discount 1% Increase (4.84%) Rate (5.84%) (6.84%)

(thousands of dollars)

(NOA), December 31, 2021 $ (9,249) $ (57,532) $ (97,772)

1% Decrease Current Discount 1 % Increase (5.37%) Rate (6.37%) (7.37%)

(thousands of dollars)

(NOA) NOL, December 31, 2020 $ 48,397 $ (770) $ (41,660)

Sensitivity of the NOA or NOL to Changes in the Healthicare Cost Trend Rates. The following presents the NOA or NOL of SMUD as of the measurement date, calculated using the current healthcare cost trend rate, as well as what the NOA or NOL would be if it were calculated using a healthcare cost trend rate that is 1 percentage-point lower or 1 percentage-point higher than the current healthcare trend rate (see assumptions above for healthcare ttend rate):*

Current Healthcare 1% Decrease *

• Trend Rate* 1% Increase

• (thousands of dollars)

(NOA), December 31, 2021 $ (102,004) $ (57,5;32) $ (3,060)

(NOA)'NOL, December 31, 2020 $ (45,574)* $ (770) $ 54,091

OPEB Plan Fiduciary Net Position. Detailed information about the OPEB Plan's fiduciary net position is available in the separately issued OPEB Plan's report. This report can be obtained at tlie PERS' webslte at www.calpers.ca.gov.

61 OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB: For the years ended December 31, 2021 and 2020, SMUD recognized a credit to OPEB expense of$18.8 million and $3.2 million, respectively.

At December 31, 2021 and 2020, SMUD reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

December 31 2021 2020 (thousands of dollars)

Deferred outflows of resources:

Changes of assumptions $ 13,132 $ 11,448 Differences between projected and actual earnings on OPEB plan investments 2,741 Employer's contributions to the OPEB Plan subsequent to the measurement of total OPEB liability 11 981 11 947 Total deferred outflows ofresources $ 25.113,,,,$=="""26..,,""'13=6

Deferred inflows ofresources:

Changes of assumption~ $ 7,504 $ 9,479 Differences betwe~n expected and actual ~~perience '48,300 49;375 Differences between project~d and actual earnings on OPEB plan investments 39 098 Total deferred inflo~s of tesolirces * $ 94,902 $ 58,854

'Amounts reported as deferred* outflo~s ofresources ~nd deterred inflows of resources re'lated to OPEB will be recognized iri OPEB expense as folfows':.,i: '!,',,,

Year ended December 31:

2022 $ (27,453) 2023 (17,924) 2024 (16,986) 2025 (17,608) 2026 (1,799)

Thereafter*

NOTE 16. INSURANCE PROGRAMS AND CLAIMS

SMUD is exposed to various risks of loss related to torts, thefy of and destr,uction to assets, errors and omissions,.cyber, activities, natural disasters, employee injuries and illnesses, and others. SMUD carries commer9ial insurance coverage to.

cover most claims in excess of specific doll,ar thres,holds, which range from $5.0 thousand to $5.0 million per claim. General liability limits are $140.0 million, excess of a $5.0 million self-insured retention. As of December 31, 2021, wildfire liability limits are $176.0 million ($102.0 mqlion commercial insurance plus $72.0 million self-insured retention). As of December 31, 2020, SMUD had $173.0 mil,lion commercial coverage plus $77.0 million self-insured retention within a $250.0 million total program value. SMUD's property i11surance coverage is based on the replacement value of the asset. There have been no significant reductions in insurance coverage, and in some cases, certain coverages increased. In 2021, 2020, a11d 2019, the insurance policies in effect have adequately 9qvered all settlements of the claims against SMUD. No claims have exceeded the limits of property or liability insurance in any of the past three years.

The claims liability is included as <I, component of Self Insurance and 9ther in the Statements of Net Position.

62 SMUD's total claims liability, comprising claims received and claims incurred but not-reported, at December 31, 2021,.2020 and 2019 is presented below:

2021 2020 2019

, (thousands of dollars)

Workers' compensation claims $. 8,666 $, 9,166 $ 10,005 General and auto clajms 3,596.. 3,766. 3,867 Short and long-term disability claims 47 92 201 C_laims liability $ 12 309, -$ 13,024 $ 14,073

Changes in SMUD's total claims liability during 2021, 2020 and 2019 are presented below:

2021 2020 2019 (thousands of dollars)

Claims liability, beginning of year $ 13,024, $ 14,073 $ 14,669 Add: provision for claims, current year 1,450 1,419, 1,789 (Decrease) increase in provision for claims. Jn prior years (2,04});;, (8) 11,434 Less: payments on claims attributable to current an_d prior years (122) (2,460) (13,819)

Clai!lls)iability, end of year $" 12,302 -~ 13 024 $ 14,073

NOTE 17. COMMITMENTS

Electric Power and Ga~ Supply !uch'ase Agreements. SMUD h~s n~merous power purchase agreements ~ith other power producers to purchase capacity, transmission, and associated energy to supply a portion of its load requirements. _SMUD has minimum take-or-pay commitments for energy on some contracts. SMUD has numerous long-term natural gas supply, gas transportation and gas storage agree.ments with Canadian and U.S,. co_mpanies to supply a portion of the consumption needs of SMUD's natural gas-fired power plants. ' ** ' * * *.* * *

• At December 31, 20?1, the approximate minimum obligations for the "take-or-pay" con_tracts.<;lVer the next five years are as follows:

Electric Gas (thousands of dollars) 2022 $ 101,283 $ 10,362 2023 76,618 9,369 2024 84,190 9,471

._2025 65,830 9,569 2026 67,345 9,684

At December 31, 2021, the approximate minimum obligations for the remaining c_ontracts,. assuming the energy or gas is delivered over the next five years, are as follows:

Electric Gas (thousands of dollars) 2022 $ 210,492 $ 142,333 2023 210,180 140,888 2024,t. 228,006 104,964 2025 221,728 80,266 2026. 209,959 31,133

63 Contractual Commitments beyond 2026 - Electricity. Several ofSMUD's purchase power and tranJmissi'on contracts*

extend beyond the five-year summary presented above. These contracts expire between 2027 and 2054 and provide °for power under various terms and conditions. SMUD estimates its annual minimum commitments under the take-or-pay contracts ranges between $41.3 million in 2027 and $21.2 million in 2054. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the energy is delivered, ranges between $162.5 million in 2027 and $28.2 million in 2050. SMUD's largest purchase power source (in volume) is the Calpine Sutter contract, where SMUD has contracted ownership of258 MW's of thermal generation capacity. The Calpine Sutter contract expires on December 31, 2026.

Contractual Commitments beyond 2026 - Gas. Several 6fSMUD's natural gas supply, gas transportation and g~s storage contracts extend beyond the five-year summary presented above. These contracts expire between 2027 and 2049 and provide for transportation and storage under various terms and conditions. SMUD estimates its annual minimum commitments under the take-or-pay contracts ranges between $9.8 million in 2027 and $3.6 million in 2049. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the gas is delivered, ranges between $28.6 million in 2027 and $7.6 million in 2049.

Gas Price Swap Agreements. SMUD has entered into numerous variable-to-fixed rate swaps with notional amounts totaling 102,375,000 Dths for the purpose of fixing the rate on SMUD's natural gas purchases for its gas-fueled power plants and gas indexed electric contracts. These gas price swap agreements result in SMUD paying fixed rates ranging from $2.27 to $7.17 per Dth. The swap agreements expire periodic.ally from January 2022 through December 2026.

Gas Transport Capacity Agreements. SMUD has numerous long-term natural gas transport capacity agreements with

. Canadian and U.S. companies to transport natural gas to SMUD's natural gas-fired power plants from the supply basins iri Alberta to the California-Oregon border and from supply basins in the southwest and Rocky Mountains to the Southern California border. These gas transport capacity agreements provide for the delivery of gas into SMUD-owned pipeline capacity within California. The gas transport capacity agreements provide SMUD with 53,260 Dth per day (Dth/d) of natural gas pipeline capacity from the North, including the Canadian Basins through 2022 anci'39,710 Dth/d frrim the Southwest or Rocky Mountain

Basins through at least 2022:

Gas Storage Agreements. SMUD also has an agreement for the storage ofup to 2.0 million Dth ofnatural gas'at regional facilities through March 2023, dropping to 1.0 million Dth through March 2024.

Hydro License Agreem~nts. SMU6 has a hydro license for a term of 50 years effective July 1, 2014 (see Note 2). SMUD' entered into four contracts with government agencies whereby SMUD makes annual payments to them for various services for the term of the license. Each contract is adjusted annually by an inflation index. The present value of the sum of the annual payments is $65.1 million at December 31, 2021.

Construction Contracts. SMUD has entered into various construction contracts for the construction of a new substation,*

control building, and improvements to the Union Valley bike trail in the UARP. As of December 31, 2021, the not-to-ex,ceed price for these contracts totaled $71.9 million. The remaining contract obligations for these contracts as of December 3 I, 2021 was $34.5 million.

NOTE 18. CLAIMS AND CONTINGENCIES'

FERC Administrative Proceedings. SMUD is involved in a number of FERC administrative proceedings related to the operation of wholesale energy markets, regional transmission planning, gas transportation, and the development ofNERC reliability standards. While these proceedings are complex and numerous, they generally fall into the following categories:

(i) filings initiated by the California Independent System Operator Corporation (CAISO) (or other market participants) to adopt/modify the CAI SO Tariff and/or establish market design and behavior rules; (ii) filings initiated by existing transmission owners (i.e. PG&E and the other Investor Owned Utilities) to pass through costs to their existing wholesale transmission customers; (iii) filings initiated by FERC on market participants to establish market design and behavior rules or to complain

64

about or investigate market behavior by certain market participants; (iv) filings initiated by transmission owners under their transmission owner tariffs for the purpose of establishing a regional transmission planning process; (v) filings initiated by providers of firm gas transportation services under the Natural Gas Act; and (vi) filings initiated by NERC to develop reliability standards applicable to owners, users, and operators of the bulk electric system. In addition, SMUD is an active participant in other FERC administrative proceedings, including those related to reliability and cybersecurity standards, variable resource integration, and transmission planning and cost allocation. SMUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.

Construction Matters. SMUD contracts with various firms to design and construct facilities for SMUD. Currently, SMUD is party to various claims, legal actions and complaints relating to such construction projects. SMUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.

Environmental Matters. SMUD was one of many potentially responsible parties that had been named in a number of actions relating to environmental claims and/or complaints. SMUD has resolved these environmental claims and/or complaints and entered into settlement agreements and/or consent orders. These settlement agreements and consent orders have statutory reopener provisions which allow regulatory agencies to seek additional funds for environmental remediation under certain limited circumstances. While SMUD believes it is unlikely that any of the prior settlements or consent orders will be reopened, the possibility exists. If any of the settlements or consent orders were to be reopened, SMUD management does not believe that the outcome will have a material adverse effect on SMUD's financial position, liquidity or results of operations.

Other Matters. Currently, SMUD is party to various claims, legal actions and complaints relating to its operations, including but not limited to: property damage and personal injury, contract disputes, torts, and employment matters. SMUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.

NOTE 19. SUBSEQUENT EVENTS

SMUD evaluated subsequent events through March 01, 2022, the date that the financial statements were available to be issued, for events requiring recording or disclosure in the financial statements.

65 Required Supplementary Information - Unaudited For the Years Ended December 31, 2021 and 2020

66 Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period-PERS Plan

December 31, 2021 2020 2019 2018, 2017 2016 2015 2014 (thousands of dollars)

Total pension liability:

Service cost $ 38,900 $ 38,901 $ 38,061 $ 36,029 $ 35,040 $ 29,044 $ 27,991 $ 28,170 Interest 168,984 164,044 157,976 151,354 150,119 147,497 142,468 137,546 Changes of assumptions (61,585) 123,043 (34,228) Differences between expected and actual experience (5,875) 9,981 18,8.Tl 1,293 (29,276) (8,357) (10,613) Benefit payments, including refunds of employee (130,376) {125,581) {117,548) (111,763) {104,428) (99,155) (94,636) (90,175)

Net change in total pension liability 71,633 87,345 97,366 15,328 174,498 69,029 30,982 75,541 Total pension liability, beginning of year 2,415,034 2,327,689 2,230,323 2,214,995 2,040,497 1,971,468 1,940,486 1,864,945 Total pension liability, end ofyear(a) $ 2,486,667 $ 2,415,034 $ 2,327,689 $ 2,230,323 $ 2,214,995 $ 2,040,497 $ 1,971,468 $ 1,940,486

Plan fiduciary net position:

Contributions - employer $ 229,440 $ 98,344 $ 69,119 $ 90,1:ll $ 32,389 $ 27,645 $ 22,499 $ 21,511 Contributions - employee 17,552 18,095 17,411 16,832 15,845 15,271 14,503 15,346 Net investment income 454,518 92,534 115,867 138,739 171,596 8,316 35,797 245,659

• Benefit payments, including refunds of employee (130,376) (125,581) (117,548) (111,763). (104,428) (99,155) (94,636) (90,175)

Administrative expense (1,943) (2,628) (1,270) (7,474) (2,275) (969) (1,795) (2,028)

Other 4 (,Q 34 (25) 0, Net change**in pJan fiduciary net position 569,191 80,764 83,583 126,4}1 113,127 (48,858) (23,657) 190,313

-.J Plan fiduciary net position; beginning of year 1,945,214 * : 1,864,450 1,780,867 1,654,396 1,541,269 1,590,127 1,613,784 1,423,471 Plan fiduciary_ net position, end of year (b) $ 2,514,405 $ 1,945,214 $ 1,864,450 $ 1,780,867 $ 1,654,396 $ 1,541,269"* $ 1,590,127 $ 1,613,784

Net pension liability/(asset), ending (a)- (b) $ (27,738) $ 469,820 $ 463,239 $ 449,456 $ 560,599 $ 499,228 $ 381,341 $ 326,702

,Plan ;fiduciary net.position as a percentage of the total IOLI% 80.5% :"80.1% 79,8% 74.7% 75.5% 80.7% 83.2%

P,ens ion liability

Covered payroll $ 257,613 $ 254,756 $ 247,759 $ 235,902 $ 223,685 $ 207,119 $ 197,481 $ 191,439

- payroll Net pension liabilJty/(asset) as a percentage of covered -10.8% 184.4% 187,9% 190.5% 250.6% 241,0% 193.1% 170.7%

PERS Plan. The schedule of changes in NPIJNPA and related ratios is presented above for the years for which SMUD has available data. SMUD will add to this schedule each year and when it reaches l0years it will contain the last 10 years data which will then be updated each yeargo~g forward.

Notes to Schedule:

Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2020 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit.

Changes _in Assumptions: No changes in 2021, 2020 and 2019. In 2018, demographic assumptions and. inflation rate were changed in accordance to the PERS Experience and Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate.

Schedule of Plan Co~tributions for Pension - PERS Plan

December 31, 2021 2020 2019 2018, 2017 2016 2015 2014 (thousands of dollars)

Actuarially determined contribution $_ 54,315 $ 52,276 $ 49,119 $ 40,142 $ 32,389 $ 27,645 $ 22,499 $ 21,511

Contributions in relation to the actuarially determined contribution. (229,440) (98,344) (69,119) (90,142) (32,389) (27,645) (22,499) (21,511)

Contribution excess $ (175,125) $ (46,068} $ (20,000) $ (50,000) $.o. $ $ $

Covered payroll $ 257,613 $ 254,756 $ 247,759 $ 235,902 $ 223,685 $ 207,119 $ 197,481 $ 191,439

Contributions as a percentage of covered payroll 89.1% 38.6% 27.9% 38.2% 14.5% 13.4% 11.4% 11.2%

PERS Plan. The schedule of pension contributions is presented above for the years for which SMUD has available data.

SMUD will add to this schedule each year and when it reaches 10 years it'will contain the last 10 y~ars data which will then be updated each year going.forward.

Notes to Schedule The actuarial methods and assumptions used to s~t the actuarially determined contributkms for the year ended December 3 i, 2021 was derived from the June 30~ 20i8 funding valuation report.

Actuarial cost method Entry age normal Amortization method/period For details, see June 30, 2018 Funding Valuation Report Asset valuation method Fair value of assets. For details, see* June 30, 2018 Funding Valuation Report Inflation

• 2.5%.,.

Salary increases : Varies by entry' age and service

• Payroll growth 2.75%

Investment rate of return 7.00% Net of pension plan investment and administrative expenses~

includes inflation Retirement age The probabilities of retirement are based on the 2017 PERS Experience Study for the period from 1997 to 2015 Mortality The probabilities of mortality are based on the 2017 PERS Experience Study for the period from 1997 to 2015. Pre-retirement and post retirement mortality rates include 15 years of projected mortality improvement using Scale MP-2016 published by the Society of '

Actuaries.

In 2020, the investment'i-ate ofreturn was 7.25%. Prior to 2020, the probabilities of mortality are based on the 2014 PERS Experience Stu4y for the period from 1997 to* 201 L Pre-retirement and post-retirement mortality rates include 20 years of projected mortality improvement using Seal~ BB published'by the Society of Actuaries. Prior to 2017, the retirement age and mortality assumptions were based on the 2010 PERS Experience Study for the period from 1997 to 2007. In addition, the mortality assumption for pre-retirement and post-retirement rates included 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries.

68 Schedule of Changes 1n Net OPEB Asset or Liability and Related Ratios During the Measurement Period l.

OPEB. The schedule of changes in NOA or NOL and related ratios is presented above for the years for which SMUD has available data. SMUD will add to this schedule each year and when it reaches IO years it will contain the last IO years data

. "".hich will then be updated each year going forward.

December 31, 2021 2020 2019 2018 2017 (thousands of dollars)

Total OPEB liability:

Service cost $ 8,426 $ 8,903 $ 8,946 $ 9,263 $ 8,993 Interest on t~tal OPEB liability 25,008 26,653 26,766 29,656 ' 28,676 Changes of assumptions 5,895 (11,453) 15,332 3,105 Differences between expected and actual experience. (18,938) (23,529) (6,885) (59,921) Benefit payments, including refunds ofemployee contributions {24,0812 {23,8482 {24,521} {24,6722 {22,1922 Net change in total OPEB liability (3,690) (23,274) 19,638 (42,569) 15,477

'Total OPEB liability, beginning of year 396,209 419,483' 399,845. 442'.414 426,937 Total OPEB liability, end of year (a) $ 392,519 $ 396,209 $ 419,483 $ 399,845 $ 442,414

Plan fiduciary net position:

Contributions - employer $ 818 i~ 13,299 $ 13,963 $ 34,243 $ 114,573 Net investment income '76,479 '20,447 ; 26'.13{ 27,295 24,104 Benefit payments, including refunds of employee contributions (24,672) (22,192) (24;081)

• r l23,848):. ' (24,521)

Administrative expense {1442 {1912 {812 {6352 {1232 Net change in plan fiduciary net position 53,07:'.? 9,707 9,493 36,231 116,362 Plan fiduciary net position, beginning ofyear 396,979 387,272 377,779 341,548 225,186 Plan fiduciary net position, end of year (b) $ 450,051 $ 396,979 $ 387,272 $ 377,779 $ 341,548

Net OPEB (asset) or liability, ending (a)- (b) $ (57,532) $ (770) $ 32,211 $. 22,066 $ 100,866

Plan fiduciary net position as a percentage of the total OPEB liability 114.7% 100.2% 92.3% 94.5% 77.2%

Cevered payroll $ 289,014 $ 287,001 $ 282,993 $ 269,753 $ 252,211

N~t OPEB (asset) or liability as a percentage of covered payroll -19.9% -0.3% 11.4% 8.2% 40.0%

Notes to Schedule Benefit Changes: There were no changes to benefits.

Changes in Assumptions: In 2021, the discount rate was updated due to weighting of Strategy 1 and Strategy 3 and updated capital market assu111ptions, the mortality improvement scale wa~ updated to Scale MP-2020, the inflation rate was changed to 2.5%, and the implied subsidy was removed for Medicare Advan,tage P.lai;is. In ;2020, the discount rate reflected the split of assets between Strategy I and Strategy 3, the mortality improvement scale_was ~pdatedtq-Scale MP-;2019, and the Kaiser Medicare trend rates,were upd~ted.

' 69 Schedule of Plan Contributions for OPEB.

OPEB Plan. The schedule ofOPEB contributions is presented below for the years for which SMUD has available data.

SMUD will add to this schedule each year and when it reaches 10 years it will contain the last 10 years data which will then be updated each year going forward.

December31:,

2021 2020 2019 2018 2017 (thousands of dollars)

Actuarially determined contributi?n $ 8,661 $ 12,201 $ 10,710 $ 15,366 $ 16,472

Contributions in relation to the actuarially determined contribution (853) {13,233) {13,155) {35,128) (116,181)

,, $ {19,762) $ {99,709)

Contribution excess $ $ {1,032) $ (2,445) 7,808

Covered payroll. $ 285,425 $ 289,552 $ 286,835 $ 277,193 $ 260,210

Contributions as a percentage of covered payroi(,*

• 0.3% 4.6%,4.6%. 12.7% 44.6%

Notes to Schedule The actuarial methods ~nd assun'iptions used to set the actuarially determined contributions for the year ended D!'rcember 3 t,

,2021 were derived from the June 30, 2020 f4nding valuation report.

Actuarial cost method Entry age normal Amortization method L~~~l percent of pay Amortization period 25-year fixed period for 2021 Asset valuation method Market value of assets Discount rate 6.75% for all actives and retirements after 6/30/2018, 5.50% for all retirements before 6/30/2018 Inflation 2.75%

Medical trend NoncMedicare: 7.0% for 2022, decreasing to an ultimate rate of 4.0% in 2076 Medicare (Non-Kaiser): 6.1 % for 2022, decreasing to an ultimate rate of 4.0% in 2076 Medicare (Kaiser): 5.0% for 2022, decreasing to an ultimate rate of 4.0%

in 2076 Mortality PERS 1997-2015 experience study Mortality improvement Post-retirement mortality projected fully generational with Scale MP-19

In 2021, the amortization period was for a*25-yearfixed period. Mortality assumption used PERS 1997-2015 experience study.

The mortality improvement projected fully generational with Scale MP-19. In 2020, the amortization period was for a 26-year fixed period. Mortality assumption used PERS '1997-2015 experience study. The mortality improvement projected fully generational with Scale MP-18. In 2019, the amortization period was for a 27-year fixed period. Mortality assumption used PERS 1997-2015 experience study. The mortality improvement projected fully generational with Scale MP-17. In 2018, the amortization period was for a 28-year fixed period. Mortality assumption used PERS 1997-2011 experience study. The mortality improvement projected fully generational with Scale MP-16. In 2017, the amortization period was for a 29-year fixed period. The inflation rate was 3.0% and the discount rate was 7.25%. The mortality projected fully generational with Scale MP-14, modified to converge in 2022.

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