ML16187A192

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Rancho Seco Nuclear Generating Station and ISFSI - Annual Financial Report for 2015
ML16187A192
Person / Time
Site: Rancho Seco, 07200011
Issue date: 06/16/2016
From: Tallman D A
Sacramento Municipal Utility District (SMUD)
To:
Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
DPG 16-138
Download: ML16187A192 (94)
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Text

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  • SMUDŽ June 16, 2016 DPG 16-138 U.S. Nuclear Regulatory Commission Document Control Desk Washington, DC 20555 Docket No. 50-312 Rancho Seco Nuclear Generating Station License No. DPR-54 Docket No. 72-11 Rancho Seco Independent Spent Fuel Storage Installation License No. SNM-2510 ANNUAL FINANCIAL REPORT Attention:

Jack Parrott and Chris Allen -._ :-:.. _----,.::._ In accordance with 10 CFR 50.71(b) and 10 CFR 72.80(b), we are submitting the 2015 Annual Financial Report for the Sacramento Municipal Utility District. If you or members of your staff have questions requiring additional information or clarification, please contact me at (916) 732-4893 .. Sincerely, Dan A. Tallman Manager, Rancho Seco Assets (OT/BG) Enclosure Cc: NRC, Region IV RIC: 1F.099 Rancho Seco Nuclear Generating Station I 14440 Twin Cities Road I Herald, CA 95638-9799 I 1.209.333.2935 I smud.org Forward "Sacramento Municipal Utility District OVERVIEW 2015 Service Area Population

1.5 milli

o n Total Authorized Budget $1.47 billion Record Peak Demand 3,299 megawatts on July 24, 2006 Customer Contracts 1veAREN01 617 , 307 Employees rvEARENDJ 2,121 Executive Management Arl e n Orchard Paul Lau Michael Gianunzio CEO & General Manager Chief Grid Strategy & Chief Legislative & Operations Officer Regulatory Officer Laura Lewis Chief Legal Officer Gary King Cindy Kelly Chief Workforce Officer Chief Information Officer James A. Tracy Chief Financial Officer Frankie M c Derm o tt Ni co l e H o ward Chief Generation & Chief Customer Officer Grid Assets Officer Board of Directors

  • R e n ee T ay l or Wa r dl Credit Rating AA-Standard & Poor's Aa3 AA-Moody's Fitch SMUD Service Area and Board Member Wards The Sacramento Mu n i c ipal Utility District generates , transmits and distributes electricity to a goo-square-mile territory that includes California's capital city , Sacram e nto County , and small porti o ns o f P l a c er a nd Y o lo c o unti e s. A s a muni c ipa l ut i lit y, SMUD is g ov erned b y a se v enmemb e r Board of Dire c t o rs s elected by the vot e rs to staggered four-year terms. The SMUD Board o f Direct o rs determines policy a nd appoints the c h i ef e x ecuti v e offi ce r/general man a ger, wh o is resp o nsib l e for SMUD's day-to-day operations.
  • R ob K e rt h Wards (Pr e sident 2015)
  • N a n cy B ui-T hompson Ward 2 (President 2016)
  • Gregg Fi s hm a n Ward3
  • Gene vieve S hi ro ma Ward4 n-Printed in the USA on recycled paper containing post-consumer waste
  • D ave T amayo Ward 6 B i ll Sl a t o n Ward? (V i ce President 2016) Produced by Communications.

Marketing and Community Relations <<, 2016SMUD FROM THE CEO J BY THE USUAL MEASURING STICKS, SMUD enjoyed a banner year in 2015. We continued to provide the region's residences and businesses with able and safe electricity. We kept our cost for electricity among the lowest in the state while adding more renewable resources to our power mix and reducing our carbon footprint. No other electric utility i n the country had a higher customer satisfaction score in J.D. Power's annual survey of business customers. The financial statements in this report show an organization on strong footing. SMUD's net income in 2015 was $56 million higher than planned, and our credit ratings are the strongest they've been in the last 30 years. In other words , SMUD did what our customers and community expected us to do. But that's no longer enough. Customer e x pectations are changing rapidly, as are industry trends toward cleaner energy resources such as community solar, rooftop solar and storage. Just as they have come to expect convenient choices from their cell-phone providers and online retailers , the same SMUD customers who previously cared on l y about affordable and reliable electricity now want more choices and options in how they use and pay for their power. Shortly after being appointed CEO and general manager by the SMUD Board in 2014, I laid out a vision called SMUD 3.0. The objective was to reshape SMUD into an organization capable of responding to new technologies, rising customer expectations, third-party entrants into the energy marketplace , data analytics, and post-2020 No other electric utility in the country had a higher customer satisfaction score in J.D. Power's annual survey of business customers. carbon goals. These challenges to our historic way of doing business arrived even faster than we expected. continued CEO CONTINUED In 2015, to make these objectives more understandable to our workforce, we created a North Star to focus our resources and investments over the next few years. The objective of the North Star is to identify a set of guiding principles that coalesce with SMUD's key priorities through 2020. More than simply establishing a set of aspirational values, the six points identify clear metrics and desired outcomes to gauge our progress. The six points are:

  • Be safe. Always.
  • Treasure our employees.
  • Operational excellence.
  • Value our customers and community.
  • Financially fit.
  • Sustainable future. The North Star is centered inside the organization to create alignment and common purpose. It's not intended to be a marketing campaign or advertising slogan. This report presents some examples of how these principles are creating value for our customers and community.

SMUD will celebrate its 70th anniversary on the final day of 2016. I'm confident that we'll be able to look back on steps we took in 2015 as being instrumental in providing customers with the tools and services they need to take greater control of their energy use while ensuring that SMUD embraces the new energy future in a progressive fashion. Sincerely, Ar l e n O rchar d I CEO & Genera l Manager, SMUD ANNUAL REPORTS provide a retrospective on the previous year. That's true in these pages , with one caveat: Many of the accomplishments highlighted in the following pages are as much about moving SMUD forward as they are about responding to immediate needs. With the world of energ y spinning out new possibilities , SMUD went to great lengths in 2015 to make sure it took the steps necessary to prepare for an increasingly dynami c future. From laying the groundwork for a switch to time-of-use rates to supporting the adoption of Gov. Brown's aggressive renewable-energy goals, SMUD was busy on a wide range of fronts in 2015. Expanded online tools offering greater convenience, a revamping of its programs serving business customers, the adoption of a " Solar Answers" informational campaign to help customers make informed decisions -these and other efforts will bear fruit for years to come. The past year w as notable for the excitement generated by tion of the Golden 1 Center and the long-awaited development of the downtown railyards. With the world of energy spinning out new possibilities, SMUD went to great lengths in 2015 to make sure it took the steps necessary to prepare for an increasingly dynamic future. SMUD worked closely with the Sacramento Kings, developers and government agencies to ensure that this downtown renaissance proceeds in a smooth and sustainable fashion. In that vein, the SMUD Board of Directors approved the development of a massive solar array at Rancho Seco that will supply 85 percent of the Golden 1 Center's electricity needs with clean , renewable power. With SMUD about to enter its eighth decade of supplying the Sacramento region with electricity, CEO/General Manager Arlen Orchard developed a set of guiding principles to help employees keep their eyes fixed on the future. The six points of the North Star are listed at right. The following pages illustrate the varied ways in which these principles are being put into practice ... the ways in which SMUD is moving forward. (Spoiler alert: In one example, beasts of burden were enlisted to help.) . *. .* . . .. . . .. . "*.::::

  • ... . . * .. :* .. **-:* .. :: . Our guiding principles BE SAFE. ALWAYS I Every aspect of SMUD operations is focused on the safety of employees, our customers, and our community.

TREASURE OUR EMPLOYEES I Employees are the most important part of our success, and we create an environment where employees thrive and do their best. OPERATIONAL EXCELLENCE I We do it right. SMUD innovates to improve its quality of service and lower its delivery costs. VALUE OUR CUSTOMERS AND COMMUNITY I SMUD acts in the best interests of its customers and the community. FINANCIALLY FIT I SMUD is financially flexible to make sary and timely investments and take advantage of opportunities while remaining competitive. SUSTAINABLE FUTURE I SMUD embraces a low carbon future while balancing affordability, reliability and customer choice. We are committed to sustainability in our business practices. SUSTAINABLE FUTURE Keeping the dams and powerhouses in SMUD's Upper American River Project in working order is essential to meeting the heavy summer demand for electricity. Given the remote location of some of these hydroelectric facilities, a pioneer spirit sometimes comes in handy. Consider the project SMUD undertook last year to install a new weir and dam valve in the far reaches of the Sierra Nevada wilderness. The weir and valve projects didn't present any singular engineering or technical challenges for the 30 SMUD emp l oyees and contractors involved in the work. But extended stays in the remote backcountry did require some creative planning -such as enlisting the services of 20 mules and four mule handlers. A va lve weighing 2,300 pounds, along w ith two tors weighing about the same, needed to be transported to the 6,3so-foot elevation of Rubicon Reservoir. Since Rubicon Reservoir is located in the Desolation Wild tation is generally limited to hikers and pack , rranals. 20 MULES ANO FOUR HANDLERS NEEDED TO TRANSPORT THE LIGHTER SUPPLIES AND FOOD 16 MILES ROUNDTRIP 15 FLIGHTS HELICOPTER TRIPS NEEDED TO DELIVER THE 2.300 LB VALVE UP THE 6.300-FT ELEVATION OF RUBICON RESERVOIR 30 WORKERS SMUD EMPLOYEES AND CONTRACTORS NEEDED. WORKING 12 HOURS A DAY FOR MORE THAN A WEEK After much negotiation, the U.S. Forest Service allowed a total of lS helicopter flights into the wilderness to transport the heaviest loads. Other supplies -including food for SMUD employees and contrac tors -had to be transported by mules. The mules and their handlers made the 16-mile roundtrip several times without complaint. The mule team was managed by Lee and Jennifer Roeser, who own the McGee Creek Pack Station near Mammoth Lakes. Most of their animals had worked around helicopters before, a key ation in the bidding process for the mule contract. SUSTAINABLE FUTURE I The Upper American River Project provides a clean and sustainable source of power for SMUD's customers. Hydroelectricity is particularly valuable during the summer months. Working 12 hours a day , the SMUD crew, which included mechanics, electricians and hydrology technicians, spent more than a week installing the valve that allows higher volumes of water to be released from the reservoir. The increased water flo ws are a requirement in the so-year hydroelectric operating license SMUD received in 2014 from the Federal Energy Regulatory Commission. A separate SMUD group installed a new weir at Buck I sland Reservoir to replace the one constructed SO years ago. The valve replacement and weir projects were completed in mid-September. S MUD's Upper Am e ric an Ri ve r P ro j ec t (UARP) is a 688-m egawatt hydroelectr i c system in the E ldorado Nat i onal Forest. The UA R P's 11 dams and eight powerhouses produce enough clean, economica l powe r to meet up to 15 percent of SMUD's power needs in a typical w ater year. Extended stays in the remote backcountry did require some creative planning -such as enlisting the services of 20 mules and four mule handlers. THE YEAR ENDED with an above-average snowpack in the Sierra Nevada , raising spirits after four years of drought. December tation at Fresh Pond, headquarters of SMUD's h y droelectric operations, was 15.7 inches , well above the historical average of 9.1 inches. The turnaround was cause for much relief. A study of tree-ring data indicated that the 2014-15 winter snowpack in the Sierra was the thinnest in the last 500 years. The Upper American River Project is SMUD's most economical energy source, capable of satisfying roughly 15 percent of its annual power needs, given average water New online offerings SMUD GREATLY ENHANCED its online offerings for customers in 2015 by adding a "My Energy Tools" feature to the "My Account" portal of smud.org. Benefits include:

  • Interactive charts that show a customer's hourly, daily and yearly electricity use and costs.
  • Customers can opt-in to get e-mail alerts to let them know when they're approaching a higher-than-usual bill.
  • Customers can set up energy-saving goals and track their progress.
  • Energy-saving tips and changes that can help customers reduce their usage and lower their bills. Other enhancements to smud.org include online payment arrangements and loan prequalification.

The loan prequalification service, available 24 hours a day , guides customers through a series of questions to determine whether they qualify for a loan, and if so, how much. *S MUO -------condi ti ons. Dry years such as the previous four force SMUD to replace lost hydroelectric generation with more expensive power. Building stronger business ties TO BETTER SERVE its commercial and industrial customers, SMUD implemented several changes making it easier to do business with their utility. The creation of Commercial & Industrial Accounts means that a department that once handled the largest 400 business customers is now actively involved with 8,ooo commercial and industrial SMUD is constantly exploring new ways to serve its business customers more effectively. customers. In 2016, SMUD is launching a similar effort to improve its service to small business customers. Additionally, SMUD built an online developer portal that explains the connection process and details electric service requirements for developers. Businesses account for about 55 percent of SMUD's revenues. Accordingly, SMUD streamlined its procurement processes in 2015 and made changes to the economic development rate to help attract new businesses to the region. Transitioning to time-of-use rates FINANCIALLY FIT All energy is not priced equally. That's the crux of SMUD's transition toward time-of-use rates. The SMUD Board declared in 2015 its intent to make time-of-use (TOU) rates standard for residential customers beginning in 2018. SMUD's business customers already pay TOU rates. Residential T OU rates will be marketed to solar and electric vehicle customers in 2016. In 2017, SMUD will make the TOU rate available as an option to all residential customers. SMUD staff plans to propose a TOU design in 2017 that would become the standard residential rate in 2018, pending Board approval. If approved, customers would still have alternative rate choices if they choose not to participate in TOU. With time-of-use pricing, when customers use electricity is just as important as the amount they FINANCIALLY FIT I Financial flexibility allows SMUD to make necessary and timely investments and take advantage of opportunities while remaining competitive. 9 2016 RESIDENTIAL TIME-OF-USE (TOU) RATES 14.67c kWh Peak A ll y ear M on-Fri only 9am-9pm 4 pm 30.93¢kWh Summer Super Peak June-Sept Mon-Fri only 4pm-7pm 7 9 pm pm 8.67¢ kWh Off-Peak All year Mon-Fri 9pm-9am All hours on weekends and holiday s 12 m idnight 6 consume. The price is lower during off-peak peri o ds be c ause power is plentiful and less expensive during those hour s. The pri c e increases during hours of peak usage, when b o th the demand and cost increases. TOU rates will enable SMUD to ensure the recovery o f infrastructure costs, maintain competitiveness in the market, provide rates that address distributed generation such as solar, and offer customers rate options. The TOU rate structure is design e d to b e re v enue neutral for SMUD, which continues to have among the lowest electri c rates in the state (see chart below). Monthly Average Residential Electric Bill (at 750 kilowatt-hours per month) EFFECTIVE JAN 1.1016 % HIGHER THAN SMUD 9 -." Roseville $ 114.14 LADWP* $ 119.11 Modesto $ 132.80 SCE .. $ 144.59 PG&E $ 166.14 SDG&E* .. $ 176.50 *Los Angeles Department of Water & Power **Southern California Edison ... San Diego Gas & Electric + 9.6% + 13.4% + 22.3% + 28.6% + 37.9% + 41.5% VALUE OUR CUSTOMERS AND COMMUNITY The Sacramento Kings wanted their new downtown arena to be one of the greenest in the world. SMUD was happy to help. The Kings agreed to a 20-year SolarShares

  • partnership in which 85 percent of Golden 1 Center's electricity will be generated by SMUD at a new 10.9-megawatt photovoltaic plant at Rancho Seco in southeastern Sacramento County. The SolarShares agreement with the Kings will keep nearly 2 , 000 tons of greenhouse gas out of the atmosphere.

The remaining 15 percent of the Golden 1 Center's power supply will come from solar panels installed on the roof of the arena. The 17,500-seat arena is scheduled to open in October 2016. Golden 1 Center is the catalyst for a flurry of ment that is The construction of a 75-acre solar array at Rancho Seco will provide Golden 1 Center with 85 percent of its electricity needs. reshaping downtown Sacramento. A 16-story hotel and condominium tower next to the arena will be completed in early 2017, along with new restaurants and housing. A 20,000-seat major-league soccer stadium is planned for the long-dormant railyards section of downtown. SMUD staff worked with the Kings' arena designers from the outset, providing expertise on electricity and sustainability. SMUD's Savings by Design group provided more than $300 , 000 in energy efficiency incentives for such features as LED lighting, variable-speed cooling towers, radiant floor heating and solid insulated panels that reduce energy loss through the arena's walls. Golden 1 Center will be the first newly built NBA arena with LED lighting for game illumination. 10.88 MW MEGAWATTS THAT WILL BE GENERATED BY THE RANCHO SECO SOLAR ARRAY THAT SMUD IS BUILDING TO SERVE THE GOLDEN 1 CENTER AND OTHER DOWNTOWN BUILDINGS 240 ACRES ACRES OF RAILYARDS TARGETED FOR DEVELOPMENT. DOUBLING SACRAMENTO 'S DOWNTOWN FOOTPRINT "Golden 1 Center will serve as a new global model for leveraging our natural resources in smart and e fficient ways," Kings President Chris Granger said. SMUD star t ed SolarShares for residential customers in 2008 as one of the first community solar programs in the nation. The program allows customers to buy a set amount of local solar generating capacity that offsets some of their electric bill. Participating customers can "go green" if they rent or are looking for an alternative to rooftop solar. SolarShares is now being expanded to allow business customers to participate. The Rancho Seco solar facility will include a new substation and equipment for connecting to SMUD's 69-kilovolt distribution system. The new arrays are VALUE OUR CUSTOMERS AND COMMUNITY I By assisting in the ambitious development of town Sacramento, SMUD is serving the interest of its customers and community. being built on 75 acres of property that was paved decades ago for the now-closed nuclear power plant. The Kings purchased slightly less than half of the solar generation from Rancho Seco. The State of California will purchase the remaining output. SMUD plans to further expand the commercial SolarShares program in 2016 and 2017. '""D """ mon "" I Fornud I WORK IS UNDERWAY on the construction of Station E, a substation located south of the American River near 20th Street that will serve approximately 11,000 residential and business customers in downtown and midtown Sacramento. Station E will replace the North City substation, which was built in the early 1950s. Transformers at Station E step down the transmission voltage of 115 , 000 volts to a distribution voltage of 21,000 volts. The new substation will increase service reliability and augment load-serving capacity. Additionally, SMUD moved forward with plans to move the outdoor substation at historic Station A (bel o w) on Sixth and H streets to an adjacent property. 11,000 APPROXIMATE NUMBER OF CUSTOMERS TO BE SERVED BY STATION E , WHICH Will ULTIMATELY MEET THE ADDED LOADS OF THE RAIL YARDS AND RIVER DISTRICT Providing customers with solar answers TO HELP CUSTOMERS make informed decisions about rooftop solar, SMUD developed a website that provides unbiased answers to the most pressing questions surrounding the economics and logistics of "going solar." At smud.org/solaranswers, customers are encouraged to get at least three estimates before signing a solar contract. "The average going rate for solar power ranges from 8¢ to 12.6¢ per kWh," the site says. "If you're being quoted a higher price, shop around." Solar Answers also provides an online "Solar System Estimator" that uses customers' electric bills and satellite I Forn*d i '""DAN'"" mon "" information about their rooftop to assist in their decision-making. Customers are encouraged to watch a short video and sign up for one of SMUD's free "Solar for Your Home" seminars. Many customers who invest in rooftop solar are surprised to learn that they are actually spending more money on electricity than they were before. While their SMUD bills generally decreased, the cost of the solar lease or purchase raised the cost of their electricity. Sustainability report SMUD PUBLISHED its first-ever sustainability r eport in 2015. Environmental Stewardship 2015 highlighted SMUD's able business practices and commitment to a low-carbon future. " E nvironm e ntal stewardship is one of the greatest values we provide our customers and the community we serve," said CEO & General Manager Arlen Orchard. Environmental Stewardship 2015 can be downloaded at www.smud.org/stewardship. Sacramento Shade milestone A WILLOW OAK was planted in October on the SMUD campus to celebrate the 25th anniversary of the partnership between SMUD and the Sacramento Tree Foundation. SMUD was the fust utility in the country to establish a large-scale tree planting program in 1990. The 500,000 free shade trees

  • planted since then have reduced Sacramento's annual electricity use by about 15 gigawatt-hours

-enough energy to power about 20,000 homes. The Sacramento Shade program helps SMUD customers save energy and money by providing free shade trees, stakes and ties. A properly placed tree can reduce home cooling costs by up to 40 percent after five years of growth. Big purchase of wind power ONE OF SMUD'S largest sources of renewable energy will soon come from the Land of Enchantment. The SMUD Board approved an agreement to buy power from the Grady Wind Energ y Center in eastern New Mexico. The 200-megawatt wind farm The 200-megawatt wind farm is expected to begin commercial operation at the end of 2017. is expected to begin comme rcial operation at the end of 2017. 40% THE REDUCTION IN COST TO COOL YOUR HOME WITH A PROPERLY PLACED TREE AFTER FIVE YEARS OF GROWTH In the early stages of the contract, Grady Wind is expected to be SMUD's largest source of renewable energy, as identified by the state's Renewables Portfolio Standard. * * / SMUD FINISHED 2015 on strong financial footing. Net income came in higher than expected at $129 million, aided in part by a one-time legal award of $22.5 million from litigation over the cost of storing spent nuclear fuel at Rancho Seco. Revenue from sales to customers was slightly above target at $1.33 billion, compared to the budgeted amount of $1.31 billion. While hydroelectric generation was one-third lower than normal due to the drought, SMUD was able to purchase ment power with the $3.1 million in the Hydro Rate Stabilization Fund, $12 million Despite a poor year for hydroelectric generation, net income in 2015 came in higher than expected. in the larger Rate Bar raised on renewable power THE PASSAGE of Senate Bill 350 increased the California Renewables Portfolio Standard (RPS) target to 50 percent by 2030. SMUD ultimately supported SB 350 after successfully advocating, along with other utilities, for more flexibility to reach the new goal. SMUD was the first large California utility to reach the 20-percent RPS level and is on track to meet the previous mandate of 33 percent by 2020. Months before SB 350 was signed in October, SMUD staff had been studying major renewable projects that will help reach the so-percent target. Stabilization Fund, and through a temporary hydro rate surcharge of 1.3 percent. Additionally, SMUD's Energy Trading & Contracts group saved $33.8 million with astute management of water, power and natural gas resources. SMUD placed an extra $22 million into a trust fund for future retiree medical expenses and now has enough money in the trust to fund 55 percent of future liability. Also, by paying off some long-term bonds ahead of schedule, the Sacramento Power Authority Cogeneration Plant is now debt-free. Plant switching to recycled water A 20-Y EAR CONTRACT with the Sacramento Regional County Sanitation District means SMUD will cool one of its cogeneration power plants with recycled water instead of drinking water. Beginning in 2017, the 160-megawatt Sacramento Power Authority Cogeneration Plant at Franklin Boulevard and 47th Avenue will use up to 1 million gallons of reclaimed water a year. The reclaimed water will be transported to the plant by pipeline from Regional Sanitation's wastewater treatment plant in Elk Grove. The reclaimed water won't cost more than SMUD would have paid the city of Sacramento for potable water. 1 MILLION GALLONS OF RECLAIMED WATER THE POWER P L ANT WILL USE EACH DAY 6 MILES LENGTH IN MILES OF THE PIPELINE THAT W I LL DELIVER RECLAIMED WATER FROM ELK GROVE TO THE COGENERATION PLANT Renovation of historic building THE CITY of Sacramento Planning and Design Commission approved the Headquarters Rehabilitation Project in late fall, giving SMUD the go-ahead to begin renovating its longtime home next to Highway 50. The 131,495-square-foot building, which opened in 1960, needs a wide range of upgrading to meet seismic standards, improved access for fi.rst responders, ADA compliance and other enhancements. SMUD tops in business customer survey SMUD TIED for the highest score in the country among 86 electric utilities in the latest J.D. Power and Associates survey of business cus t omers. SMUD scored 754 out of a possible 1,000 points in the survey. This marked a 41-point improvement over our score of 713 the previous two years. Jacksonville Electric also received 754 points. In two of the survey's six categories -corporate citizenship and pricing -SMUD had the highest scores in the country. I n the other four categories -power quality and reliability, billing and payment, communications and customer service -SMUD's scores were markedly higher than they were the previous year. In the J.D. Power survey of residential customers, The building was placed on the National Register of Historic Places in 2010 as an example of the Modern International Style of architecture. The renovation will maintain the historic register standing and protect "Water City," the iconic mural by Sacramento artist Wayne Thiebaud that graces the front of the building. Construction is scheduled to begin in the summer of 2016. The approximately 600 SMUD employees who worked in the Headquarters were relocated until the project is completed. The renovation project will commit at least 25 percent of its contracting work to local fi.rms through SMUD's small business supplier program. SMUD received the highest score of any California utility for the 14th straight year and ranked second nationally among large utilities. In two of the survey's six categories -corporate citizenship and pricing -SMUD had the highest scores in the country. WITH A STRONG ASSIST from SMUD, organizers of the Walk a Mile in Her Shoes fundraiser set a world record. Never before had 1,100 men wa l ked a mile in high heels at the sam e time. P articipants in the May event wore high heels to symbolize their support for survivors of domestic violence. Women E scaping a Violent Environment, or WEAV E , organized the wa lk , which raised $350,000 to support critical crisis intervention for victims of sexual assault and domestic violence i n the Sacramento community. T he SMUD team of 126 walkers raised $32,000. SMUD CEO and General Manager Arlen Orcha r d served as co-chair of the 2015 event. SMUD's employees are known throughout the commun i ty for their charitable ways. Eighty-five percent of SMUD's workforce volunteered more than 24,000 hours to various charitable events in 2015. State makes huge Greenergy* purchase THE STATE Department of Genera l Services (DGS) turned to SMUD to power all state buildings in downtown Sacram e nto, including the Capitol, with renewable energy. The agreement more than doubles the si z e of SM UD's commercial Greenergy* program and makes the state of California one of the nation's l argest purchasers of energy derived from renewable sou r ces. The t hree-year agreement was signed in September. DGS will purchase 108 gigawatt-hours of renewable energy, or the equivalent credits resulting from electr i city generated by sources such as solar, wind, water, biomass and geothermal. Eighty-five percent of SMUD's workforce volunteered more than 24,000 hours to various charitable events in 2015. Investing in a top-notch workforce TREASURE OUR EMPLOYEES SMUD's high cus t omer satisfaction scores and national reputation as an innovative, progressive utility depend on a talented workforce. What held true in 1946, when SMUD began providing the Sacramento region w ith electricity, holds equ ally true today: An tion is only strong as the people who work there. To con tinue providing the service its customers expe c t , SMUD accelerated its workfo r ce planning effor ts in 2015. A large percentage of employees are reaching retirement age just as the need for power engineers and technologically astute workers is mushrooming, SMUD is identifying the skills and competencies the organization will need in the next fi ve years, along with determining which areas will be hit hardest by retirements. The next step is to map out how to keep and attract the TREASURE OUR EMPLOYEES I Employees are the most important part of SMUD's success. best talent to build the "workforce of the future" and develop a new generation of leaders. One point of emphasis is engagement. The most successful companies have engaged employees. More than 85 percent of SMUD's employees participated in the most recent The next step is to map out how to keep and attract the best talent to build the "workforce of the future" and develop a new generation of leaders. engagement survey, providing management with suggestions on cross-department collaboration, communication and timely decision-making. To help promote the skills needed for its future workforce, SMUD supports a variety of educational partnerships, from local middle and high schools to community colleges and four-year universities. SMUD is particularly involved in supporting STEM (science, technology, engineering and math) ca reers that will be crucial to its future success -and provide a new generation with rewarding work. OPERATIONAL EXCELLENCE SMUD and the Western Area Power Administration began studying the environmental effects associated with the possible construction of a 500-kilovolt transmission line in Colusa and Sutter counties. The proposed Colusa-Sutter (CoSu) Transmission Line would enhance the reliability of the electric grid in Northern California and help SMUD integrate more renewable energy into its power supply by providing a new connection to the existing Oregon line. CoSu would include the construction of a new switchyard and substation. The scoping process that began Dec. lB gathered input from the public on what issues need to be addressed in the mental studies. A joint environmental report will be produced to comply with the California Environmental Quality Act, which is SMUD's responsibility, and the National Environmental Policy Act , which is Western's duty. Environmental studies will analyze the expected impacts around potential transmission routes that would run east to west through Sutter and Colusa counties. OPERATIONAL EXC E LLENCE I The Sutter (CoSu) Transmission Line would give SMUD greater operational efficiency and allow for the import of more renewable resources. The project timeline calls for completing the draft environmental impact report in 2017. The SMUD B o ard wouldn't be asked to make a final de c ision on the project before the second half of 201B. If built, the new line c ould be finished in 2023. More fast-charging for electric vehicles SMUD OPENED its second electric vehicl e fast-charge station in 2015. Located just off Interstate Bo in Citrus Heights , the DC (direct current) charger allows drivers to charge up to Bo percent of their car's battery in less than 30 minutes. A similar facility opened in 2014 ne x t to the SMUD Headquarters building on S Street. Additional fast-chargers are planned for the Amtrak station downtown and the Sacramento International Airport. Additional fast-chargers are planned for the Amtrak station downtown and the Sacramento International Airport. SMUD has supported electric transportation for more than 25 years as part of its commitment to improving the region's air quality. 30 NUMBER OF MINUTES IT TAKES TO CHARGE AN ELECTRIC CAR USING A DC FAST-CHARGER '""D '"N"" mo"' "" I F orn.,d I BE SAFE ALWAYS The foundation of SMUD's suc c ess rests in equal measures on delivering electricity reliably, affordably and safel y. Customers expect their lights to come on at the flick of a switch, and they expect to pay reasonably priced rates for their electricity. They might not think about safety much, but SMUD does. Creating a safe environment for employees and the public is one of the c o re values established by the SMUD Board. A heightened emphasis in 2015 on workplace safety resulted in a significant reduction of injuries that SMUD hosted the American Public Power Association's Lineworkers Rodeo in 2015 (below a nd right). Competive events such as the hurtman rescue placed a premium on safety. I Fornud I'""" AN'"" won"" BE SAFE ALWAYS I Creating a safe environment for employees and the public is a core value for SMUD. were serious enough to result in days away from work or restricted duty. Similarly , SMUD ramped up its public safety efforts. With an increased number of cars crashing into poles and pad-mounted transformers in 2015 , a joint labor management safety committee evaluated potential mitigation measures to reduce public hazards and to ensure the safety of SMUD employees who are often called out to repair damaged equipment. SMUD security officers attend numerous community events to educate the public about public safety. SMUD also offers a variety of safet y resources for K-12 teachers and students, including printed materials, workshops , virtual field trips and online games and activities for kids. One of SMUD's biggest events in 2015 had a strong safety component. The American Public Power Association's Lineworkers Rodeo that SMUD hosted in May at Gibson Ranch showcased the high-wire work that utility workers carry out every day. Performing their tasks safely counted just as much as doing it quickly for the Rodeo's 300 apprentices and journeymen from 16 states. The hurtman rescue simulated the rescue of an injured co-worker. In the apprentice category, one lineworker climbs a 40-foot pole and safely lowers a mannequin to the ground. In the journeyman classification, three team members coordinate the tasks of climbing, opening the switch and safely guiding the mannequin onto a tarp on the ground. SMUD lineworkers swept the hurtman rescue events at the 2015 APPA Rodeo. Bryan Herda! won the apprentice division, and top journeyman honors went to the team of Cayleb Bowman, Matthew Wilson and Todd Prangley. SMUD opening a regional training center SMUD ANNOUNCED plans at the 2015 APPA Lineworkers Rodeo to convert its Hedge facility into a regional training center. The Power Academy will support the development and training of a skilled labor force for not only SMUD but for other utilities across the western United States. The California Department of Industrial Relations approved SMUD's apprenticeship standards in November, clearing the way for the Power Academy to open in 2016. SMUD is the first large Northern California utility to develop a training center that meets the state's Division of Apprentice Standards. In addition to training lineworkers, the academy will train substation and network technicians, cable splicers and locators, and other related skills. SMUD IS THE FIRST LARGE NORTHERN CALIFORNIA UTILITY TO DEVELOP A TRAINING CENTER THAT MEETS THE STATE"S DIVISION OF APPRENTICE STANDARDS ._.._.,. .... _ ...... __ _... ___ ,...._ ... --**--"'*-*--------

Sacramento Municipal Utility District I 2015 Annual Report 5 YEAR

SUMMARY

(Unaudited)

Operating Statistics (i) 2015 2014 2013 2012 2011 Customer contracts at year-end 617,307 614,143 610,185 604,053 599 , 826 KWH Sales (thousands) Sales to customers -Residential 4,654,571 4 , 639,175 4,651,219 4,640 , 238 4,587 , 205 Commercial, industrial & other 5,_819,228 5 , 858,785 5,795 , 408 5 , 814,531 5,797,808 Subtotal 10,473,799 10 , 497,960 10,446,627 I0 , 454 , 769 10 , 385 , 013 Sales of surplus power 1,677,566 1,906,263 2,072,396 2 , 442,090 2,492,975 Total 12,151,365 12 , 404 , 223 12,519,023 12,896 , 859 12 , 877 , 988 Revenues (thousands of dollars) Sales to customers -Residential $ 621,830 $ 594,644 $ 572,701 $ 569,210 $ 559,424 Commercial , industrial & other 729, 198 711 , 208 696,439 695,379 692,959 Subtotal 1,351,028 1,305 , 852 1,269 , 140 1 , 264 , 589 1,252,383 Sales of surplus power . 55,189 84 , 158 78,316 60 , 033 70,370 Sales of surplus gas 26,863 82 , 104 52,814 48,679 88,202 Total (ii) $1,433,080 $1,472 , 114 $ 1,400,270 $ 1,373,301 $1,410,955 Average kWh sales per residential customer 8, 522 8,545 8,634 8,699 8 , 652 Average revenue per residential kWh sold (cents) 13.48 12.92 12.47 12.38 12.33 Power supply (thousands of kWh) Hydroelectric 497,766 765,190 1 ,0 18,659 1 , 425 ,443 2,823,979 Cogen era ti on 6, 146,848 5,919,981 5 , 880,239 5,276,572 4 , 762 , 183 Windpower 212,782 211,359 237,410 230,149 221 , 067 Photovoltaic 102 5 51 295 1 , 627 Purchases 5,746,573 5,963,656 5 , 846,971 6 , 440,277 5,599,183 Net system peak demand -1 hour (kW) 2,956,000 . 3,003 , 000 3 , 014,000 2,954 , 000 2,840 , 000 Employees at year-end 2,121 2 , 071 2 , 073 2 , 028 2,034 Financial Statistics (thousands of dollars) revenues $1474168 $1,529 , 344 $ 1 , 428 , 395 $ 1 , 382,274 $1,360,008 Operating expenses -Purchased and interchanged power 288,835 316 , 082 273,596 24J,847 237,360 Operation and maintenance 785,323 813 , 581 794,728 735,201 744 , 446 Depreciation and amortization 188,928 184,810 180 , 718 165,460 169 ,987 Regulatory amounts collected in rates 7 299 5 , 401 6 140 10,574 10 047 Total operating expenses 1,270,385 1,319,874 1 , 255 , 182 1 , 153,082 1,161 , 840 Operating income 20'3,783 209 , 470 173 , 213 229,192 198 ,168 Other income 35,040 79 , 125 22,441 57,319 12 797 Incg_me before interest charges 238,823 288,595 195 , 654 286,511 210 , 965 Inte:est charges 109,867 121,931 125 , 956 126,453 140 , 837 Change in net position before extraordinary income $ 128,956 $ 166 ,664 $ 69,698 $ 160 , 058 $ 70,128 Extraordinary income $ -$ -$ -$ -$ 134 Change in net position $ 128,956 $ 166 ,66 4 $ 69,698 $ 160,058 $ 70,262 Funds available for revenue bond debt service $ 469,754 $ 427,862 $ 423,895 $ 521,627 $ 472,367 Revenue bond debt service (iii) $ 186,81 1 $ 190 , 702 $ 176 , 270 $ 160,757 $ 167 ,271 Revenue bond debt service coverage ratio (iii) 2.51 2.24 2.40 3.24 2.82 Electric utility plant -net $3,323,900 $3,331 , 965 $ 3,322 , 977 $ 3,339,709 $3 , 248 , 294 Capitalization Long-term debt $2,674,120 $2,881,701 $ 3,075 , 802 $ 3 , 091,405 $3,012,935 Net Position $1 , 142,325 $1,013,369 $ 846,705 $ 777,007 $ 616 , 949 i Financial information is consolidated (except the debt serv ice information ). ii Prior to the net deferral/transfer of revenues to/from the Rate Stabilization Fund an d net deferral/recognition of Public Good, Senate Bill I , and Assembly Bill 32 revenues. iii Includes senior and s ubordinate bond debt service_ '""" "'"" moe< "" J Fornud I . Sacramento Municipal Utility District I 201 S Annual Report TABLE OF CONTENTS Report of Independent Auditors 23 Management's Discussion and Analysis (Unaudited) 2S Financial Statements

  • 36 Notes to Financial Statements Not e 1. Organization 41 . Note 2. Summary of Significant Accounting Policies 41 Note 3. Accounting Change 50 Note 4. Utility Plant 52 Notes. Investment in Joint Powers Agency 53
6. Component Units 55 Note 7. Cash, Cash Equivalents, and Investments 59
s. Regulatory Deferrals 62 Note 9. Derivative Financial Instruments 64 Note 10. Long-term Debt 69 I Note 11., Commercial Paper Notes 74 Note 12. Rancho Seco Decommissioning Liability 74 Note 13. Pension Plans 75 Note 14. Other Postemployment Benefits 80 Note 1s.1nsurance Programs and Claims 82 Note 16. Commitments 83 Not e 11. Claims and Contingencies 85 Required Supplementary Information (Unaudited) 88 I Forward I SMUD ANNUAL REPORT 20 1 5 Sacramento Municipal Utility District I 2015 Annual Report TILLY INDEPENDENT AUDITORS' REPORT To the Board of Directors of Sacramento Municipal Utility District, Sacramento, California Report on the Financial Statements We have audited the i;iccompanying consolidated financial statements of Sacramento Municipal Utility District and its blended component units, which comprise the Statements of Net Position as of December 31, 2015 and 2014, and the related.Consolidated Statements of Revenues, Expenses and Changes" -. in Net Position, and Consolidated Statements of Cash Flows for the years then ended and the related notes to* the financial statements.
  • Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these C<:Jnsolidated financial statements in accordance with accounting principles generapy accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error., , -*Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We \:Onduaed our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing StaJZdards issued by the Comptyoller General of the Unite<;! States. Those standards require that we plan and perform the audit to obtain * ' reasonable assurance about whether-the consolidated financial statements are free from material misstatement.
  • An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the . . . consolidated financial statements.

The procedures selected depend on the auditors' judgment, including the assessment of risks of material misstatement of financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control over financial reporting relevant to . . . . . the Sacramento Municipal Utility District's preparation and fair present3:tion of the consolidated financial statements in order to design audit procedures that are appropriate-in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Sacramento Municipal Utility District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit ev.idence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the position of Sacramento Municipal Utility District* and its blended component units at December 31, 2015 and 2014, and the changes in their financial position and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the' United States of America. continued INDEPENDENT AUDITORS' REPORT continued Emphasis of Ma.tter As discussed in Note 3, Sacramento Municipal Utility District has adopted the provisions ofGASB Statement No. 68, Accounting and Financial Reporting for Pensions -an amendment of GASE Statement No. 27 and GASE Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date -an amendment of GASE Statement No. 68, effective January 1, 2015. Our opinion is not modified with respect to this matter. Other Matter Accounting principles generally accepted in the United States of Anierica require that the Management's Discussion and An.alysis and Schedule of Funding Progress information as listed in the table of contents be presented to supplement the financial statements. Such information, although not a part of the consolidated financial statements, is required by the Governmental Account!ng Standards Board who considers it' to be an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures-to rhe 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 consolidated financial statements, and other knowledge we obtained during our audit of the consolidated statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we will also issue a report on our consi!ieration of Sacramento Municipal Utility District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regi.ilations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and' not to provide an opinion on the internal control over financial reporting or on compliance. That report *is an integral part of an audit performed in accorda.nce with Government Auditing Standards in considering Sacramento Municipal Utility District's internal control over financial reporting and compliance. Madison, Wisconsin February 19, 2016. Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Using this Financial Report This annual financial report for Sacramento Municipal Utility District (SMUD) consists of management's discussion and analysis and the consolidated financial statements, including notes to the financial statements. Tl;ie Consolidated Financial Statements consist of the 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 gerierally*follow the Uniform System Of Accounts for Public Utilities and Licensees prescribed by t\le Federal Energy 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, 2015 and 2014. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes, which follow this section. The Consolidated Statements of Net Position provide_infoimation 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 of SMUD's revenues and expenses for the periods shown. The Consolidated 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 The Notes to the consolidated financial statements provide additional detailed information to support the financial statements. ' Nature,of Operations Under provisions of California's Mµnicipal Utility District Act, the citizens of Sacramento voted in 1923 to . form their own electric utility -SMUD. The independently run community-owned utility began operations on

  • December 31, 1946 and is n_ot subject to regulation or by the California Public Utilities Commission.

It is now the sixth largest.community-owned electric utility in the nation. Governed by an board of directors (Board), SMUD has the rights and powers to fix rates and charges for commodities and services it furnishes, incur indebtedness, and issue bonds or other obligations. SMUD is responsible for the acquisition, generation, transmission and distribution of electric power to its service area with a *population of approximately

1.4 million

-most of Sacramento County and small, adjoining portions of-Placer and Yolo counties. Its purpose is to provide solutions for meeting customers' electrical energy needs with a vision of empowering customers with solutions and options that increase energy efficiency, protect the environment, reduce global warming, and lower the cost to serve the region. The Board has independent authority to set SMUD's rates and charges. Changes in rates require a public hearing and formal action by the Board. In August 2013, the Board approved a 2.5 percent rate increase effective January 1, 2014, and an

2.5 percent

rate increase effective January 1, 2015. The rate increases were designed to achieve a fixed charge ratio of at least 1.5. In July 2015, the Board approved another 2.5 percent rate increase for . both 2016 and 2017 to allow for additional investments in technology and infrastructrire. The Board also approved an optional residential Time of Use (TOU) rate that would be made available in 2016 and 2017 and declared its. Sacramento Municipal Utility District I 2015 Report ' MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) intent to make TOU rates the standard for residential customers in lOl 8. The TOU rate structure puts SMDP at the industry forefront by setting the stage to better align rates with the actual cost of electricity.' Even with these increases, SMUD's rates continue to remain amongst the lowest in the state. In 2015, the average system rate was 25.7 percent below the investor owned utility's average rate. SMUD's ".ision is to be the trusted partner with its customers and the community, providing innovative solutions to ens_ure energy affordability and reliability, improve the environment, red.uce our region's carbon footprint, and enhance the vitality of our 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 establishing rates that provide acceptable cash coverage of all fixed charges on a consolidated basis, taking into the impact'of capital expenditures and other factors on cash flow. Financial & Operational Highlights . -. In 2015, SMUD continued working toward realizing the vision of meeting increased customer_expectations and improving efficiencies. In April 2015, SMUD's bonds were upgraded by Moody's.from Al to Aa3 and as a result, SMUD is now experiencing the strongest bond ratings in almost 30 years by all three major rating agencies. SMUD was recognized by its residential customers as the top California utility for the fourteenth consecutive year by J.D. Power !ind was ranked first among midsize utilities in the West and No. 1 in California for the tenth consecutive year for business customer satisfaction. Negotiations were completed for the development and power purchase of 10.88 MW solar project at the decommissioned Rancho Seco nuclear plant site whiCh will

  • supply renewable the commercial SolarShares program. The first commercial SolarShares offering was launched as a result of a 20-year agreement with the Sacramento Kings and the California Department of General Services.

This agreement will help one of the lightest environmental footprints of any arena in the*u.s. by meeting LEED Gold SMUD was awarded the Diamond Member_ Reliable Public Power Provider designation (Diamond RP3), the highest possible designation from the American Public Power Association (APPA) for delivering reliable and safe electric services and also hosted the 2015 APPA Lineworkers Rodeo. Other accomplishments include celebrating 25 years of a partnership that has resulted in providing more than a free shade trees to residences and businesses since 1990, the development of the SMUD Power. Academy with state certification for seven apprentice training programs, and relocating all employees from the , headquarters building in preparation for its renovation. Through its economic development program, SMUD played a key role in. the attraction, retention and expansion of several companies in its service territory which led *to the creation of over 1,800 jobs. In July 2014, FERC issued a new fifty year license for the Upper American River Project (UARP), which included authority to build the Iowa Hill pumped-storage project. The UARP consists of three relatively large storage* and powerhouses containing eleven turbines. The UARP is one of SMUD's lowest cost power sources. In addition to providing clean hydroelectric power and operational flexibility, it provides habitat for fisl). and wildlife ap.d a variety of recreational opportunities, including camping, fishing, boating, hiking, horseback riding, mountain biking, and cross-country skiing. The combined capacity of the UARP is approximately 673 megawatts (MW) and represents about 15 percent _of SMUD's average annual retail energy requirements. The Iowa Hill pumped-storage project was a proposed 3 unit, 400 MW variable speed powerhouse. The first phase of the 'ge"otechnical exploration plan and most of the required permitting was completed in 2014. In 2015, -after much analysis, SMUD made the decision to terminate the Iowa Hill pumped-storage project as it was determined to no longer be financially feasible (Board approved February 2016). SMUD's other power generation facilities include 3 MW of solar photovoltaic installations, *the 102 MW Solano Wind Project, five local gas-ffred power plants with total capacity of approximately 1,012 MW In addition, SMUD has several power purchase agreements to help meet its remaining power requir.ements. \ Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) As part of_the hydro relicensing process, SMUD into iong-term contracts to provide certain services to four different government agencies -U.S. Department of Interior Bureau of Land Management, U.S. Department of Agriculture Forest Service, El Dorado County, and the California Department of Parks and Recreation. The aggregate present value of all contract payments of $56.1 million was recorded as a Noncurrent Liability at 31, 2014. The balance Liability at December 31, 2015 was $55.0 million. The impact of the drought continued to plague California in 2015. SMUD experienced a-fourth year of below average precipitation, which reduced its hydroelectric generation from the UARP by more than 50 percent. A Hydro Rate Stabilization Fund (HRSF) was established to help absorb higher energy costs when hydroelectric production is down and to serve as a-buffer against unexpected financial developments. In April 2015, the $3.l million remaining balance was transferred from the HRSF as a result of the lower precipitation. In 2014, * $24.3 million was also transferred from the HRSF due to lower precipitation. The zero balance in the HRSF at December 31, 2015 is an indicator of the significant cumulative effect of the drou,ght over the last few years-. Although SMUD's.mitigation efforts have protected its rate payers from rate volatility due to higher operating costs, it was determined that the reserves were not adequate to cover all costs. Accordingly, in Ap_ril 2015, SMUD applied an automatic 12-month Hydro Generation Adjustment (HGA) surcharge of 1.3 percent to its customers' electric bills. SMUD also has a long-term agreement with the Western Area Power Administration (WAPA) to purchase power generated by the Central Valley Project, a series of federal hydroelectric facilities operated by the U.S. Bureau of Reclamation. SMUD uses a Rate Stabilization Fund (RSF) to offset any excess or deficits in WAPA energy . , . . -deliveries. As a result of the drought, WAPA's deliveries fell short by about 54 percent and in December 2015, $12.0 million \\'.as transferred from the RSF due to the lower energy deliveries. In December 2014, $11.8 million was transferred from the RSF to energy deliveries falling short in that year as well. At December 31, 2015 and 2014, the balance of the RSF \\'as $30.3 million and $42.3 respectively. Decommissioning During 2014, SMUD made significant progress toward completing the Decominissioning 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. I of the decommissioning was completed at the end of 2008. II consists of a storage period for the Class B and Class C radioactive waste overseen by the existing facility staff,_ followed by shipment of the waste for disposal, and then complete termination of the possession-only licel)se. SMDD also established. and funded an external decommissioning trust fund as part of its assurance to the Nuclear (NRC) to pay for the cost of decommissiqning. In September-2013, SMUD entered into a contract with the operator ofa low-level radioactive waste facility located in Andrews, Texas. Shipme1;1t of the previously stored Class Band Class C radioactive waste was completed in November 2014. The disposal and shipment costs totaling over $22.0 million were funded from the decommissioning trust fund. The remaining Phase II activities that will lead to termination of the possession-only license began during 2015 and license termination are e_xpected to be completed by the el)d of2016. No funds were withdrawn from the decommissioning trust fund during 2015; therefore the balance remained at $_8.3 million as of December 31, 2015 and 2014. The Accrued Decommissioning balance in the Consolidated Statements of Net Position includes $150.4 and $152.1 million for costs related to Rancho Seco as of December 31, 2015 and 2014, respectively. As part of the Decommissioning Plan, the nuclear fuel and Greater Than Class C (GTCC) radioactive waste is being stored in a dry storage facility constructed by SMUD and licensed separately by the NRC. The U.S. Department of Energy (DOE), under the Nuclear Waste Policy Act of 1982, was responsible f9r permanent disposal of used nuclear fuel and GTCC radioactive waste and SMUD contracted with the DOE for removal.and disposal of that Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) waste. In 1998, SMUD filed suit against the DOE for breach-of-contract because the DOE never provided a permanent waste disposal site. In September 2014 aud February 2015, $MUD received awards for $53.1 million I and $22.5 million, respeqtively, from the U. S. Court of ClailIJ.S which was recorded as Other ln<<_ome -Net in the Consolidated Statements Expenses and Changes in "Net Position. In-June 2015, SMUD filed a suit against DOE which covered the costs*incurred from 2010 through at least June 2015. Employee Relations and Benefits

  • Effective January 1, 2013, SMUD began operating under a new five year mem9randum of understanding (MOU) with both of its collective bargaining units, the International Brotherho9d of Electrical Workers Local Union 1245 and the Organization of SMUD Employees.

SMUD participates in the California Public Employees' Retirement System an agent multiple-employer public employee defined benefit pension plan. In 2015, SMUD implemented Governmental Accounting Standards Board (GASH) Statement of Governmental Accounting Standards (SGAS) No. 68 Accounting and Financial Reporting for Pensions-AnAmendment:ofGASB State!nent No. 27" (GASB No. 68). The primary objective of GASB No. 68 is to improve accounting and financial reporting by state and local governments for pensions. Under GASB No. ,68, SMUD is required to report the net pension liability (i.e., the difference between the total pension liability and the pension plan's net position or market value of assets) in its Statement of Net Position. This standard requires shorter amortization periods for recognition of non-investment gains and losses and actuanal assumption changes, as well as for recognition of investment gains and losses. GASB No. 68 also separates financial reporting from funding requirements for pension p*lans. Prior to this new guidanctf', a liability was recognized only to the extent that contr-ibutions made to the plan were less than the actuarially calculated contributions. At December 31, 2015 and 2014, the Net Pension Liability was $381.3 million and $326.7 million, respectively. SMUD elected to follow accounting for regulated operations under GASB SGAS No. 62 "Codification of Accounting and Financial Reporting Guidance Contained in ]!re.:November 30, 1.989 FASB and A/CPA Pronouncements" (GASB No. 62) and recorded a regulatory asset as of December 31, 2014, in the amount of $425:7 million to account for the net effect ofrequired prior period adjustments to reco_gnize the net pension* liability. Amortization of the regulatory asset will be_gin in 2018. : SMUD provides hea\thcare (OPEB) to all employees who retire from SMUD and their in accordance with SMUD policy and MOUs. These benefits are funded through the PERS California Employer's Retiree Benefit Trust, an agent multiple-employer plan. SMUD opted to make additional $22.0 million and $40.0 million contributions to the trust in, 2015 and 2014, respectively. At June 30, 2015, the plan was 55.2 percent funded and the balance of the OPEB asset at December 31, 2015 and 2014 was $96.1 million and $77. 7 miilion, respectively. Developments in the Energy Market New developments in the energy market at both the federal and state level kept SMUD on high alert as it continued to monitor and address the potential impacts on _the organization. Legislation at the federal level include . Executive Order "Improving Critical lnfrastruct:ire Security" on cyber security, the Energy Policy Act of 1992 related to federal regulation of transmission access that includes FERC Order 1000, the North American Electric Reliability Corporation reliability standards, anti-market manipulation rules, and greenhouse gas emissions. Legislation at the state level include Assembly Bill 32 Global Warining Solutions Act of 2006 (AB 32.) establishing* . the cap-and-tra4e program for carbon allowances, Senate Bill (SB)-1 solar program, SB-2 IX the California Renewable Energy Resources Act that codifies the Renewable Portfolio Standards target, and SB-350 Clean Energy and Pollution Reduction Act of 2015, further defined the renewable portfolio standards. I Fo<wud I ;Moo MN"' mo""" J Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) 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, SB-1 solar investments, debt . issµance costs,. and the newly added pension costs as a result of GASB No. 68. As of December 31, 2015 and 2014, total regulatory assets were $624.2 million and $629.3 million, respectively. SMUD also has regulatory credits that cover costs related to contributions in aid of construction, the RSF and HRSF, AB 32 carbon allowances, grant revenues, and TANC operations costs. As of December 31, 2015 and 2014, total regulatory credits were $353.8 million and $368.9 million, respectively. FINANCIAL POSITION December 31, Condensed Consolidated Statements of Net Position 2015 2014 (Restated) 2013 (mi ll ions of dollars) Assets Electric Utility Plant -net $ 3,324 $ 3,332 $ 3 , 323 Restricted and Designated Assets 44 137 174 Current Assets 1,021 1,062 1 , 062 Noncurrent Assets 1,241 1,245 784 Total Assets $ 5,630 $ 5,776 $ 5,343 Deferred Outflows of Resources 267 219 149 Total Assets and Deferred Outflows of Resources $ 5,897 $ 5 , 995 $ 5,492 Liabilities Long-Term Debt -net $ 2,674 $ 2 , 882 $ 3 , 076 Current Liabilities 650 661 589 Noncurrent Liabilities 767 682 289 . Total Liabilities $ 4,091 $ 4,225 $ 3,954 Deferred Inflows of Resources --664 757 691 Net Position Net Investment in Capital Assets 658 485 345 Restricted 72 127 116 Unrestricted 412 401 386 Total Liabilities , Deferred Inflows of Resources , and Net Position $ 5,897 $ 5,995 $ 5,492 SMUD ANNUAL REPORT 2015 I Forward I Sacramento Municipal Utility District I 2015 Annual Rep o rt ' MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Electric Utility Plant -net 2015 compared to 2014 As of December 31, 2015 SMUD has invested approximately $3,324.0 million in electric utility plant assets and construction work in progress (CWIP) after accumulated depreciation. Electric Utility Plant -net makes up about 56 percent of SMUD's Total Assets and Deferred Outflow of Resources, which is about four percent less than 2014. In 2015, SMUD capitalized approximately $123.0 million of additions to electric utility plant in the Consolidated Statements of Net Position. The additions were primarily due to distribution line work and purchases related to the replacement of bulk substations. These additions were offset _by the retirement of a portion of SMUD's headquarters building in preparation for a major renovation, some fleet assets, and some hardware equipment. 2014 compared to -2013 As of December 31, 2014 SMUD has invested approximately $3,332.0 million in electric utility plant assets and CWIP after accumulated depreciation. Net Electric Utility Plant makes up about 60 percent of SMUD's Total Assets and Deferred Outflow of Resources , which is about one percent less than 2013. In 2014, SMUD capitalized approximately $199.0 million of additions to electric utility plant in the Consolidated Statements of Net Position. The additions were primarily due to distribution line work , hardware and software upgrades , and purchase of land for additional wind capacity and replacement of bulk substations. These additions were offset by the retirement of the UARP recreational facilities and some photovoltaic assets. The following charts show the breakdown of Electric Utility Plant -net by major plant category -Generation (Gen), Transmission (Trans), Distribution (Distr), and Other: December 31, 2015 December 31, 2 0 14 5% Restricted and Designated Assets December 31, 2013 6% *Gen *Tr a n s 0 D ist r 0 Othe r 2015 compared to 2014 SMUD's restricted and designated assets are comprised of debt service reserves, nuclear decommissioning trust funds , rate stabilization reserves , and other third party agreements or Board actions. These assets decreased by $92.7 million during 2015. The decrease was due to a transfer of$15.l million from the RSF (including the HRSF) as a result of lower precipitation and lower energy deliveries from WAPA , and a $16.1 million reduction in revenue bond and debt service reserves. In addition, there was a decrease of $60.7 million in the other funds due to the release of various restricted funds of the component units , Sacramento Municipal Utility District Financing Authority (SFA) and Sacramento Power Authority (SPA), as a result of SFA's bond refunding and SPA's bond redemptions. 2014 compared to 2013 SMUD's restricted and designated assets decreased by $37.4 million during 2014. The decrease was partially due to a transfer of $36.2 million from the RSF (including the HRSF) as a result of lower precipitation and lower energy deliveries from WAPA. In addition , there was a decrease of $22.9 million in the nuclear decommissioning fund mainly due to payments made for the shipment of the low level radioactive waste to a permanent waste disposal facility. These decreases were offset by $11.0 million increase in the component units' overhaul and maintenance reserve and $13.7 million in the current portion of these assets. Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited} Current Assets 2015 compared to 2014 Current assets decreased $41.l million in 2015. The unrestricted cash and cash equivalents and investments decreased by $78.9 million. This decrease was offset by increases in credit support collateral deposits of $19. 7 million, along with a total increase of $18.3 million in receivables-net , inventories , prepaid gas to be delivered within one year , and prepayments. 2014 compared to 2013 Current assets remained relatively flat in 2014 compared to 2013. The unrestricted investments increased by $91.3 million along with a t9tal increase of $8.9 million in the current portion of regulatory costs and prepaid gas, inventories , and creait support collateral deposits. These increases were offset by decreases of $59 .0 million in cash and cash equivalents , $13. 7 million in restricted and designated cash and cash equivalents and investments , $12.8 million in prepayments, $12.7 million in receivables-net , and $2.6 million in the current portion of investment arid hedging derivative instruments. Noncurrent Assets 2015 compared to 2014 Total noncurrent assets decreased by $3.9 million mainly due to a decrease in prepaid gas of $27.8 million , offset by-a $25.0 million increase in credit support collateral deposits. 2014 compared to 2013 Total noncurrent assets increased by M60. l million mainly due to the recording of the regulatory asset related to implementation of GASB No. 68 in the amount of $425.7 million, a nd a $40.0 million additional contribution to the OPEB trust fund.

  • Deferred Outflows of Resources 2015 compared to 2014 Total deferred outflows of resources increased

$47 .9 million due to a $51.6 million increase in the value of hedging derivative instruments and deferred pension outflows , offset by $3.7 million amortization of bond losses. 2014 compared to 2013 Total deferred outflows of resources increased $70.0 million due to a $49. 7 million increase in the fair value of hedging derivative instruments and the recording of $27 .2 million of deferred pension outflows related to the implementation of GASB No. 68 , offset by $7 .0 million amortization of bond losses. SMU D AN N UAL REPORT 2015 I Forward I Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) LIABILITIES AND DEFERRED INFLOWS OF RESOURCES Long-Term Debt -net 2015 compared to 2014 SM U D's long-term debt includes the component units' debt and consists ofa variety of financial instruments , including interest rate swap agreements , subordinated electric revenue bonds and variable rate bonds. Proceed s from the bonds provide financing for various capital improvement projects , component unit capital projects , and the prepayment of a 20 year supply of natural gas. In June 2015 , SFA issued $193.3-million of2015 Series Cosumnes Project Revenue Refunding Bonds. Proceeds from the 2015 Series Bonds and $24.8 million of available funds wereused to refund $233.2 million of the outstanding 2006 Series Bonds through a legal defeasance , and accordingly, the liability for the defeased bonds was removed from Long-Term Debt in the Statements of Net Position. The refunding resulted in the recognition of a deferred accounting loss of $4.4 million , which is being amortized over the life of the refunding issue, and a current period loss of $0.03 million which is included in Interest on Debt in the Statement of Revenues , Expense s, and Changes in Net Assets. As a result of the refunding , future aggregate debt service payments are reduced by $46.7 million and there is a total economic gain of $35.5 million. In January and July 2015 , SPA redeemed $29.9 million and the remaining $41.4 million , respectively, of the 2005 Series Bonds maturing July 2015 through July 2022 , along with the accrued interest. The redemptions resulted in a current accounting loss of $0.2 million, which is included in Interest on Debt in the Statements of Revenues , Expenses , and Changes in Net Position. 2014 compared to 2013 In December 2014 , SMUD redeemed $8.7 million of2004 Series T Bonds. The redemption resulted in a current accounting gain of $23 thousand, which is included in Interest on Debt. Redeeming the bonds will reduce the aggregate future debt service payments by $11.0 million. The following table shows SMUD's future debt service requirements through 2020 as of December 31 , 2015: Debt Service Requirements 250 200 '§ 150 Interest

  • Principal c "' 100 50 0 2016 2017 2018 2019 2020 As of December 31 , 2015 , SMUD's bonds had an underlying rating of"AA-" from Standard & Poor's , "AA-" from Fitch , and " Aa3" from Moody's. SMUD's bonds were upgrade;:!

by Moody's from Al to Aa3 in April of2015. Some of SMUD 's bonds are insured and are rated by the rating agencies at the higher of the insurer's rating or SMUD's underlying rating. Sacramento Municipal Utility District I 2015 Annual Report ,I MANAGEMENT'S DISCUSSION AND ANALYSIS <unaudited> Current Liabilities 2015 compared to 2014 Current liabilities decreased by $11.8 million during 2015. Current portion of long-term debt decreased $18.4 million and accounts payable decreased $6.7 million, offset by an increase of $13.8 million in hedging derivative instruments maturing within one year. 2014 compared to 2013 Current liabilities increased by $72.0 million during 2014. Current portion of term debt increased $32.8 million mainly due to a $29.9 million early call of a component unit's bonds. In addition, there was a $38.7 million increase in investment and hedging derivative instruments. Noncurrent Liabilities 2015 compared to 2014 Noncurrent liabilities increased by $85.6 million during 2015. The increase was mainly due to a $54.6 million increase in the net pension liability and a $34.4 million increase in investment and hedging derivative instruments. 2014.compared to 2013 Noncurrent liabilities increased by $392.4 million during 2014. The increase was mainly due to the recording of the net pension liability of 7 million as -a result of implementing GASB No. 68 , a $56. l million liability associated with the new hydro license , and $18.4 million in investment and hedging derivative instruments. Deferred Inflows of Resources 2015 compared to 2014 Total deferred inflows ofresources decreased $93.0 million mainly due to a $63.8 million reduction in deferred pension inflows. Other reductions include $15. l million in regulatory credits for transfers from the rate stabilization funds as a result of lower precipitation and lower energy deliveries from WAPA, and $10.2 million for the Solano Phase 3 wind facilities. 2014 cor;npared to 2013 Total deferred inflows of resources increased $66.2 million due to the recording of deferred pension inflows of $111.4 million as a result of implementing GASB No. 68 , a transfer of $36.2 million from the RSF (including the HRSF) as a result of lower precipitation and lower energy deliveries from WAPA , and the amortization of $10.0 million for the Solano Phase 3 wind facilities. RESULTS OF OPERATIONS Condensed Consolidated Statements of Revenues, Expenses and Changes in Net Position December 31, 2015 2014 (R es tat ed) 2013 (m illi o n s of d o ll ars) Operating revenues $ 1 , 474 $ 1,529 $ 1,428 Operating expenses (1 , 270) (1 , 320) ( 1 , 255) Operating income 204 209 173 -*other revenues 35 79 22 Interest charges (110) {122) (125) Change in net position 129 166 70 Net position -beginning of year 1 013 847 777 Net position -end of year $ i , 142 $ 1,013 $ 847 Sacramento Municipal Utility District I 2015 Annual Report ' MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Operating Revenues 2015 compared to 2014 Operating revenues decreased $55.2 million in 2015. Approximately $47.2 million from retail sales includes the 2.5 percent rate increase that went into effect January.I, 2015. As of December 31, 2015, the number of customers increased to 617 ,307 at a slightly higher average revenue per kilowatt hour as compared to the end of2014. In 2015 and 2014, SMUD transferred $12.0 million and $11.8 million from the RSF and $3 .1 million and $24.3 million from the HRSF, respectively. The transfer from the HRSF caused the fund to be depleted and subsequently the 1.3 percent HGA surcharge was implemented. Wholesale revenues are comprised of both surplus gas and energy sales which part of the operational strategy in managing fuel and energy costs. In 2015, surplus gas sales were lower than 2014 by $55.2 million due to lower gas prices and less gas sold. Energy sales were also lower in 2015 by $29.0 million as compared to 2014 due to lower prices and lower energy sales. 2014 compared to 2013 Operating revenues increased $100.9 million in 2014, of which $36.7 million includes the 2.5 percent rate increase that went into effect January 1, 2014. As of December 31, 2014, the number of customers had increased approximately one percent to 614, 143 at a_ slightly higher average revenue per kilowatt hour as compared to the end of2013. SMUD transferred $11.8 million from the RSF in 2014 compared to a transfer of$1.8 million to the RSF in 2013. SMUD also transferred $24.3 million and $6.6 million from the HRSF in 2014 and 2013, respectively. Wholesale revenues are comprised of both surplus gas and energy sales which are part of the operational strategy in managing fuel and energy costs. In 2014, surplus gas sales were higher than 2013 by $29.3 million due to higher gas prices and more gas sold. Energy sales were also higher in 2014 by $5.8 million as compared to 2013 due to higher prices offset by lower volume. The following charts show the megawatt hour (MWh) sales, and sales revenue for the past three years by surplus energy sales (Surplus), commercial and industrial (C&I) and residential (Res) customers. MWh Sales Sales Revenues 7 ,000 $800,000 6 ,000 $700 , 000 5 ,000 $600,000 $500,000 4 , 000 *Res ;;; *Res .,, $400,000 c _g 3,000

  • C&I B C&I ,, 0 C Surplus ""' $300,000 0 Surplus , ,, 2 , 000 $200 , 000 1,000 $100 , 000 0 so 2015 2014 2013 2015 2014 2013

' Sacramento Municipal Utility District I 2015 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Operating Expenses 2015 compared to 2014 Operating expenses decreased $49.5 million compared to 2014. Operations which includes purchased power , production, transmission and distribution, and depletion, decreased by $74.0 million mainly due to lower gas and power prices as well as lower volumes. This decrease was offset by a $23.5 million increase in administrative , general and customer costs. 2014 compared to 2013 Operating expenses increased $64. 7 million compared to 2013 mainly due to the impact of the drought on hydro generation. The reduction in hydro generation contributed significantly to the $42.5 million increase in purchased power expense, which is about 16 percent higher than in 2013. Production costs, which include depletion, were higher by $13.9 million. Net fuel co.sts for generation is included in production costs and was $37.0 million lower than 2013 mainly due to a 14 percent reduction in the average net fuel price. The following charts show the breakdown of operating expenses: 2015 Operating Expenses Purchased Power

  • Production

='Other Other Revenues and (Expenses) 2014 Operating Expenses Purchased Power

  • Production Other 2013 Operating Expenses Purchased Power
  • Production

' Other 2015 compared to 2014 Other revenues were $44.l million lower in 2015, which was partially attributable to the difference in the amount of settlement proceeds received related to the Rancho Seco nuclear waste disposal litigation. In 2015 and 2014 , SMUD received settlement proceeds of$22.5 million and $53.1 million; respectively. In addition, $16.9 million was written off for the terminated Iowa Hill Project. 2014 compared to 2013 Other revenues were $56.7 million higher in 2014 most of which was attributable to the $53.1 million settlement related to the Rancho Seco nuclear waste disposal litigation. Other changes include lower investment expense of $13.2 million due to ineffective hedges , offset by $5.0 million lower revenues associated with grants. I Sacramento Municipal Utility District I 2015 Annual Report CONSOLIDATED STATEMENTS OF NET POSITION Assets Electric Utility Plant Plant in service Less accumulated depreciation and depletion Plant in service -net Construction work in progress Total electric utility plant -net Restricted and Designated Assets Revenue bond and debt service reserves Nuclear decommissioning trust fund Rate stabilization fund Other funds Less current portion Total restricted and designated assets C urr e n t Asse t s Unrestricted cash and cash equivalents Unrestricted investments Restricted and designated cash and cash equiva l ents Restricted and designated investments Receivables -net: Retail customers Wholesale Other Regulatory costs to be recovered within one year Investment derivative instruments maturing within one year Hedging derivative instruments maturing within one year Inventories Prepaid gas to be de li vered wit h in one year Credit support co ll ateral deposits Prepayments Total current assets Noncurrent Regulatory costs for future recovery Prepaid gas Prepaid power and capacity Hedging derivative instruments Energy efficiency loans -net Credit support collateral deposits Due from affiliated entity Prepayments and other Total noncurrent assets Total Assets Deferred Outflows of Resources Accumulated decrease in fair value of hedging derivatives l)eferred pension outflows Unamortized bond losses Total deferred outflows of resources Total Assets and Deferred Outflows of Resources The accompanying notes are an integral part of these consol i dated financia l statements. Decembe r 31 , (R estated) 201S 2014 (thousands of dollars) $ 5,637,649 $ 5 , 575,013 (2,489,820) (2,354,642) 3,147,829 3,220,371 176 071 111,594 3,323,900 3,331,965 114,231 130,430 8,292 8,250 30,251 45,306 6,082 66 , 752 (1 1 4,574) (113 ,8 05) 44,282 136 , 933 214,390 237,709 341,036 396,575 43,518 37,765 71,056 76 , 040 166,205 153 , 658 1,695 7,837 23,019 26,479 21,242 20,838 39 7,740 9,025 61,486 52,626 27,768 24,893 20,523 829 ?,1,278 17 708 1,020,956 1 , 062,021 602,934 608,473 287,844 315,612 135,332 140 , 507 23,275 25 , 703 29,039 33 , 173 28,177 3,171 16,208 7,687 1 18,169 110,575 1,240,978 1,244,901 5,630,116 5 , 775,820 199,621 152,033 3 1 ,303 27,269 36,085 39,830 267,009 219,132 $ 5,897,125 $ 5,994 , 952 Sacramento Municipal Utility District I 2015 Annual Report CONSOLIDATED STATEMENTS OF NET POSITION Liabilities Long-Term Debt -net Current Lia-bilities Commercial paper notes Accounts payable Purchased power payable Credit support collateral obligation Long-term debt due within one year Accrued decommissioning Interest payable Accrued salaries and compensated absences I Investment derivative instruments maturing within one year Hedging derivative instruments maturing within one year Customer deposits and other ' Total current liabilities Noncurrent Liabilities Net pension liability Accrued decommissioning Investment derivative instrument s Hedging derivative instruments Self insurance and other liabilities Total noncurrent liabilities Total Liabilities Deferred Inflows of Resources Accumulated increase in fair value of hedging derivatives Regulatory credits Deferred pension inflows Financing obligation and other Total deferred inflows of resources Net Position Net investment in capital assets Restricted Unrestricted Total Net Position Commitments, Claims and Contingencies (Notes 16 and 17) Total Liabilities, Deferred Inflows of Resources , and Net Position The accompanying notes are an integral part of these consolidated financial state ment s. December 31, (Restated) 2015 2014 (thousands of dollars) $ 2,674, 1 20 $ 2,881,701 200 , 000 200 , 000 68,485 75,147 2 1 , 677 21,423 4,389 160 1 52,060 170,430 8,822 7,879 37,898 42,219 34,034 37,715 12 , 579 12,295 65,200 51 , 727 44 304 42 , 238 649 448 661 , 233 381 , 34 1 326,702 152,359 154 , 280 20 , 207 19 ,88 8 134,422 100 , 306 78 , 8 1 5 80,340 767, 1 44 681 , 516 4,090 , 7 1 2 4,224,450 31 , 015 34 , 728 353 , 82 1 368 , 931 4 7,579 111 , 405 231,673 242 , 069 664,088 75'7,133 6 5 8, 1 99 485,358 '72,465 127,044 4 11 ,661 400,967 1 , 14 2,32 5 1,013)69 $ 5,897, 1 25 $ 5,994,952 '*""D '"N"AC mo""" I Fo.wud I " Sacramento Municipal Utility District I 2015 Annual Report CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operat i ng Revenues Residential Commercial and industrial Street lighting and other Wholesale Senate Bill-1 revenue AB-32 revenue ' Rate stabilization fund transfers Total operating revenues Ope r ating Expenses Operations: Purchased Production Transmission and distribution Administrative, general and customer Public good Maintenance Depreciation Depletion Regulatory amounts collected in rates Total operating expenses Operating Income Non-Operating Revenues and Expenses Other revenues and (expenses): Interest income Investment expense Other income -net Total other revenues and (expenses) Interest eharges: Interest on debt Allowance for funds used during construction Total interest charges Change i n Net Position Net Position -Beginning of Net Position -End of Year \ The accompanying notes are an integral part of these consolidated financial statements. $ Year Ended December 31, (R es tat ed) 2015 2014 (thousands of dollars) 621,830 $ 594,644 697,044 676,972 32,154 34,236' 82,052 166,262 (4, 181) (331) 30,214 21,393 15,055 36,168 1,474, 1 68 1,529,344 288,835 316,082 346,550 401,980 73,909 63,134 190,013 166,503 70,122 73,171 95,635 97 , 563 188,928 184,810 9,094 11,230 7,299 5 , 401 1,270,385 1,319,874 203,783 209,470 7,511 7,759 (11,045) (8,515) 38,574 79,881 35,040 79,125 111,685 123 , 253 {1,818) (1,322) 109,867 121,931 128,956 166,664 1,0 1 3,369 846,705 $ 1,142,325 $ 1,013,369 Sacramento Municipal Utility District I 2015 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (R es rat e d) 20 15 2014 (th o u sa nd s of d o ll ars) Cash Flows From Operating Activities Receipts from retail customers $1 , 334,961 $1,302,475 Receipts from surplus power sales Receipts from surplus gas sales Receipts from steam sales

  • Settlement proceeds Other receipts Payments/receipts for credit support collateral Issuance/repayment of energy efficiency loans -net Payments to employees

-payroll and other Payments for wholesale power Payments for gas purchases Payments to vendors/others Payments for decommissioning Net cash provided by operating activities '< Cash Flows From Noncapital Financing Activities Repayment of debt Receipts from federal and state grants Pass through payments for federal and state grants Interest on debt Net cash used in noncapital financing activities Cash Flows From Capital and Related Activ i t i es Construction expenditures Contributions in aid of construction Net proceeds from bond issues Repayments and refundings of debt Interest on debt Net cash used in capital financing activities Cash Flows From Investing Activ i ties Sales and maturities of securities Purchases of securities Interest and dividends received Investment revenue/expenses -net Net cash provided by (used in) investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the Cash and cash equivalents at the end of the year Cash and cash equivalents included in: Unrestricted cash and cash equivalents Restricted and designated cash and cash equivalents Revenue bond and debt service reserves (a component of the total of $114,231 and $130,430 at December 31, 2015 and 2014, respectively) Cash and ca_sh equivalents at the end of the year The accompanying notes are an integral p art of these consolidated financial statements. 56 , 014 83,758 27 , 580 83 , 203 4,221 5,474 22,521 53,140 28,767 31,804 (40 , 471) (4,000) 4 , 685 3 , 611 (264,726) (248,917) (297 , 805) (314,052) (221,485) (274,791) (321,990) (319 , 908) {6,966) {18 , 846) 325,306 382,951 (23,685) (22,380) 12,798 13,103 (2,188) {14 , 206) (15,128) (25,093) (26,593) ( 181,849) (142,416) 14,710 11,285 223,708 (413 , 655) (123,910) (110 , 795) (118,645) (467 , 881) (373,686) 396 , 660 449 , 698 (303,985) (483 , 049) 8 , 089 7,772 {10,754) (8,572) 90,010 (34,151) (77,658) (51,479) 337,061 388,540 $ 259,403 $ 337 , 061 $ 214 , 390 $ 237,709 43,518 37 , 765 1,495 61,587 $ 259,403 $ 3°37,061 '""' A<NOAC mo"°" I Fo'wud I Sacramento Municipal Utility District I 2015 Annual Report SUPPLEMENTAL CASH FLOW INFORMATION A reconciliation of the consolidated statements of cash flows operating activities to operating income is as follows: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Depletion Regulatory amortization Amortization of advance capacity & other Amortization of prepaid gas supply Revenue recognized from regulatory credits -net Settlement proceeds Payments/receipts for credit support collateral -net Other receipts/payments Changes in operating assets , deferred outflows, liabilities and deferred inflows: Customer and wholesale receivables , Energy efficiency loans Other assets Deferred pension outflows Payables and accruals Decommissioning Deferred pension inflows Net cash prov i ded by operating activities The supplemental disclosure of noncash financing and investing activities i s as follows: Amortization of debt related costs Unrealized holding loss Change in valuation of derivative financial instruments Amortization of revenue for assets contributed in aid of construction Allowance for funds used during construction Construction costs induded in accounts payable The accompanying notes are an integral part of these consolidated financial I Fornud I 'MOD A NN OA C m o"'°" Year Ended December 31 , (R es tat e d) 2015 2014 (th o usands of d o ll a rs) $ 203,783 $ 209,470 188,928 184,810 9,094 11,230 7,299 5,401 1,712 929 24,893 22,720 (16,213) (33,939) 22,521 53, 1 40 (40,471) (4 , 000) 2,840 2 , 756 (10,798) 558 4,685 3,6 11 (41,646) (58,753) (4,034) (14,842) (11,134) 18,706 (6,966) (1 8,8 4 6) (9,187) $ 325,306 $ 382,9 5 1 Year Ended Decembe r 31 , 2015 2014 (th o u sa n ds o f d o ll ars) $ 8,959 $ 8,148 ( 411 ), (51,945) 18,647 1,818 19,115 (681) (58,350) 1 7 , 970 1,322 16,588 Sacramento Municipal Utility Distri<:t I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS /. N'oTE 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 pm_ver 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 taxes. SMUD is not*exempt from real and personal property taxes on assets holds outside of California. In additiop, 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 (GASB). SMUD's accounting records generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federnl Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions of utility property in aid of construction. SMUD's *consolidated Financial Statements are reported using the economic resources 'measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses ar:e recorded when a liability is incurred, regardless of the timing of the related cash *flows. Electric revenues and costs that are directly related to the acquisition, generation, transmission, and distribution of electricity are reported a; operating revenues and expenses. All other revenues . ' and expenses are reported as non-operating r:evenues and expenses. -Use of Estimates. The preparation of financial statements in with accounting principles generally. accepted in the States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclo_sures of confingent*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 Consolidated 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 of SMUD because of the extent of their operational and financial relationships with SMUD. All significant inter-component transactions have been eliminated in consolidation. I Component Units. The component units include the Central Valley Financing Authority (CVFA), tl).e Sacramento Cogeneration Authority (SCA), the Sacramento Municipal Utility District Financing Authority (SFA), the Sacramento power Authority (SPA), and the Northern California Gas Authority No. 1 (NCGA). The primary . purpose of CVFA, SCA, SFA and SPA is to own and operate electric utility plants that supply power to SMUD. The primary purpos'e is to_ prepay for natural_ gas and to sell the natural gas to SMUD. SMUD's Board comprises the Commissions that govern these entities (see Note 6). Sacramento Municipal Utility District l,2Q15 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plant in Service. Capital assets are generally defined by SMUD as tangible assets with an initial, individual cost of more than three 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 m_aintenance costs are charged to expense when incurred. When SMUD retires portions of its Utility Plant, retirements are recorded against Accumulated Depreciation and the retired portion of Utility Plant is removed from Plant in Service. The costs of removal and the related salvage value, if any, are charged or credited as appropriate to Accumulated Depreciation. SMUD generally computes on Plant in Service on a straight-line, service-life basis. The consolidated average annual composite depreciation rates for 2015 and 2014 were 3.5 percent.'Depreciation is calculated using the following . estimated liv.es: * . . . Generation Transmission and Distribution Gas Pipeline General 4 to 80 years .5 to 50 years

  • 5 to 90 years 5 to 60 years / . Investments in Joint Power Agency (JPA). SMUD;s in the Transmission Agency of Northern . . . . California (TANC) is accounted for under the equity mt<thod of accounting
  • and is reported as a component of Plant in Service. SMUD's share of the TANC debt service costs and operations and maintenance expense, inclusive of
  • depreciation, is included in Transmission and Distribution expense in the of Revenues, Expenses and Changes in Net Position.

SMUD's investment in 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 expen,se in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. Investment in Gas Properties. SMUD has an approximate 21 percent non-operating ownership interest in the Rosa Unit gas properties in New Mexico of which, SMUD's portion of the extracted gas is tran.sported for use in its component unit natural gas-fired pO\yer plants (see Note 6). SMUD uses -the successful efforts method of accounting for its investment in gas producing properties. Costs to acquire mineral interests in gas properties, to drill and equip exploratory wells that find proved and to drill anci equip development wells are capit!llized as a component of Plant in Service on the Consolidated Statements of Net Position. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed. SMUD has purchased proven reserves and has not participated iri exploratory drilling. . Capitalized costs of producing gas after considering estimated residual_ salvage values, are depleted by the unit-of-production method based on the estimated fufure production of the proved developed producing wells. SMUD's investment in gas properties is reported as a component of Plant ii: Service Restricted and Designated Assets. Cash, cash equivalents, and investments, which are restricted under terms of certain agreements for payments to third parties or Board actions limiting the use of such funds, are included as restricted assets. When SMUD restricts funds for a specific purpose, and both restricted and umestricted resources are available for use, it is SMUD's policy to use restricted resources first, then umestricted 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 and the 2003 Series R Bonds. In 201\ the 2003 Series R Bonds were paid off and only the res.erve for debt *service for the 1997 Series K Bonds existed at December 31, 2015: Sacramento Municipal Utility District I 2015 Annual Report "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nuclear Decommissioning Fund. SMUD made annual 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-radiologi'cal decommissioning tasks. SMUD determined early in 2008 that there were 'enough funds in th_e trust to complete the radiological decommissioning of the Rancho Seco nuclear plant site, and stopped contributing to the Trust Fund*(see Note 12). Interest earnings on the Trust Fund assets are recorded as Interest Income and are accumulated in the Trust Fund. Accrued Decommissioning. SMUD accrues decommissioning costs related to Utility Plant when an obligation to decommission facilities is legally required. Adjustments are made to such liabilities based on estimates by SMUD staff in accordance with FASB ASC 410, Assei Retirement and Environmental Obligations_ (FASB ASC 410). For active plants, such costs are included in the Utility Plant's cost and included as a component of Operating Expense over the Utility Plant's life. Expenditures for decommissioning activities are recorded as reductions to Accrued Decommissioning liability. Changes in the Rancho Seco decommissioning liability estimates arising from inflation, annual accretion,. and other to the cost assumptions

  • are recorded to Accrued Decommissioning with a corresponding adjustment to the related regulatory deferral.

The current portion of the Accrued Decommissioning liability represents SMUD's estimate of actual _expenditures in the next year, as set forth in the annual budget. 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 i_ntends to utilize these facilities indefinitely. Since the timing and extent of any potential asset retirements are unknown, the fair value of any obligations associated with these facilities cannot be reasonably estimated. Accordingly, a liability . has not been recorded.

  • At December 31, 2015 and 2014, SMUD's Accrued Decommissiop.ing balance in the Consolidated Statements of Net Position relating to Rancho Seco.was $150.4 million and $152.1 million, respectively (see 12). The Accrued Decommissioning balanc_e in the Consolidated Statements of Net Position relating to other electricity generation and gas production facilities totaled $10.8 million and $10.1 million as of December 31, 2015 and* 2014, respectively.

Cash and Cash Equivalents. Cash and cash equivalents

  • include all debt instruments purcha_sed with an original maturity of 90 days or less, ap investments in the Local Agency Investment Fund (LAIF), and money market mutual funds. LAIF has an equity interest in the State of California (State) Pooled Money Investment Account (PMIA). PMIA funds are on depositwith the State's Centralized Treasury System and are manage.cl in compliance with the California Government Code accord!ng to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters, and maximum maturity of investments.

SMUD's deposits with LAIF comprise cash representing demand deposits up to $50.0'million maximum.and c.ash equivalents representing amounts which may be withdrawn once per month after a thirty-day period. The debt instruments and money market mutual funds are reported amortized cost, which approximates.fair value, and the_ LAIF is reported at the value of its pool shares. Investments. SMUD's investments held for more than one year are reported at fair value. Realized and unrealized . gains and losses included in Other Income -Net in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. Premiums and discounts on zero coupon bonds are amortized using the effective interest method. Premiums *and discounts on other securities are amortized using the straight-line method, which approximates the effective interest method. SMUD ANNUAL REPORT 201s I Forward I Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Electric Operating Revenues. Electric revenues are billed on the basis of monthly cycle bills and are as . revenue when the electricity is delivered. SMUD an estimate for unbilled revenues earned from the dates _its ' retail *customers were last billed to the end of the month. At December 31, 2015 and 2014, unbilled revenues were $72.5 million and $69.1 million, respectively. Purchased Power Expenses. A portion of SMUD's power needs are provided through power purchase agreements . . Expenses from such agreements, along with associated transmission costs paid to other utilities, are. charged to Purchased Power expense on the Consolidated Statements of Revenues,- Expenses and Changes in Net Position in the period the power is The costs, 6r credits, associated with enerzy s_wap agreements (gas and electricity) 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 can be reasonably estimated. Advanced Capacity Payments. Some lon_g-term agreements to purchase energy or from other providers call for up-front payment. Such costs are generally recorded as an asset and amortized over the length _ of the contract. Credi_t 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 under the terms of these contractual agreements. In order to_ limjt the risk of counterparty default, SMUD has a wholesale counterparty risk policy which includes using the credit agency. ratings of SMUJ?'s counterparties and other credit services, credit enhancements for counterparties that do not meet an acceptable risk level, and the use of standardized agreements that allo>y for the nettil).g of positive and negative associated with a single counterparty. SMUD is also subject to similar requirements for many of its gas and power purchase agreements. SMUD uses a combination of cash and securities to satisfy its collateral requirements to counterparties. SMUD.'s component unit, NCGA, entered into a-guaranteed investment contract and is exposed to credit risk related to nonperformance by its. investment provider. The investment provider provides collateral iftheir credit ratings fall below agreed upon levels. At 31, 2015 and 2014, respectiyely, SMUD held-$4.4 million and $0.2 million on deposit by counterparties and ari investment provider. The amo:unt issecorded as unrestricted cash and current restricted cash with an associated liability. At December 31, 2015 and 2014" SMUD posted cash collateral of $48.7 million and $4.0 million, respectively, with counterparties. Accounts Receivable and Allowance for Doubtful Accounts. Accounts Receivable is recorded at the invoiced amount and does not bear* interest, except for accounts related to energy efficiency loans. SMUD an estimate of uncollectible 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 specific credit issues for each account. SMUD records bad debts for its estimated uncollectible accounts related to electric service as a .. reduction to the related operating revenues in Consolidated .Statements of Revenues, Expenses and Changes in Net Position. SMUD records bad debts for its estimated uricollectible accounts related to .energy efficiency loans and other non-electrjc billings in Administrative, General and Customer expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position._ I Forn.,d I 'M"D """"mo"'"' . Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of the changes in the allowance for doubtful accounts-during 2015 and 2014 is presented below: Balance at Write-offs Balance at beginning of and end of Year Additions (Recoveries) Year (thousands of dollars) Other Non-Electric: December 31, 2015. $ 1,993 $ 691 $ 913 $ 1,771 December 31, 2014 $ 2,346 $ 623 $ 976 $ 1,993 Retail Customers: December 31, 2015 $ 3,017 $ 5,514 $ 5,415 $ 3,116 . December 31, 2014 $-4,194 $ -4,887 $ 6,064 $ 3,017 Energy Efficiency Loans: December 31,.2015 $ 1,327 $ (873) $ (587) . $ 1,041 December 31, 2014 $ 2,104* $ (982) $ (205) *$ 1,327 Regulatory Deferrals. The Board has the authoritY to establish the level of rates charged for all SMUD services. As a regulated entity, SMUD's financial statements are prepared in accordance with GASB Statement No. 62 (GASB No. 62), "Codification of Accounting and financial Reporting Guidance, Contained in Pre-November 30, 1989 FASB and A/CPA I;'ronouncements," which requires that the effects of the rate-making process be recorded in the financial statements. Accordingly, certain expenses and credits, normally reflected in Change in Net Position

  • incurred, are recognized when included in rates and recovered from, or refunded to, customers.

SMUD records *

  • various regulatory assets and credits to reflect rate-making actions of the Board (see Note_ 8). Materials and Supplies.

Materials and supplies are stated at average cost, which approximates the first-in, first-oi.{t method. / Compensated Absences. SMUD accrues vacation 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 for sick leave made "'.Nhen employees terminate or retire. At December 31, 2015 and 2014, the total estimated liability for vacation and other compensated absences was $23.9 million and $23.0 million, respectively . . Public 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. Gains/Losses on Bond Refundings. Gains and losses resulting from bond refundings are included as a component of Deferred Inflows of Resources or Deferred Outflows of.Resources on the Consolidated Statements of Net Position and amortized .as a component of Interest on Debt in the Consolidated 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 D.efeasances or Extinguishments. Gains and losses resulting from bond defeasances or extinguishments that were not financed with the issuance of new debt are included as a component of Interest on Debt in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. Sacramento Municipal Uttlity District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance*for*Funds Used During Construction (AFUDC). SMUD capitalizes, 'as.an additional cost of Work In Progress (CWIP), AFUDC, which represents _the cost of borrowed funds used for such purposes. The amount capitalized is determined by a formula prescribed by FERC. The AFUDC rate for 2015 and 2014 was 2.8 percent and 3.3 percent, of eligible CWIP,.respectively. Derivative Financial Instruments. SMUD records 'derivative financial instruments (interest rate swap and gas price swap agreements, wholesale sales agreements, certain power purchase agreements anti option agreements) at fair value on its Consolidated Statements of Net Position. SMUD does not enter into agreements for speculative purposes. Fair market value is estimated by comparing contract prices to forward market prices quoted by third party market I?articipants and/or provided in relevant industry publications. SMUD is exposed to risk of nonperformance if the couriterparties default or if the swap agreements are terminated. SMUD reports. deriyative financial instruments with remaining'_maturities of one year or less and the portion of long-term with scheduled transactions over the next twelve months as current on the Consolidated Statements of Net .Position (see Note 9). Interest Rate Swap .. 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 gas-fueled power plants and for energy prices on purchased power for SMUD's retail load (see Note 9).

  • Solano Wind Sale. SMUD entered 1nto an agreement to sell the Solano Wind Phase 3 plant in December 2011 with a corresponding Power Purchase Agreement for all the output of the plant. In April 2012, under the terms of the Construction Management.

Agreement, SMUD, on behalf of the purchaser, completed construction of the plant, with.the revenue recognition from the transaction, which was accounted for as a financing agreement, to occur over the life of the contracts. Pursuanfto the Administration Agreement, SMUD will perform services at the facility under the direction and for the benefit of the purchaser. Pursuant to the ground and property lease, SMUD is leasing the site to the purchaser for a term of twenty years with an option to extend for five additional years. The sale proceeds have been recorded as Deferred Inflows of Resources on the Consolidated Statements of Net Position and will be amortized as Purchased Power Expense' on the Consolidated Statement of Revenues, Expenses, and Changes in Net Position over the life of the agreement. Sale proceeds in the amount of $63 .1 million were received in 2013. The prtjpayment for purchased power over the life of the contract has been recorded as Prepaid P_ower and Capacity on the Consolidated Statements of Net Position and will be amortized as Purchased Power Expense on the Consolidated Statement of Revenues, Expenses, and Changes in Net Position .over the life of the agreement (see Note 16 for language about the Power Purchase Agreement).

  • Precipitation Hedge Agreements.

SMUD enters into non-exchange traded precipitation hedge agreements to hedge the cost of replacement power caused by low precipitation years (Precipitation Agreements). SMUD records the intrinsic value oqhe Precipitation Agreements on the Co.nsolidated ofNet 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 between the expected results from a monthly allocation of.the cumulative rainfall amounts, in an average rainfall year, and the actual rainfall during the same period. r _Sacramento Municipal Utility District I 2015 Annual Report * ) NQTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 up.paid claims associated / . with general, auto, workers' compensation, and short-term and long-term disability based upon es1imates derived by SMUD's claims administrator or SMUD staff. The liability comprises the present value of the claims outstanding, and j.ncludes an amount for claim events incurred but not reported based _upon SMUD's experience* (see Note 15). Pollution Remediation. of Governmental Accounting Standards (SGAS) No. 49, and

  • Financial Reporting for Po{lution Remediation Obligations," requires that a liability be recognized for expected outlays.for remediating existing pollution when certain triggering events occur. In.2009, SMUD*identified a pollution remediation qhligation at its North City Substatl.on.

This substation was built on a former landfill, and the sitt: requires remediation. In 2015, SMUD identified and recorded a pollution remediation obligation at its Headquarters building that it will be renovating. In addition, SMUD a pollution remedil:}tion obligation at the Former Community Linen Rental Services (see Note 17). At December 31; 2015 and 2014, the total pollution remediation liability is $19.7 million and $12.2 'million, respectively. Costs were estimated using the expected cash fl9w technique prescribed under GASB. Hydro License. SMUD,owns and operates the Upper American River Hydroelectric Project (UARP). The original Iice'nse to construct and operate the UARP was issued in '19S7 by FERC. In 2014, SMUD received a new hydro license for a term of 50 years, effective July), 2014. A; part of the hydro licensing process, SMUD entered into four contracts with government agencies whereby SMUD makes annual payments to them for various services for t\!rm of the license. At December 31, 2015 and 2014, tlle liabili_ty for these contract payments is $55.0 million and $56.1 million, respectively (see Note 16). Assembly Bill 32. California Assembly Bill 32 (AB-32) is an effort by the State of California to set a 2020 greenhouse gas emissions reduction goal into law. The goal is to reach a emission limit of 427 million metric tons of carboffdioxide equivalent of greenhouse gases (GHG). Central to this initiative is the implementation of a cap and trade program, which covers major sources of GHG emissions in the State including power plants. The cap and trade program includes an enforceable emissions cap that will decline over time. The State will distribute allowances, which are lradable permits, equal to the emissions allowed under the cap. Sources under the cap will need to surrender allowances and offsets equal to their emissions at the end of each compliance petiod. SMUD is subject to AB-32. SMUD participated in the program auctions ill 2014 and In a normal water year, SMUD expects its free allocation ofallowances from the Air Resources Board will 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 is monitoring legislation and

  • proposed programs that would impactAB-32 (see Note 8). Net Pension Liability (NPL). SMUD implemented SGAS No. 68 Accounting and Financial Reporting for Pensions -An Amendment ofGASB Statement No. 27" (GASB No. 68) in-2015 (see Note 3). Und.er GASB N-0. 68, the net pension liability is the difference between the actuarial present value of projected pension benefit payments attributable to employees' past service and the Plan's fiduciary net position.

At December 31, 2015 and .2014, the NPL was $381.3 million and $326.7 million, respectively. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Position. SMUD class}fies its net position into three components as follows:

  • Net investment in capital assets -This component*

of net position consists of capital assets, net qf Accumulated Depreciation, reduced by the outstanding debt balances, net 6f unl:!mortized debt expenses. Deferrt?d inflows and outflows of resources that are attributable to the acquisition, construction or improvement of those assets or related

  • debt are also included.
  • Restricted

-This component of net position consists of assets with constraints placed on their use, either externally or constraints include those imposed by debt indentures c excluding amounts considered in n_et capital, above), grants or laws and regulations of other governments, or by law through constitutional 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 the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that do not meet the definition of"Net investment in capital assets" or "Restricted." Contributions in Aid of Construction (CIAC). SMUD records CIAC from customer contributions, primarily relating to expansions to SMUD's distribution facilities, as Other Income -Net in the Consolidated Statements of Revenues, Expenses and Changes l.n Net.Position. Contributions of capital are valued at estimated market cost. -For rate-making purposes, the Board does not recognize such revenues when-received; rather, CIAC is included J.n revenues as such costs ainortized over the estimated useful lives of the related distribution facilities.

  • Revenues -and Expenses.

SMUD distinguishes operating revenues and expenses from non-operatiag items. revenues and expenses generally result from pro\'.iding seryices and producing and delivering goods in connection with SMUD's principal ongoing operations. The principal operating revenues of SMUD a.re charges to customers for sales a,nd services. Operating expenses include the cost of sales and services, administrative , expenses, and depreciation on cap_ital assets. All revenues and expenses meeting this definition are reported as non-operating revenues and expenses. Grants. SMUD receives grant proceeds from an.d state assisted programs for its advanced and renewable technologies, electric vehicle, and em<rgy efficiency programs. SMUD *also periqdically receives grant proceeds* from federal or state* assistance programs as pai:tial reimbursements for costs it has incurred as a result of storm damages. When applicable, these programs may be subject to financial and compliance audits pursuant to regulatory requirements. SMUD considers the possibility of any matedal disallowances to be remote. During 2015, SMUD recorded $3 .0 million of grant proceeds and recognized $2.5 mill1on as a compon_ent of Other 1ncome -Net, in the Consolidated Statements of Revenues, Expe-;;_ses and Changes in Net and $0.5 million as a Regulatory Credit (see Note 8). During 2014, SMUD recorded $3.2 million of grant proceeds and recognized $4.8 million as a c_g.rnponent of Other Income -Net, in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, $1.6 milllon as a Regulatory Credit (see Note 8), and a $3.2 million decrease in unearned revenue as a component of Customer Deposits and Other on the Consolidated Statements ) of Net Position. / Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2010, SMUD issued taxable Build America Bonds. SMUD receives an interest subsidy from the federal govertnfient equal-to 35 percent of the interest paid (see Note 10). SMUD received reduced subsidy payments in 2015 and 2014 due to budget sequestration by the federal government. SMUD recognized $9.'l million in revenues in 2015 and also in 2014 for its Build America Bonds,-as a component-of Other Income -Net, in the . Consqlidated Statements of Revenues, Expenses and Changes in Net Position. Customer Sales and Excise Taxes. SMUD is required by various governmental authorities, including states and municipalities, to collect and remit taxes on certain customer sales. Such taxes are p:esented on a net basis and excluded from revenues and expenses in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.

  • Rancho* Seco Litigation.

In June 1983, SMUD and the U.S. Depifrtment of Energy (DOE) entered into a contract whereby the DOE would build a repository for the acceptance and disposal of SMUD's spent nuclear fuel (SNF) and/or high-level radioactive waste (HLW). SMUD paid the DOE a total of approximately $40.0 million in fees under the contract, thus satisfying its obligation of performance under the contract. DOE did not build a repository and therefore breached its obligation under the contract to commence acceptance of SNF and HLW . . by January 31, 1998. As a result, SMU:D incurred costs to design, license, and fabricate its own: on-site storage facility for the long term dry storage of its spent fuel at Rancho Seco. SMUD filed a suit against the DOE in 1998-which covered costs incurred from 1992 through 2003 and filed another suit in 2009 which covered costs incurred from 2004 through 2009. In September 2014 and February-2015, SMUD received awards for $53.l million and $22.5 million from the U. S. Court of Claims, respectively, which were recorded as Other Income -Net in the ConsO"lidated.Statements of Revenues, Expenses and in Net Position. In June 2015, SMUD filed a s.uit against DOE which covered the costs incurred from 2010 through at least June 2015. Subsequent Events. Subsequent events for SMUD have been evaluated through February 19, 2016, which is the date that the financial statements were available to be issued. Reclassificl!tions. Certain amounts in the _20 i 4 Consolidated Financial Statements have been reclassified in order to conform to the 2015 presentation. Recent Accounting In February 2015, GASB issued 72, "Fair Value Measurement andApplication"_ (GASB No. 72). GASB No. 72 addresses

  • accounting and financial reporting related to fair value measurements.

This statement requires investments to be measured at fair value, which is described as an exit price. This statement requires valuation techniques that are appropriate in the circumstances and for which -sufficient data are available to be to measure fair value. The valuation techniques should be consistent with one or more of the following approaches: the market approach, the cost approach, or the income approach. This statement establishes a hierarchy of inputs to the valuation techniques used to measure fair value. The hierarchy has th_ree levels. Level 1 inputs are quoted prices (unadjusted) in, active markets for identical assets or liabilities: Level 2 inputs are inputs, other than quoted prices, within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs. are unobservable inputs, such as management A fair value takes into account the highest and best use for a nonfinancial asset. This stateme.nt requires disclosures to be made fair value measurements,' the level of fair value hierarchy, and valuation GASB No. 72 is effective for SMUD in 2016. SMUD is currently assessing the financial statement impact _of adopting statement,' but does not believe that its impact will be material. SMUD ANNUAL REPORT 2015 I Forward I Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED-FINANCIAL STATEMENTS In June 2015, GASB issued SGAS No. 75, "Accounting and Finandal Reporting for Postemployment Benefits Other Than Pensions" (GASB No. 75). The primary objective of GASB No. 75 is to improve accounting and financial reporting by state and local go:vernments for postemployment benefits other than pensions (other postemployment benefits or OPEB). 'Fhis statement replaces the requirements of SGAS No.' 45 "Accounting and Financial Reporting by Employers for Post Employment,Be,nefits Other Than Pensions," as amended, and SGAS No. 57 "OPEB Measurements by Agent Employers aJ:ld Agent Multiple-Employer Plans." This statement establishes standards for measuring and recognizing liabilities, deferred outflows and deferred inflows of resources, and For defined benefit OPEB, GASB No. 75 identifies the methods-and assumptions that are required_ to be used to 'project benefit payments, discount projected benefit to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined bei:iefit OPEB also are addressed. In addition, this statement details the recognition and disclosure requirements for employers with payables to defined-benefit OPEB plans that are administered . through trusts that meet the specified criteria. This statement is effective for SMUD in 2018. SMUD is currently -assessing the financial statement impact of adopting this statement. In June 2015, GASB issued SGAS No. 76, "The Hierarchy ofGenetallyAcceptedAccounting Principlesfdr State and Local Governments" (GASB No. 76). GASB No. 76 established_ the hierarchy of GAAP for state and local governments. This statement supersedes SGAS No. 55, "The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments." The GAAP hierarchy sets forth what constitutes GAAP for all state and local governmental entities. It establishes the order of priority of pronouncements and other sources of accounting and financial reporting guidance that a governmental entity should apply. Category A is comprised of GASB Category B includes GASB Technical Bulletins, Implementation Guides, and literature of the AICPA cleared by the GASB. GASB No. 76 is effective for SMUD in 2016. SMUD is ClJrrently assessing the financial statement impact of adopting this statement, but does not believe that its impact will be material. NOTE'3.-ACCOUNTING CHANGE In.June 2012, GASE.issued GASB No. 68. The primary objective ofGASB No. 68 is to improve accounting and financial reporting by state and local governments for pensions. This statement establishes standards for measuring and recognizing liabilities, deferred outflows and deferred inflows of res9urces, and expenses. For defined benefit pensions, this statement identifies the methods and assumptions that' should be used to project benefit P.ayments, discount projeded benefit payments to their actuarial present valUe, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements* about pensions also are addressed. This statement is effective for SMUD in 2015. The implementation impacted the Consolidated Statements of Net Position when the net pension liability, the corresponding deferred outflows.and deferred inflows of resources, ,and a reduction in prepaid pension were recorded. SMUD elected to follow accounting for regulated operatio!ls tinder GASB No. 62 and recorded a regulatory asset as of December 31, 2014, in the _amount of $425.7 million to account for the net effect of required prior period adjustments to recognize the net pension liability. Amortization

  • of the regulat9ry asset will begin in 2018. The implementation also the Consolidated Statements of Revenues, Expenses and Changes in Net Position as a reduction in pension expense was also recorded.

SMUD restated the December 31; 2014 Consolidated Statement of Net Position and Consolidated Statement of Revenues, Expenses and Changes in Net Position to reflect the changes for comparative purposes. SMUD has updated Note 13 Pension Plans to include the requirements of GASB No. 68. Sacramento Municipal Utility District. I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2013, GASB issued SGAS N_o. 71, "Pensi_on Transition for Contributions Made Subsequent to the Measurement Date, an amendment ofGASB Statement No. 68" (GASB No:71). GASB No. 71 addresses an issue regarding application of the transition provisions o:i' GASB No. 68. The issue relates to amounts associated with contributions, if f!.ny, made by .a state or local. government employer or nonemployer contributing entity to a defined. benefit pension plan after the measurement date of the government's beginning net pension liability. GASB No. 71 amends paragraph 137 of GASB No. 68 to require that, at trap.sition, a government recognize a _ beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement

  • date of the beginning net pension liability.

This statement is effective for SMUD in 2015 and SMUD has applied it simultaneous!y with the implementation of GASJ3 No. 68. SMUD has restated amounts of the affected balances within the financial statements for the period ended December 31,-2014, as follows: Current Assets Prepayments Noncurrent Assets Consolidated Statement of Net Position Regulatory costs for future recovery Deferred Outflows of Resources Deferred pension outflows Noncurrent Liabilities Net pension liability Deferred Inflows of Resources Deferred pension inflows Net Position Unrestricted $ December 31, (Restated) 2014 2014 (thousands of dollars) 17,708 $ 28,952 608,473. 182,793 27,269 326,702 111,405 400,967 397,369 Consolidated Statement of Expenses and Changes in Net Position Decernber 31, Operating Expenses Operations: Production Transmission and distribution Administrative, general and customer Public good

  • Maintenance
  • change in Net Position (Restated) 2014' 2014 (thousands of dollars) $ 401,980 63,134 166,503 . 73,171 97,563 166,664 $ . 402,310 63,475 168,353 73,315 98,496 163,066 'sMUD ANNUAL REPORT 2015 I Forward I Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. UTILITY PLANT '{he summarized activity of SMUD's utility plant during 2015 is presented below: Balance Transfers Balance December 31, and , December 31, 2014 Additions Disposals Reclassifications 2015 (thousands of dollars) Nondepreciable Utility Plant: Land and land rights * $ 127,914 $ 2,142 $ (4) $ $ 130,052 CWIP -111,594 185,219 (120,742) 176,071 Total nondepreciable utility plant 239,508 187,361 (120,746) 306,123 Depreciable Utility Plant: Generation 1,632,980 15,917 2,918 l,6?1,815 Transmission 292,920 7,849 1,175 301,944 Distribution 2,052,254 64,313 (4,031) 2,112,536 Investment in gas propertie"s 206,198 381 -0-2.06,579 Investment in JPAs
  • 14,165 2,283 . . 16,448 .Intangibles 346,268 11;925 . (910) General 902,314 20,562 (612884) 860,992 5,447,099 123,230 (62,732) . 5;507,597 Less: accumulated depreciation and depletion (2,349 ,241) (197,462) 62,597 (2,484,106)

/ Less: accillnulated amortization on JPAs (5,401) (313) -0-{5,714) (2,354,642) (197,775) 62,597 (2,489,820) Total depreciable plant _ 3,0922457 {74,545) {135) 3,017,777 Total Utility Plant -Net $ 3,331,965 $ 112,816 $ (120,881) $ $ 32323,900 SMUD is planning a major renovation of its building. In 2015, the building was vacated and SMUD retired many of the .assets related to this building in the amount of $50.9 million. The retired assets were removed from Plant iri Service and recorded against Accumulated Depreciation. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS \ ' The summarized activity of SMUD 's utility plant during 2014 is presented below: Balance Transfers Balance December 31, and December 31, 2013

  • Additions Disposals Reclassifications 2014 (thousands of dollars) N ondepreciable Utility Plant:
  • Land and land rights $ 118,532 $ 9,382 $ $ $ 127,914 CWIP i35,385 197,090 (220,881) 111,594 Total utility plant 253,917 206,472 (220,881) '

Depreciable Utility Plant: Generation 1,654,315 5,079 (26,414) 1,632,980 Transmission 290,431 2,907 (418) '292,920 Distribution

  • 1,943,217 71,192 (6,490) 44,335 2,052,254
  • Investment in gas properties 206,158 40 0 -o--206,198 Investment in JPAs 14,841 (676) 14,165. Intangibles 237,314 109,101 (147) 346,268 General 888,904 24,960 (11,550) 902,314 5,235,180 213,279 (45,695) 44,335 5,447,099

\ ; Less: accumulated depreciation and depletion (2,161,032) (195,939) 52,065 (44,335) (2,349,241) Less: accumulated amortization onJPAs (5,088) (313) -0-(5,401) (2,166,120) (196,252) 52,065 (44,335) (2,354,642) Total depreciable plant 3,069,060 17,027 6,370 3,092,457 Total Utility Plant -Net $ 3,322,977 $ 223,499 $ (214,511) $ $ 3,331,965 NOTE 5. INVESTMENT IN JOINT POWERS AGENCY TANC. SMUD and fourteen other California municipal utilities are members ofTANC,. a JPA. 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 39.0 percent ofTANC's COTP _debt service and operations costs in exchange' for entitlement to approximately 536 megawatts (MW) ofTANC's l,390 MW transfer capability. Additionally; SMUD has a 48 MW share ofTANC's 300 MW firm, bi-directional transmission oyer Pacific Gas an_d Electric's (PG&E) system between PG&E's Tesla and Midway substatjons (SOT). The total entitlement shares for the COTP and SOT desc_ribed above include the long-term agreements listed below: In 2009, SMUD entered into a 15-year layoff agreement with TANC and certain members, expiring January 31, 2024. This agreement provides for the assignment of all rights and obligations of City of Palo Alto and 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 Effective July 1, 2014, an amendment provides' for the return to City of Roseville of all, rights and obligations related to the COTP entitlements, which decreased SMUD 's COTP entitlement by 13 MW Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2014, SMUD entered into a 25-year long-term layoff agreement with TANC and certain members effective July 1, 2014. This agreement 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 The long-term debt ofTANC, which totals $284.0 million (unaudited) at December 31, 2015, is collateralized by a pledge and assignme_nt of net revenues ofTANC supported by take or pay commitments of SMUD and other members. Should other members default on their obligations to TANC, SMUD would be required to make payments to cover a portion such defaulted up_ to 25 percent of its current obligation. Copies of the TANC annual financial reports may be obtained from SMUD 6201 S Street, P.O. Box 15830, Sacramento, California 95852. SMUD recorded transmissicrn expenses related to TANC of $24.5 million and $20.6 million in 2015 and 2014, _ respectively. Summa_ry financial information for TANC is presented below: I December 31, 2015 2014 (Unaudited) (Unaudited) (thousands of dollars) Total Assets $ 388,977 $ 399,873 3,262 ) 3,987 ' Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources $ 392,239 $ 403,860 / Total Liabilities $ 377,157 $ 390,574 Total Deferred Inflows of Resources Total Net Position 44 226 15,038 13,060 Total Liabilities, Inflows of Resources and Net Position $ 392,239 $ 403,860 Changes in Net Position for the Six Months Ended December 31 $ $ BANC. SMUD, City of Redding; City of Roseville, Modesto Irrigation District (MID), City of Shasta Lake, and Trinity Public Utilities District are members ofBAI-:JC, a JPA formed in 2009. In 2011, operational control -of Bl!-lanc;ing Authority (BA) operations was 1;ransferred from SMUD to BANC. BANC performs FERC approved* BA reliability functions that are managed by North American Electric Reliability Corporation (NERC), nationally, and by Western Electricity Coordinating Council functions in the west. Copies of the BANC annual financial reports may-be from SMUD at_ 6201 S Street, P.O. Box 15830, Sacramento, California 95852. SMUD recorded expenses related to BANC of$1.6 million in 2015 and $0.8 million in 2014. 2 Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary financial information for BANC is presented below: December 31, 2015 2014 (Unaudited) (Audited) (thousands of dollars) Total Assets $ 824 $ 543 Total Liabilities Total Net Position $ 824 $ 543 -0--'Total Liabilities and Net Position $ 824 $ 543 Changes in Net Position for the Year Ended December 31 $ -0_-$ -0 NOTE 6. COMPONENT UNITS . , CVFA Carson Cogeneration Project. CVFA is a JPA formed by SMUD and Sacramento Regional County Sanitation District. CVFA operates the Carson Project, a 65 MW (net) natural gas-fired cogeneration faCility and a 43 MW (net) gas-fired siilple cycle peaking plant. The revenue strear:i to pay the CVFA bonds' debt service is provided by a "take-or-pay" power purchase agreement between SMUD and CVFA. SCA Procter & Gamble Cogeneration Project. SCA is a JPA formed by SMUD and the SFA. SCA operates Procter & Gamble Project, a MW (net) natural gas-fired cogeneration facility and a 50 _MW (net) natural gas-fired simple cycle peaking plant. The revenue stzeam to pay the SCA bonds' debt service is provided by a "take-or-pay" power purchase agreement between SMUD and SCA. SFA Cosumnes Power Plant Project. SFA is a JPA formed by SMUD a:nd MID. SFA operates the Cosumnes Powe; Plant Project, a 501 MW (net) natural gas-fired, cycle facility._ The revenue stream to pay the SFA l;>onds' debt service is provided by a pO\yer purchase agreement between SMUD and SFA. SPA Campbell Soup Cogeneration Project. SPA is a JPA formed by SMUD and the SFA. SPA operates the Campbell Project, a 160 MW (net) nafural gas-fired cogeneration facility, and the McClellan Project, a 72 MW (net) natural gas-fired simple cycle peaking plant. I -. NCGA. NCGA is a JPA formed by SMUD and the SFA. NCGA has a prepaid gas contract with Morgan Stan_ley Capital Group (MSCG) expiring in 2027, which is financed primarily by NCGA revenue bonds. SMUD has contracted with NCGA to purchase all of the gas delivered by MSCG to NCGA, based on market prices. NCyA is -obligated to pay the principal and interest on the bonds. Neither SMUD nor SFA 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 w,ill be required to make a termination payment to NCGA based on the unamortized prepayment proceeds received MSCG. . ' 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 CVFA's, SCA's, SFA's, SPA's and NCGA's annual financial reports may be obtained from their Executive Office at 6201 S Street, P.O. Box 15830, Sacramento, California 95852 or on.line at SMUD.org. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ' The summarized activity of SMlJ1? 's component units for 2015 is presented below: CONDENSED STATEMENTS OF NET POSITION December 31, 2015 (thousands of dollars) CVFA SCA SFA SPA N_CGA Assets Electric Utility Plant -Net $ 53,394 $ 80,484 $ 244,251 $ 71,838-$

  • Current Assets 16,183 ' 26,373 57,170 20,190 51,507 . Noll.current Assets . 123 179 1,414 3 289,108 Total Assets 69,700 107,036 302,835 92,031 340,615 Deferred Outflows of Resources

-775 1,071 4,098 -0-Total Assets and Deferred Outflows of Resources $ 70,475 '-$ 108,i07 $ 306,933 .$ 92,031 $ 340,615 Liabilities Long-Term Debt-Net $ 20,828 $ Jl,316 $ 198,415 $ $ 292,870 Current Liabilities 10,680 14,666 . 56,363 8,831 33,524 Noncurrent Liabilities 9;071 -0--0--0-Total Liabilities 40,579 45,982 254,778 8,831 326,394 Net Position 29,896 62,125 52,155 83,200 14,221 Total Liabilities and Net Position $ 70,475 $ _ 108,107 $ 306,933 $ 92,031 $ 340,615 CONDENSED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION December 31, 2015 (thousands of dollars) CVFA SCA SFA SPA NCGA Revenues $ 35,390 $ 61,255 $ 214,564 $ 55,209 $ 38,871 Operating Expenses -33,678 54,535 197,697 54,610 25,122 Operating Income 1,712 6,720 16,867 599 13,749 NOn-Operating Revenues and Expenses Other Revenues 1 2 183 24 649 Interest Charges and Other (1,401) (1,856) (7,198) '(1,314). (13,965) ., Change in Net Position Before Distributions and Contributions 312 4,866 9,852' (691) 433 Distribution to Memoer (62,000) (6,000) (698) Member Contributions and Adjustments -0--0-28,200 102 Change in Net Position 312 4,066 (52,148) 21,509 (163) Net Position -Beginning ofYear 29,584 58,059 104,303 61,691 14,384 Net Position -End ofYear $ 29,896 $ . 62,125 $ 52,155 $ 83,200 $ 14,221 . I

  • Municipal Util!ty .District I 2015 Annual Report NOTES TO CONSPLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF CASH FLOWS December 31, 2015 (thousands of dollars) CVFA SCA SFA SPA NCGA Net Cash Provided by Operating Aetivities

$ 7,674 $ 14,269 $ 36,251 $ 8,453 $ 38,755 Net Cash Provided by (Used in) Noncapital Financing Activities . (800) (62,000) 52,105 (38,589) Net Cash Used in Capital Financing Activities ((i,675) -(9,851) (37,294) (74,998) -o:. Net Cash Provided by Investing Activities 14,861 6,581 649 " ' Net Increase (Decrease) in Cash and

  • Cash Equivalents 1,000 3,619 (48,182) (7,859) 815 Cash and_ Cash Equivalents at the Beginning of the Year 5,372 8,621 69,880 12,016 15,042 Cash Cash Equivalents at the End of the Year $ 6,372 $ *12,240 $ 21,698 $ 4,157 $ 15,857 The summarized activity of SMUD's component units for 2014 is presented below: CONDENSED STATEMENTS OF NET POSITION -December 3.1; 2014 . (thousands of dollars) CVFA SCA SFA SPA NCGA Assets Electric Utility Plant -Net* $ 57,861 $ 84,537 $ 2?3,204' $ 77,544 $' -d-. Restricted and Designated Assets -0-... 69,887 11,810 Current Assets 14,660 23,422 49,463 54,081 43,479
  • Noncurrent Assets 158 21°8 3,468 797 316,997 Total Assets 72,679 108,177 . 376,022 144,232 360,476 Deferred Outflows of Resources 1,095 1,430 . 1,597 Total Assets and Deferred Outflows of Resources

$ 73,774 $ 109,607 $ 376,022 $ ., 145,829 $ 360,476 . Liabilities Long-Term Debt-Net $ 25,563 $ 36,885 $ . 228,928 $ 35,151 $ 318,795 Current Liabilities 10,167 14,663 42,791 ,48,987 27,297 Noncurrent Liabilities 8,460 -0--0--0-Total Liabilities 44,19_0 51,548 271,719 84,138 346,092 Net Position 29,584 58,059 104,303 61,691 J 14,384 Total Liabilities and Net Position $ 73,774 $ 109,607 $ 376,022 $ 145,829 . $ 360,476 SMUD ANNUAL REPORT 2015 I Forward I Sacramenfo Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • CONDENSED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION ' 1 "--' -* Operating Reve11ues Operating*

Expenses Operating Income Non-Operating Revenues and Expenses

  • Other Revenues Interest Charges and Other . Change in Net Position Before Distributions and Contributions Distribution to Member Member Contributions and Adjustments Change in Net Position _Net Position -Beginning of Year Net Position -End ofYear $ $ December 31, 2014 (thousands of dollars) CVFA 32,983 32,035 948 1 (1,593) (644) -0-(644) 30,228 29,584 $ $ SCA 59,378 53,837 -5,541 1 (2,082) 3,460 (2,000) 1,460 56,599 . 58,059 SFA $ 231,388 206,429 24,959 151 (10,895) 14,215 . (4,500) -9,715 94,588 $ 104,303 CONDENSED.

STATEMENTS OF CASH FLOWS December 31, 2014 (thousands of dollars) CVFA SCA SFA Net' Cash Provided by Operating Activities $ 6,510 $' 11,557 $ 44,003 Net Cash Used in Noncapital Financing Activities ' .-0--c2,ooo) (4,500) Net Cash Used in Capital Financing Activities (5,8.94) (7,676) (23,206) Net Cash Provided by Investing Activities 2 \282 Net Increase (Decrease) in Cash and Cash Equivalents 617 1,883 16,579 Cash and Cash Equivalents at the Beginning of the Year 4,755 6,738 53,301 Cash and Cash Equivalents at the End of the Year $ 5,372 $ 8,621 $ 69,880 SPA $ 54,645 52,649 1,996 45 (3,744) (1,703) 29 ,905 28,202 33,489 $ 61,691 SPA $ 8,581 (11,469) 1,098 (1,790) 13,806 $ 12,016 T $ $ $ $ NCGA 37,912 22,927 14,985 621 (14,901) 705 (671) 82 116 14,268 14,384 NCGA .37,891 (38,180) 621 332 14,710 15,042 / Sa.cramento Municipal Utility District r 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. CASH, CASH EQUIVALENTS, AND INVESTMENTS ' ' Cash Equivalents and 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 which are unconditionally guaranteed by the United States (U.S.) Government or its agencies or direct and general obligations of the State.or any local agency within the State; bankers' acceptances; commercial paper; certificates of deposit; agreements; corporate notes; and taxable government and tax-exempt market . portfolios. SMUD's investment policy includes restrictions for.investments relating to maximum amounts invested as a percentage of total portfolio and with a single issuer, maximum maturities, and minimum credit ratings. Credit Risk. This is the risk that an issuer 'of an investment will not 1 fulfill its obligation to the holder of the investment. To mitigate this risk, SMUD limits investments to those.rated, at a minimum, "A-I-" or equivalent for commercial paper arid "A" or equivalent for medium-terin corporate notes by a nationally recognized rating agency. Custodial, Credit Risk. This is the risk that, in the event of the failure of a depository financial institution or counterparty to a transaction, SMUD's deposits 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 of another party. SMUD does not have a deposit policy for custodial credit risk. As of December 31, 2015 and 2014, $23 .2 million and $9. 7 million in *deposits were uninsured, respectively. The bank balance is also, per a depository pledge agreement between SMUD and SMUD's bank, collateralized at . 117 percent a'nd 132 percent of the coll{\ctive funds on deposit (increased by the amount of accrued but uncredited interest, reduced by deposits covered by FDIC) at December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, SMUD had money market deposit accounts and .mutual funds of $1 O? .3 million $161.1 million which were uninsured, respectively. SMUD's investments and money market mutual funds are held*in SMUI?'s name. Concentration of Credit Risk. This is the risk of loss attributed to the magnitude of an entity's investment in a single issuer. SMUD places no limit on the amounts invested in any one issuer for repurchase agreements and federal agency securities. The following are the concentrations of risk greater than five percent in either year: ' \ Investment Type: Federal National Mortgage Association (Fannie Mae) Federal H9me Loan Banks ' Freddie Mac, Fed\:ral Farin Credit Bank . Corporate Note -Bank of New York Corporate Note -Wells Fargo & Company December 31, 2015 2014 0% 7% 21% 23% 24% 21% 7% 7% 7% 7% 9% 7% Sacramento Municipal Utility Djstrict I 2015 Annual Report TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Risk. This is the risk of loss due to the fair value of an investment falling due to interest rates rising. Though SMUD has restrictions as to the maturities of some of the investments, it does not have a formal policy that limits investment maturities as a means of managing its to fair ':alue losses arising from increasing interest rates: The following schedules indicate the credit and interest rate risk_at December 31, 2015 and 2014. The credit ratings listed are from Standard & Poor's (S&P). (NIA is defined as not applicable to the rating disclosure requirements). At December 31, 2015, SMUD's cas_h, cash equivalents, and investments consist 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: C,ash NIA $ $ $ $ 16,681 LAIF Not Rated 119,223 '-0-119,223 Money Market Mutual Funds AAAm!NR 72,102 -0-72,102 Money Market Depo,sit Account

  • NIA 37,490. -0-37,490 Deposit at Notice NIA* 1,593 -0-1,593 Commercial Paper A-1 12,314 -0-12,314 Totll;l cash cash equivalents 259,403 -0-259,403 Investments:

Federal Farm Credit Bank AA+ 14,934 15,505 30,439 Federal Home Loan Bank AA+ 74,975 19,880 94,855 Freddie Mac AA+ 104,759 104,759 US Treasury NIA 8,197 14,945 23,142 Corporate Notes

  • AA+IAAIA+IA 66,643 176,439* Municipal Bonds AA/AA-1,500 23,745 25,245 ,, Total investments 209,402 245,477 454,879 Total cash, cash equivalents, and investments

$ 468,805 $ 245,477 $ $ 714,282 Sacramento Municipa(Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -At December 31, 2014, SMUD 's cash, cash equivalents, and investments consist of the following: SMUD's cash, cash equivalents, and investments are classified in the Consolidated Statements of Net Position as follows: Total Cash, Cash Equivalents, and Investments: Revenue bond reserve and debt service funds: Revenue bond reserve fund Debt service fund Component unit bond reserve and qebt service funds Total revenue bond reserve and debt service funds Nuclear decommissioning trust fund Rate stabilization fund Component unit other restricted funds Escrow fund Other restricted fullds Unrestricted funds Total cash, cash equivalents, and investments December 31, 2015 2014 (thousands of dollars) $ 7,395 67,545 39,291 114,231 8,292 30,251 4,228 1,200 654 _555,426 $ 714,282 ' $ 8,659 67,551 54,220 130,430 8,250 45,306 65,198 900 654 634,284 $ 885,022 Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE s. REGULATORY DEFERRALS . The Board has taken various regulatory actions that result in differences between the recognition of revenues and expenses for rate-making purposes and their treatment under generally acyounting principles for regulated entities. These actions result in regulatory assets and which.are summarized in the tables below. Changes to these balances, and their inclusion in rates, occur only at the direction of the Board. Regulatory Assets (Costs) '* Decommissioning. SMUD's regulatory-asset relating to the portion of its decommissioning liability 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* their cost basis, if an)'.: Investment Derivative Instruments are reflected in rates at contract cost and as such, the balance is charged or credited into rates as the related asset or liability is (see Note 9). 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-i). The diffyrence between surcharge revenues received and the funds spent on solar initiatives will be recognized or deferred into future years. SMUD has spent more than it has collected in SB-1 revenues and has recorded a regulatory asset. Debt Issuance Costs. SMUD established a regulatory asset for costs incurred in connection with the issuance of* debt obligations, principally underwriter fees. and legal The regulatory asset will be collected in rates over the life of the bonds. Debt issuance costs after December 31, 2013 are expensed. -Pension. SMUD establl.shed a regulatory asset for pension costs related to the implementation of GASE No. 68 which requires SMUD to record a net pension liability. Amortization of the regulatory asset will begin in 2018 as part of the next rate case.* SMUD's total* regulatory costs for future recovery are presented b_elow: Regulatory Costs: Decommissioning Derivative financial instruments Senate Bill 1 Debt Issuance Costs -Pension Total regulatory costs L_ess: regulatory costs to be recovered within one year Total regulatory costs for future recovery -net December 31, 2015 2014 (Restated) (thousands of.dollars) $ 149,192 32,787 3,217 13,300 425,680 624,176 (21,242) $ 602,934 $ 149,337 32,144 7,398 14,752 425,68,0 629,311 (20,838) $ 608,473 Sacramento.MuniCipal Utility District I 2015 A.nnual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credits CIAC. In 2015 and 2014 SMUD added CIAC totaling $16.9 million and $20.2 million, respectively, to Regulatory Credits in the Consolidated Statements ofNet Position and,recorded $10.9 million and $10.4 million of amortization, respectively, to Other Income -Net in the Consolidated 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 treatment. Thus, this regulatory credit is being amortized into rates over the depreciable lives of the related assets in order to offset the 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 inci:eases when costs exceed existing rates. At the difection of the Board, amounts*may be either transferred into this fund (which reduces revenues), or amounts are transferred out of this fund (which increases revenues). The Board authorizes Rate Stabilization Fund (RSF) transfers on an event driven basis. In 2015, $12.0 million was transferred from the RSF to revenue as a result of lower than budgeted energy deliveries from Western Area Power Administration (Western). -Hydro Rate Stabilization. The Hydro Rate Stabilization Fund (HRSE) was established through the Hydro 'Generation Adjustment (HGA) mechanism, which helps manage volatility in energy costs. The HGA mechanism applies a formula based on precipitation and wholesale electricity prices to calculate needed withdrawals from or /deposits to the HRSF. The balance of the HRSF is 5 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 to customers' bills to 4 percent. When the HRSF is fully replenished, a wet year can trigger a hydro rebate or credit on the customers' bills. In 2015, $3.l million was transferred from the HRSF to revenue as a result of below. average precipitation. In April 2015, the HRSF was depleted and a hydro rate surcharge was implemented. Assembly Bill 32. SMUD participated in the carbon allowance auctions under AB-32, the Global Warming_ .Solutions Act (see Note 2). In 2012, the Board authorized the deferral of AB-32 auction proceeds to match the revenue recognition with. the related expenses. The differenc'e between the auction proceeds received and the funds spent on AB-32 programs are deferred into future years. At December 31, 2015, all proceeds have been spent. ' . , Grant Revenues. In-2009, SMUD was awarded several large gr.ants under the ARRA, which provided large amounts of for capital expenditures. IJ.?. 2010, the Board authorized the deferral of grant income for capital expenditures as regulatory liabilities. Thus, this regulatory credit will be deferred to match the depreciable, lives of the related assets in order to offset the earnings* effect of these non-exchange transactions. TANC Operations Costs. SMUD's regulatory asset relating to deferred TANC costs comprises tlie difference between its cash payments made to TANC and its share ofTANC's accrual-based costs of operations. This regulatory asset is being collected in rates over the life ofTANC's assets during the-period that cash payments to TANC exceed TANC's accrual-based costs. SMUD's cash payments to TANC exceeded TANC's accrual-based costs and has recorded a regulatory credit. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SMUD's total regulatory credits* for future revenue recognition are presented below: Regulatory Credits: CIAC Rate stabilization Hydro rate stabilization Assembly Bill 32 Grant revenues TANC operations costs Total regulatory credits NOTE 9. DERIVATIVE FINAN.CIAL INSTRUMENTS Decen;iber 31, 2015 2014 (thousands of dollars) -$ 247,413 30,251 -0-59,949 16,208 $ 353,821 $ 241,427 42,251 3,055 5,339 / 69,172 7,687 $ 368,931 To help provide stable electric rates to meet the forecasted power needs of its retail .customers reliably, SMUD enters into various physical and financial fixed price purchase contracts for electricity and natural. gas. The.se fixed price contracts and swap ai:e intended to hedge the exposure due to highly volatile . commodity prices. SMUD also enters into interest rate swap agreements to reduce interest rate risk, or to enhance ' . the relationship between the risk and return regarding SMUD's assets or debt obligations. SMUD utilizes these derivative financial instruments to mitigate its exposure to certain market risks associated with ongoing operations. SMUD has established policies* set by an executive committee for the.use of derivative fin_ancial instruments for trading purposes. These contracts are evaluated pfu-suant 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 interesf rate and commodity risk exposures . . SMUD applies.hedge accounting for derivatives that are deemed effective hedges. Under hedge accounting, the increase or (decrease) in the fair value 0f a hedge is reported as a Deferred Inflow or Deferred Outflow on the Consolidated Statements of Net Positfon. Derivatives that do not meet the effectiveness tests are deferred for making purposes as regulatory assets or liabilities on the Consolidated Statements of Net Position (see Note 8). During 2015 and 2014, SMUD executed numerous new gas and power related purchase agreements, some of which are recorded as hedging or investment derivatives and are therefore included in the following table. All hedging or investment derivatives are recorded at fair value on the Consolidated Statements of Net For electricity and gas fair values are es.timated by comparing contract prices to forward market prices _quoted by an independe!lt external pricing service. When external quoted market prices are not available for . derivative contracts, SMUD uses an internally developed valuation model utilizing short term observable inputs. For interest rate derivatives, SMUD subscribes to a financial information service that it uses to verify fair value estimates obtained from its counterparties. / Forward I SMUD ANNUAL REPORT 2015 Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of the fair values, changes in fair and notional amounts of derivative instruments,

  • grouped by trading strategy, outstanding at December 31, 2015 (amounts inthousands; gains shown as positive amounts, losses as negative):

-2015 Changes in Fair Value Fair Value at December 31, 2015 Current Non current Current Non current Cash Flow Hedges: Amount Amount Amount Amount Notional (thousands of dollars) (thousands ofDekatherms (Dth)) Asset: Investment Derivative Gas -Transportation $ (39) $ $ $ Total Investment

  • Derivative Instruments

$-' (39) $ -$ $ Asset: Hedging *Derivative Instruments . Gas -Basis $ (237) $ (179) $ 323 $ 1,830 Dth Gas -Commodity (56) 804 1,293 Dth . Gas -Storage 3 45 233 Dth

  • Gas -Transportation

' (739) (149) 284 1,830 Dth Interest Rate (256) (2,100) 6,284 23,275 $131,030 Total Hedging Derivative Instruments $ (1,285) $ (2,428) $ 7,740 $ 23,275 Liabilify: Investment Derivative Instruments -Basis $ 331 $ $ $ Gas -Commodity (2,455) (2,976) 7,044 7,?04 10,443 Dth Interest Rate 1,840 2,657 5,535 13,003 $192,430 Total Investment' Derivative Instruments $ (284) $ (319) $ 12,579 $ 20,207 Liability: Hedging Derivative Instruments Gas -Basis $ .2,127 $ $ 163 $ 465 Dth. Gas -Commodity (15,079) (34,116) 64;449 134,422 111,609 Gas -Storage (363) 381 1,835 Dth Gas -Transportation (158) 207 1,240 Dth Total Hedging Derivative Instruments $ (13,473) $ -(34,116) $ 65,200 $ 134,422 Sacramento Municipal Utility District I 2015 Annual *Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ' The following is a summary of the fair values, cganges in fair value a:ncr notional amounts of derivative instruments,- grouped by trading strategy, outstanding at December 31, 20.14 (amounts in thousands; gains shown as positive amounts, losses as negative): 2014 Changes in Fair Value Fair Value at December 31, 2014 Current . Noncurrent <;:urrent ' Noncurrent Cash Flow Hedges: Amount Amount Amount Amount . Notional (thousands of dollars) (thousands ofDekathenns (Dth)) Asset: Investment Derivative Instruments Gas -Commodity $ (272) $ (147) $ $ Gas -Storage (7) -0--0-. Gas -Transportation 39 39 380 Dth Total Investment

  • Derivative Instruments

$ (240) $ . (147) $ 39 $ Asset: Hedging Derivative Instruments Gas--'-Basis $ 37 $ (476) $ 560 $ 179 9,860 Dth Gas -Commodity (1,115) (176) 860 893 Dth Gas Storage 21 42 528 Dth:'" Gas -Transportation 688 (826) 1,023 149, J0;955 Dth Interest Rate (485) 1477 6,540 25,375 $131,030 -Total Hedging Derivative Instruments $ (854) $' (1) $ 9,025 $* 25,703 Liability: Investment Derivative Instruments Gas -Basis $ (331) $ $ 331 $ -Q-30_0 Dth Gas -Commodity (4,552) . (3,914) 4,589 4,228 10,510 Dth Gas -Storage' 2 -0-) Interest Rate 1,649 (285) 7 375 15,660 $227,190 Total Investment Derivative Instruments $ (3,232) .$ $ 12,295 $ 19,888 Liability: Hedging Derivative Instruments Gas -Basis $ (2,290) $ $' 2,290 $ 2,140 Dth Gas -Commodity (33,552) ,(14,162) 49,370 100,306 101,268 Gas *-Storage 376 18 288 Dth Gas -Transportation (49) . 49 .-0-3,270 Dth Total. Hedging Derivative ln§truments $ (35,515) .$ (14,162) $ 51)27 $ 100,306 Sacramento Municipal Utility'_District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Objectives and Terms of Hedging Derivative The objectives and terms ofSMUD's hedging derivative iristrumehts that were outstan!iing at December 31, 2015 are summarized in the table below. The table is aggregated by trading strategy. Credit ratings of SMUD's counterparties can be found in the table under Credit Risk. Details of SMUD's interest tate derivative instruments can be found in Note 10. Notional Beginning Ending Minimum Maximum Amount Dth *Date Date Price/0th Price/0th Gas-Basis. 2,295 01/01/16 12/31/16 $ (0.82) $ (0'.25) Gas Commodity 123,345 01/01/08 12/31/22 2.82 7.17 Gas -Storage 2,068 01/01/16 12/31/16 .15 .62 Gas -Transportation 3,070 01/01/16 12/31/16 (0.19) .29

  • The objectives.and terms of SMUD's hedging derivative instruments that were outstanding at December 31, 2014 are summarized in the table below. The table is aggregated by the trading strategy.
  • Notional Beginning Ending Minimum Maximum Amou.nt Dth Date Date Price/0th Price/0th Gas-Basis 12,300 ' 01/01/15 12/31/16 $ (0.82) $ 3.39. Gas -Commodity 112,671 01/01/08 12/31/22 3.15 7.17 Gas -Storage 816 01/01/15 03/31/15 .25 .40 Gas -Transportation 14,605 01/01/15 '12/31/16 (0.36) (0.13) SMUD hedges its interest costs. The interest rate swaps are designed to synthetically fix the cash flows associated with variable rate bonds (see Note 10). SMUD hedges its power and natural gas costs so that it can offer predictable rates to its retail ele_ctric 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 emplo_yees assemble a portfolio of swaps, futures, and 'forward contracts overtime with the. goal of making SMUD's purchased power and fuel budget more predictable.

These 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. Derivatives Not Designated as Hedging Instruments Gas and Electric Contracts. SMUD utilizes certain gas swap and electric swap agreements 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 either Current or Noncurrent Assets, Investment Derivative Instruments on the Consolidated Statements of Net Position if in an asset position or Current or N oncurrent Liabilities, Investment Derivative Instruments on the Consolidated Statements of Net Position if in a liability position. An offsetting amount is inciuded in Current or N oncurrent Regulatory Costs or *Regulatory for future recovery in the Consolidated Statements of Net Position. The actual settlement payable is recorded in Accounts Payable on the Consolidated Statements of Net Position, and the actual settlement receivab_le is recorded in Receivabies -Net: Other on the Consolidated Statements of Net Position. The payments and receipts. of the actual settlement are recorded as Investment Expense in the Consolidated and Changes in Net Position. Sacramento -Municipal Utility District I 2015 Annual Report NOTES.TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Contracts. SMUD utilizes certain interest rate swap agreements not designated as hedging derivative instruments under GASB No. 53 to mitigate exposure to changes in the fair value of variable rate debt resulting from fluctuations in interest ,rates. The fair value of each agreement, excluding the balance of in!erest to be *paid or received as of the end of the period, is recorded in either Current or Assets, Investment* Derivative Instruments on the Consolidated Statements of Net Position if in an asset position or Cuirent"or Noncurrent Liabilities, Investment Derivative Instruments on the Consolidated Statements of Net Position if in a liabilify position. An offsetting amo_unt is included in Current or Noncurrent Regulatory Costs or Deferred Outflows or Inflows of Resources in the Consolidated Statements of Net Position. The interest receivable is recorded in Receivables -* Net: Other on the Statements of Net Position, and the accrued interest is recorded in Interest Payable on the Consolidated Statements of Net Position. The payments.or receipts of the actual settlement are recorded as Investment Expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. The Board has deferred recognition of the effects of reporting the fair value of Investment Derivative Instruments for rate-making purposes, and regulatory accounts to defer the accounting impact of these accounting (see "Note 8). Market values may have Qhanged significantly since December 31, 2015. Interest Rate Risk. This is the risk that changes in interest rates will adversely affect the fair values of SMUD's interest rate swaps. SMUD is exposed to interest rate risk on its interest rate swaps. --. ' Basis Risk. This is the risk that arises when a hedged item and a derivative that is attempting to hedge that item are based on different indices. SMUD is exposed to basis risk it hedges its natural gas_ purchases, which are priced at various locations, with NYMEX futures contracts, which settle based on the price in Henry Hub, Louisiana. SMUD enters into basis swaps to hedge against this risk. Termination Risk. This is _the risk that a derivative will terminate prior to its scheduled maturity due tq a contractual event. Contractual events include bankruptcy, illegality, default, cfedit events upon merg<:;r, and other events. One aspect of termination risk is that SMUD would lose the hedging benefit of a derivative 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 was a liability to SMUD, SMUD could be required to pay that amount to the counterparty. Termination risk is associated with all of SMUD's derivatives up to the fair value amounts. 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 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 agreements. Some of SMUD's derivative 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 were 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 were to decrease below investment grade, SMUD's unsecured credit thresholds would be reduced to zero, and counterparties to the derivative would demand ongoing full collateralization on derivative instruments in net out of the money positions (see Note 2).

Sacramento Municipal Utility District_!

2015 Annual Report N_OTES TO FINANCIAL STATEMENTS _The counterparties' current credit rating at December 31, 2015 is shown _in the table. below. The credit ratings listed are from S&P or Moody's: --Counterparty Gas Contracts: Barclays Bank PLC Bank of Montreal Cargill Inc. Citigroup Inc. J.P. Morgan Ventures Energy Corp. Macquarie Bank Limited Merrill Lynch Morgan Stanley Capital Group, Inc. ' Interest Rate Contracts: Goldman Sachs Capital Markets, L.P. Goldman Sachs Mitsui Marine Derivative Products L.P. Morgan Stanley Capitai Services, Inc. NOTE 10. DEBT SMUD's total long-tetm-debt is presented below: Electric revenue bonds, 3.0%-6.32%, 2016-2041 Subordinated electric revenue bonds, index rafes, 2016-2041 Total electric revenue bonds Component unit project revenue bonds, 2.0%-5.25%, 2016-2030 Gas supply prepayment index rates, 2016-'-2027 Total debt outstanding

  • Bond premiums -net Total long-term debt_

due within one year Total long-term -net -Counterparty Credit Rating -A+ A BBB+ A-A Baal BBB+ BBB+ AA+ BBB+ December 31, 2015 2014

  • or dollars) $ 1,786,080 344,850 253,375 3i8,795 2,703,100 123,080 2,8_26, 180 -(152,060)

$ 2',674,120 $ 1,873,105 347;850 2,220,955 ' 373,670 ' -342,480 2,937,105 115,026 3,052,13_1 (170,430) $ 2,881,701 Sacramento Municipal Utility District 1"2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The sunum!rized activity of SMUD's long-term debt during 2015 is presented below: Amounts December 31, Payments or December 31, Due Within 2014 Additions Amortization 2015 One Year (thousands of dollars) Erectric revenue bonds $1,873,105 $ $ (87,025) $ 1,786,080

  • $ 90,685 Subordinate electric revenue bonds (3,000) 344,850 3,000 Component unit project revenue bonds 373,670 193,335 '(313,630) 253,375 32,450. Gas suppl)' prepayment bonds 342,480 . (23,685) 318,795 25,925 Total 2,937,105 193,335 (427,340) 2,703,100

$ 152,060 Unamortized -net 115:026 30,373 (22,319) 123,080 Total long-term debt $3,052,131 . $ 223,708 $ ,(449,659) $ 2,826,180 The summarized activity of long-term debt _during 2014is presented below: 'Amounts *December 31, ' Payments or December 31, Due Within 2013 Additions Amortization 2014 One Year (thousands of dollars) Electric revenue bonds $1,971,390 $ $ (98,285) $ 1,873,105- $ 87,025 Subordinate eiectric revenue bonds 347,850 -0-347,850 3,000 Component unit project revenue bonds 399,295 (25,625) 373,670 56,720 Gas supply prepayment bonds 364,860' (22,380) 342,480 23,685 Total 3,083,395 (146,290) 2,937,105 $ 170,430 Unamortized premiums -'-net 130,007 (14,981) 115,026 Total l,ong-term debt $3,213,402 $ -$ (161,271) $ 3,052,131 At December 31, 2015 scheduled annual,principal maturities and interest are as follows: , Principal Interest Total (thousands of dollars) 2016 $ 152,060 $ 119,671 $ 271,731* 201,7 160,5.85 ll2,541 273,126 2018 150,QlO 105,421 255,431 2019 155,345 100,062 255,407 2020 139,445 . ' 93,896 233,341

  • 2021 -2025 (combined) 719,755 382,713 1,102,468 2026 -2030 (combined) 565,175 232,726 797,901 ' 2031 -203 5 (combined) 424,135 118,388 542,523 2036-2040 (combined) 206,955 22,950 229,905 2041 29,635 1,155 30,790 Total Requirements

$2,703,100 $ 1,289,523 $ 3,992,623 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 rate of .01 percent in effect at December 31, 2015 for the issues.

  • Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following bonds h_ave been issued and are outstanding at December 31, 2015: Final Interest Original Outstanding Date Issue Maturity Rate Amount Amount Electric Revenue Bonds 06/15/1997 1997 Series K Bonds 07/01/2024 5.25%-5.9%

$ 131,030,000 $ 131,030,00_0 06/09/2008 2008 Series U Bonds 08115/2028 . 3.0%-5.0% . 521,730,000 . 431,780,000 05/15/2009 2009 Series V Bonds 05/15/2036 6.322% 200,000,000 200,000,000 07/29/2010 2010 Series W Bonds 05/15/2036 6.156% 250,000,000 250,000,000 10/04/2011 2011 Series X Bonds 08/15/2028 1.5%-5.0% 325,550,000 30:2,555,000 05/31/2012 2012 Series Y Bonds 08/15/2033 3.0%-5.0% 196,945,000 193,200,QOO 05/21/2013 2013 Series A Bonds OS/15/2041 3.75%-5.0% 132,020,000* 132,020,000 05/21/2013 2013 Series B Bonds 08/15/2033 3.0%-5.0% 118,615,000 118,615,000 08/20/201-3 2013 Series C Bonds 08/15/2017 . . 5.0% 57,780,000 26,880,000 JPA Electric Revenue Bonds 08/19/2009 2009 CVFA Bonds 07/01/2020 2.25% -5.25%. $ 48,920,000 $ 24,790,000 08/19/2009 2009 SCA Bonds 07/01/2021 4.0%-5.25% 57,530,000 35,250,000 06/03/2015 . 2015 SFA Bonds ,07/01/2030 2.0%-:-5.0% 193,335,000 . 193,335,000 05/31/2007 2007B NCGA#l Bonds 07/01/2027 Index Rate 668,470,000 318,795,000 Subordinated Electric Revenue Bonds 08/14/2008 2008 Series J Bonds 08/15/2028 Index Rate $ 120,000,000 $ 120,000,000 08/14/2008 2008 Series K Bonds 08/15/2028 Index Rate 77,850,000 77,850,000 02/29/2012 2012 Series L Bonds 08/15/2041 Index.Rate 75,000,000 73,500,000 . 02/29/2012 2012 Series M Bonds 0_8/15/2041 Index Rate 75,000,000 73,500,000 2015 Bond Refunding. In June'2015, SFA issued $193.3 million of 2015 Series Cosumnes Project Revenue . Refunding.Bonds. Proceeds from the 20,i5 Series Bonds and $24.8 million of available funds were used to refund $233.2 million of the outstanding 2006 Series Bonds through a legal defeasance, and accordingly, the liability for the defeased bonds has been removed from Long-Term Debt irt the Statements of Net Position. The refunding resulted in the recognition of a deferred accounting loss of $4.4 million, which is being amortized over the life of the refunding issue, and a current"period loss*of$0.03 million which is included iri Interest on Debt in the Statement of Revenues, Expenses, and Changes in Net Assets. The 2015 refunding reduced future aggregate debt . service payments by $46.7 million' and resulted in a total economic gain of $35.5 million; which is the difference between the present value of the old and new debt service payments. ' 2015 Bond Redeynptions. In January and July 2015, SPA redeemed million and the remaining $33.8 million of 2005 Series Bonds maturing July 2016 through July 2022, along with the accrued interest, respectively. The redemptions resulted in a current accounting loss of $0.2 million, which is included in Interest on Debt in the Statements of Revenues, Expenses; arid Changes in Net Position.

  • 2014 Bond Redemption.

In December 2014, SMUD redeemed $8.7 million of2004 Series T Electric Revenue Refunding Bonds. The redemption resulted in a _current accounting gain of $23 thousand, which is included in Interest on Debt in the Consolidated Statements of Revenues, Expenses, and Changes in Net Position. Redeeming the bonds will reduce the aggr:egate future s:Iebt service payments by $11.0 million.

  • SMUD ANNUAL REPORT 2015 I I

Sacramento Municipal Utility Distdct I 2015 Annual Report NOTES Td CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Swap ;\greements. A summary of SMUD's three interest rate swap agreements 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 $ 131,030 Variable 5.154% SIFMA 07/01/24 BBB+ 86,555 Fixed 4.345% 70% ofLIBOR 08/15/18 AA+ 105,875 Fixed 2.894% 63% ofLIBOR 08/15/28 BBB+ , . . SMUD has a fixed-to-variable interest rate swap agreement with a notional amount of $131.0 million, which is equivalent to the principal amount of SMUD's 1997 Series K Electric Revenue Bonds. Under this swap agreement, SMUD pays a variable rate equivalent to the SIFMA Index (0.01 percent at December 31, 2015) and receives fixed rate payments of 5 .154 percent. In connection with the swap SMUD has a put option agreement, also with a notional amount of $131.0 million, which g!ves the counterparty the right to sell to SMUD, at par, either the 1997 Series K Bonds, or a portfolio of securities svfficient to defease the 1997 Series K Bonds. The exercise of the option terminates the swap at no cost to SMUD. The term of both the swap and the put is equal to the maturity of the 1997 Series K Bonds. *Additional!y, has two variable-to-fixed interest rate swap agreements with a combined notional amount of .$192.4 million originally entered into for the purpose of fixing the interest rate associated with certain of its subordinated bonds that were refunded during The notional values of the two swaps are *amortized over the . life of the respective swap agreements. SMUD can terminate all swap agreements at any time, with payment or receipt of the fair market value of the swaps as of the date of termination. The obligations of SMUD under the swap agreements are not secured by a pledge of of SMUD 's electric system or any other property of SMUD. Component Unit Interest Rate s*wap Agreements. NCGA has three interest rate swap agreements, which are summarized as follows. The credit ratings listed are from S&P: Credit Support Notional Provider Amount NCGA Fixed Floating Termination Credit (thousands) Pays Rate Rate Date , Rating $ 54,320 Fixed 4.062% 67% of LIB OR +.60% 07/01117 BBB+ 65,865 Fixed 4.144% 67% ofLIBOR +.63% 07/01/19 BBB+ 198,610 Fixed 4.304% 67% of.LIBOR +.72% 07/01/27 -BBB+ At December 31, 2015 NCGA has three variable-to-fixed interest rate swap agreements with a counterparty for the purpose of fixing the effective interest rate associated with the 2007 Series B Bonds. NCGA pays the counterparty a fixed rate on the notional amount and receives a floating rate equal to 67 percent of three month LIBOR (0.61 percent at December 31, 2015) plus an interest rate spread, as specified in each swap agreement*. The total notional amount of the three swaps at December 31, 2015 was $318.8 millipn and was equivalent to the outstanding principal balance,on the NCGA Bonds. The swaps are amortized over the life of their respective swap agreements in a manner corresponding_ to the prinCipal repayment schedule of the NCGA Bonds. Early termination of the swaps would occur upon termination of the prepaid _agreement for any reason. Upon early termination, the swaps would have no value to either party . . Subordinated Electric Revenue Bonds. Payment of and interest on the Subordinated Electric Revenue Bonds is subordinate to the payment of the principal and interest on SMUD's Electric Revenue Bonds. / I Forward I SMUD ANNUAL REPORT 2015 Sacramento Municipal Utility District I 2015 Annual Repo*rt NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Variable Rate Bonds. SMUD's Variable *Rate Bonds bear interest at weekly rates, .01 percent at December 31, 2015. SMUD can elect to change the rate period or fix the interest rate, with certain. lirpitations. SMUD's Variable Rate Bonds can be put to SMUD's Trustee by the bondholders; however, ifthe bonds 9an't be: remarketed, SMUD has in place reimbursement agreements with Bank of America, State Street, and US Bank to enable'SMUD to pay off the bonds over five years. Accordingly, SMUD has recorded such bonds as Long-Term Debt, less

  • amounts scheduled for redemption within one year. Component Unit Bonds. The component units of SMUD have each issued bonds to finance their respective projects.

The revenue stream to pay CVFA, SCA, and SFA bonds' debt service is provided by "take-or-pay" power purchase agreements, and is therefore not dependent. on the successful _operation of the proje<;:ts. SMUD guarantees to inake payments sufficient to pay and interest and all other payments required to be.made under the CVFA, SCA, and SFA's indenture of trust. CVFA, SCA, and SFA are not required to repay SMUD for any amounts paid under thjs guarantee. The revenue stream to pay NCGA bonds' debt service is provided by a

  • purchase agreement Therefore, principal and interest associated with these are paid solely from the revenues and receipts collected in connection with the operation of the project. Most operating revenues earned by NCGA are collected from SMUD in connection with the sale of gas to SMUD. The ability for NCGA to service debt is dependent_

on various parties (partfoularly MSCG, as gas supplier) meeting their contractual obligations. Callable SMUD has $794.9 million of Revenue Bonds that are currently $450.0 million

  • of which are fixed rate Build America Bonds debt and $344,9 million of subordinate Variable Rate Demand Notes. SMUD also has $860.8 million of bonds that bec9me callable from 2018 through 2024, and bonds can be called until maturity.

Collateral. The principal and intere-st 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 paymellt of the bonds and the general fund of SMuD is not liable for the payment thereof. Covenants. SMUD's bond resolutfons contain various covenants that)nclude requirements to .11_?.aintain minimum debt service coverage ratios, certain other financial ratios, stipulated.minimum funding bond reserves, . and various other requirements including a rate covenant to raise rates to maintain minimum debt service coverage. ,, SMUD has pledged future net electric revenues, component unit net project revenues, and net gas supply prepayment revenues to repay, in electric revenue, componeti.t unit project revenue, and gas supply prepayment revenue*bonds issued from 1997 through 2015. from the bonds provided financing for various capital improvement projects, component unit capital projects, and the prepayment of a twenty-year supply of gas. The bonds are payable solely from the net revenues generated by SMUD's electrical

sales, unit revenues, arid gas supply prepayment revenues and are payable through 2041 at December 31, 2015 .. 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: Pledged future revenues Principal and interest payments for the year ended Total revenues for the year ended Total remaining principal and interest to be paid Annual principal.and interest payments as a percent of net revenues For the year ended December 31, 2015 2014 (thousands of dollars) *$ 2,703,100 . $ 2,937,105 $ 255,471 $ 271,373 $ 814,911 $ 834,442 $ 3,992,623 $ 4,390,382 31% 33% . '""°ANN"" mon "" I Forna<d I Sacramento.Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. COMMERCIAL PAPER NOTES ,. SMUD issues Commercial Paper Notes (Notes) to finance or reimburse capital expenditures. At December 31, 2015 and 2014 Notes outstanding totaled $200.0 million. The interest rate for the Notes outstanding at December 31, 2015 \ . -was .03 percent and the average term was 49 days. SMUD has a $204.9 million letter of credit agreement, and there have not been any advances under it. The summarized activity of SMUD's Notes during 2015 and 2014 is presented below: December 31, 2015. D.ecember 31, 2014 Balance at Beginning of Year $ 200,000 $ 200,000 NOTE 12. RANCHO SECO DECOMMISSIONING LIABILITY $ $ Additions Reductions (thousands of dollars) $ -0-$ . Balance at End of Year $ 200,000 $ 200,000 Backgrounq. The Rancho Seco decommissioning liability relates to the nuclear decommissioning of the former 913 MW nuclear power plant, which tefllJ.inated commercial operations in 1989 and the separately licensed Independent Spent Fuel Storage Facility (ISFSI). Nuclear decommissioning is the process of safely removing nuclear facilities from service and reducing res.idual radioactivity to a level that termination of the Nuclear . Regulatory Commission (NRC) license, and release of the property for unrestricted use. The NRC has SMUD's decommissioning plan for the nuclear power plant, whicJ;i. delineates a phased process, and the first phase of physical work was completed in 2008. Decommissioning ofthe'-ISFSI will occur after the DOE removes the spent nuclear fuel and high level waste from the site. In 2009, the NRC released all of the land formerly under the Part 50 li?ense for unrestricted with the excepti9n of the 1 acre fenced area around the Interim Onsite Storage Building that was previously used to store low-level radioactive waste produced during the decommissioning Gf the nuclear reactor facility. This waste was disposed of in 2014. The decommissioning of that remaining facility began in 2015 and when will result in termination of the former operating license issued under Part 5 0. The under the Nuclear Waste Policy Act of 1?82, is for permanent disposal of spent nuclear fuel and high-level radioactive waste which are currently in storage at the ISFSI..SMUD has a contract w_ith the DOE. for the removal and disposal of spent nuclear fuel and high-level than class "C": GTCC) radioactive waste. All of SMUD's spent fuel and GTCC waste are currently stored in sealed canisters in the ISFSI. However, the date when fuel and GTCC waste removal will be complete is uncertain. In 2010, the DOE formally withdrew the application for licensing ofYucca Mountain as a high-level waste repository, essentially rempving y-ucca Mountain as an option for disposal ofSMUD'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 provided a final report on alternatives in January 2012. The DOE the recommendations and published the report "Strategy-for the Management and Disposal of Used _Nuclear Fuel and High-Level Radioactive Waste'" in January 2013. 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, there is no credible information available to determine when the DOE would remove the used* nuclear fuel from the Rancho Seco facility. The ISFSI will remain under the regulation of the NRC until the nuclear fuel and GTCC radioactive_ waste are removed and the site is decommissioned. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset Retirement Obligations (ARO). These financial statements reflect SMUD's current estimate of its obligation for the cost of (including the cost of managing the Storage Facility until it can be decomillissioned) under the ofFASB ASC 410, based on studies completed each year. Each year, SMUD evaluates the estimate of costs. of decommissioning and there was a decrease in costs in the 2015 study. The ARO estimate assumes all spent nuclear fuel will be remo_ved from the site by 2035. Rancho Seco's ARO is presented below: December 31, 2015 2014 (thousands of dollars) Active decommissioning $ 15,696 $ 16,067 Spent fuel management 134,676 ' 136,010 TotarARo $ 150,372 $ 152,077 Less: current portion . (8,822) (7,879} Total portion of ARO $ 141,550 $ i44,198 The summarized of the Rancho Seco ARO during 2015 and 2014 are presented below. The annual

  • adjustments include a savings computed as the difference between the fai! value of the obligation as if the decommissioning activities were performed by a third party and the amount actually incurred by SMUD performing the ,decommissioning ARO at beginning of year Accretion Expenditures Change in Study Annual adjustments ARO at*end of year* NOTE 13. PENSION PLf\NS-* December 31, 2015 2014 of dollars) $ 152,077 7,510 (1,408) (1,108) (699) $ 150,372 $ 169,124 8,291 (27,587) (399) 2,648 $ 152,077 Summary pf Significant Accounting For purposes of .net pension liability, deferred outflows of resources and deferred inflows of resourc.es related to pensions, and' pension expense, information about the fiduciary_net positiOn of the pension plan (Plan) and additions to/deductions from the Plan's fiduciarinet 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 :ecognized when currently due and payable in accordance with the benefit terms. Investments ,at fai)'." value.* GASB No. 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes.

The following timeframes are used for the year ended: Valuation date Measurement date December 31, 2015 2014 (thousands of dollars) June 30, 2014 June 30, 2015 June 30, 2013 June 30, 2014 Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan Description and Benefits Provided. SMUD_ participates in PERS, an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. 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 pian 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, assumptions (for funding, but not accounting P1:1rposes), and membership information are included in the annual actuarial valuation reports as of 30, 2014 and June 30, 2013. These reports and the PERS' audited financial 'statements are publicly available and can be obtained at tht< PERS' website at www.calRers.ca.gov. Employees Covered by Benefit Terms. The following employees were covered by the_ benefit terms for the year ended: December 31, 1* '\ . Inactive employees or beneficiaries currently receiving benefit payments Inactive employees entitled to but not yet receiving benefit payments Active employees 2015 2014 of dollarn) 2,657 940 1 974 5,571' 2,580 955 1,945 5,480 Contributions. Section 20814(c) of the California Public 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 following notice ofa change in the rate. The total plan contributions are determined through PERS' annual actuarial va:luation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount-to finance accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the PERS fiscal year ended June 30, and 2014, the average active emplgyee contribution rate is 6.9 percent of annual pay, and the employer's contribution rate is 12.0 percent and 10.9 percent of annual payroll, respectively. Employer contribution rates may change if plari contracts are amended. For the year ended December 31, 2015 and 2014, SMUD made contributions recognized by the pension plan in the amount of $30.5 million and $31.4 which includes $8.0 and $9.9 million of employer paid employee contributions,-respectively. ' Net Pension Liability. SMUD's NPL at December 31, 2015 and 2014 was measured at June 30, 2015 and 2014,

  • respectively.

The total pension liability used to. calculate the NP& was determined by actuarial valuations as of June 30, 2014 and 2013 rolled forward using generally accepted actuarial procedures to the June 30, 2ol5 and 2014 measurement dates. ' Sacramento Municipal Utility District I 2015 Annual Report *NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Actuarial Methods and Assumptions. The act.uarial methods and assumptions used *for the December 31, 2015 and December 31, 2014 total pension liabilities are as follows: ' Actuarial Cost Method Entry age.normal Discount rate 'Z.65% (2015), 7.5% (2014) Inflation 2.75% Salary increases Varies by entry age and service Investment rate of return 7.65%, net of pension plan investment; includes inflation (2015) 7.5%, net of pension plan investment and administrative expenses; includes infla!ion (2014) Mortality Rate Table The mortalify table used W!lS developed based on PERS' specific data. The table includes 20 years of mortaiity improvements using Sodety of Actuaries Scale BB. Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchase Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter . ' All other assumptions used for both years were based on the results of an actuarial experience study for the_period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. Discount Rates. The discount rates used to measure the total pension liability for the year ended December 31, 2015 apd 2014 was 7.65 percent and 7.5 percent, respectively. To determine whether the municipal bond rate should be used in the calculation discount rate for each plan, PERS stress tested plans that would most likely result in a discount rate that be different from the actuarially assumed discount rate. Based on the testing, none of the tested run out of assets. Therefore, the 7.65 percent and 7.5 percent discount rates used for the respective valuations are adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rates of 7 .65 percent and 7.5 percent for the respective valuations are to all plans in the Public Employees Retirement Fund. J['he long-term-expected rate ofreturn on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future, real rates of return (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 term (11-60 years) using a building-block approach. The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the .capital market assumptions applied to* determine the discount rate asset allocation. The target allocation shown below was adopted by the PERS' Board effecti\re on July 1, 2014. Current Target Real Return

  • Real Return Asset Class. Allocation Years 1-10 Years 11+ Global Equity 51.0% 5.25% 5:71% Global Fixed Iricome 19.0% .99% 2.43% Inflation Sensitive 6.0% .45% 3.36% Private Equity 10.0% '6.83% 6.95% Real Estate 10.0% 4.5%. 5.13% Infrastructure and Forestland 2.0% 4.5% 5.09% Liquidity 2.0% (.55%) (1.05%)

Sacramento Municipal Utility District I 2015 Annual Report NOTES TO .CONSOLIDATED FINANCIAL STATEMENTS Changes in NPL. The following table shows the changes in NPL recognized

  • over the year ended December 31, 2015: Increase Total Pension * (Decrease)

Net Pension Liability Plan Fiduciary Liability (a) Net Position (b) (a)-(b) (thousands of dollars) Balance .at December 31, 2014 $ 1,940,486 .. $ 1,613;784 $ 326,702 recognized for the measurement period:* Service cost* I 27,991 Interest 142,468 *-0-142,468 Differences between expected and actual experience (10,613) (10,613) Changes of assumptions (34,228) (34,228) Contributions -employer 30,481 (30,481) Contributions -employee :. 6,521 (6,521) :Net investment income 35,797 -(35,797) Benefit payments (94,636) . (94,636) *Administrative expense (1,795) 1!795 Other (25) 25 :Net changes 30,982 (23,657) 54,639 Balances at December 31, 2015 $ 1,971,468 $ 1,590,127 $ 381,341 The following table shows the changes in :NPL recognized over the year ended December 3_1, 2014: *Increase Total Pension (Decrease) Net Pension 'Liability Plan Fiduciary Liability (a) Net Position (b) (a)-(b) _ (thousands of dollars) Balance at December 31, 2013 $ 1,864,945 $ 1,423,471 $ 441,474 Changes recognized for the measurement period: Service cost 28,170 -O-* 28,170 Interest 137,546 137,546 Contributions -employer 31,366 (31,366) Contributions -einployee 5,491 (5,491) :Net investment income 245,659 (245,659) Benefit payments , (90,175) (90,175) Administrative expense (2,028) 2 028 :Net changes 75 541 190,313 (114,772) Balances at December 31, 2014 $ $ 1,613,784 $ 326,702 Sacramento Mun_icipal Utility Distri:ct I 2015 Annual Report . . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sensitivity of the NPL to Changes in the Discount Rate. The presents the NPL of the Plan as of the :ment date, calculated using the current discolint 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 current discount rate: 1% Decrease Current Discount 1% Increase (6.65%) Rate (7 .65%) (8.65%) (thousands.of dollars) Plan's NPL, December 31, 2015 $ 638,876 -$ 381,341 $ 167,583 1% Decrease Current Discount 1% Increase (6.5%) Rate (7.5%) (8.5%) (thousands of dollars) Plan's NPL, December 31, 2014 $' 572,793 . $ 326,7Q3 $ t 121,406 Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary position is available in the separately issued Plan financial statements: . . Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. For the year ended December 31, 2015 and 2014, SMuD recognized pension expense of $21.4 million and $27. 7 million, ' ' respectively. . At December 31, 2015 and December 31, 2014, SMUD reported deferred outflows ofresources and deferred inflows of resources related to pensions from the following sources: Deferred outflows of resources Employer's to the Plan subsequent to the measurement of total pension liability Total deferred outflows or resoµrces Deferred inflows of resources Differences between expected and actual experience Changes in assumptions Differences.between.projected and on pension plan investments . Total deferred inflows of resources $ $ $ $ t December 31, 2015 2014 (thousands of dollars) 31)03 $ 27,269 31,303 $ 27,269 $ (24,448) (15,551) {111,405) {47,579) $ {111,405) Amounts reported as deferred outflows of resources and deferred inflows of related to pensions will be recognized in pension expense as follows: Year ended December 31: 2016 2017 2018 2019 2020 Thereafter / $ 7,641 (23,662) ' 17,001 -0-SMUD ANNUAL REPORT 2015 I Forward Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . Other Plans. SMUD provides its employees with two cash deferred compensation plans: one pursuant to Internal Revenue Code (IRC) 40l(k) [401(k) Plan] and one pursuant to IRC Sectjon 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

ire 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 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 Plans' asset values. SMUD employees are responsible for determining how th,eir funds are to be ' . . invested and pay all ongoing fees related to the Plans. The Plans are currently not subject to discrimination testi_?g, nor the requirements of the Employee Retirement Income Security Act of 1974. SMUD employees participating in the Plans are allowed to contribute a pqrtion of their gross tncome 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 with both of its 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$3.5 in 2015 and $2.9 million in 2014. SMUD does not match employee contributions, nor make contributions on behalf of its employees to the 457 Plan. Participating employees made contributions into both Plans t9taling $185 million in 2015 and $16.8 million in 2014. NOTE 14. OTHER POSTEMPLOYMENT BENEFITS SMUD provides postemployment healthcare benefits, in accordance with SMUD'policy and negotiated agreements . . . with employee representation groups in a single employer defined benefit plan, to _all who retire from SMUD, and their SMuD also provides postemployment healthcare benefits to covered employees.who are eligible for disability retirement. SMUD contributes the full cost of coverage for retirees hired before Jan\lary 1, 1991, and a portion of the cost based on credited years of service for retirees hired after Janu_ary 1, 1991. SMUD also contributes a portion of the costs of coverage for these retirees' dependents. Retirees are required to contribute the portion that is not paid by S_MUD. The benefits, benefit levels, retiree contributions and employer contributions are governed by SMUD and can be amended by SMUD through its personnel manual_ and union contracts. At June 30, 2015, 4,962 posteinployment participants, including retirees, spouses ofretirees, surviving and eligible dependents, were eligible to participate in SMUP's healthcare benefits OPEB arises from an exchange of salaries-and benefits for employee services rendered, and refers to

  • postemployment benefits other than pension benefits such as postemployment healthcare SMUD
  • considers the following benefits to-be OPEB: Medical, Dental and Long-Term Disability.

Plan Description. SMUD is a member of the California Employers Retiree Benefit Trust (CERBT) for prefunding of OPEB obligations. The CERBT Fund is. an IRC Section 115 Trust set up for the purpose of receiving employer contributions to prefund health and other.postemployment benefits for retirees and their beneficiaries. The plan _is an agent multiple employer plan administered by PERS, which provides medical, dental and long-term disability benefits for retirees and thefr beneficiaries. Any changes to these benefits would be approved by SMUD's Board and union To obtain a CERBT report, please contact PERS at 888-CALPERS . . , Sacramento Municipal Utility District I 2015 Annual Report NOTES To-CONSOLIDATED FINANCIAL STATEMENTS ' ' The funding; of a plan occurs when the following events take place: the employer makes payments of.benefits directly to or on pehalf of a retiree or beneficiary; the employer makes premium payments to an insurer; or the_ employer irrevocably transfers assets to a trust or other third party acting in the role of trustee, where the plan assets

  • are dedicated to the sole purpose of the payments *of the plan benefits, and creditors of the government ao not have access to those assets. Funding Policy. SMUD has elected to net fund to PERS, so the contributions are the Annual Required Contribution (ARC) less the estimated cash flow for retiree benefit costs for each year. SMUD ca_n elect to put in additional contributions into the trust, and in 2015 and 2014 funded an additional

$22.0 million and $40.0 million to the_ . CERBT, respectively. In 2015 and 2014, the net ARC contribution to the CERBT was $6.6 million and $6.8 million, respectiyely. During 2015 -and 201{ SMUD made healthcare benefit contributions by paying 'actual medical costs of $17.4 million and $23. 6 million, Funding Status and Funding Progress. At June 30, 2015 and 2014, SMUD estimates that the actuarially determined accumulated postemplbyment benefit obligation was approx}mately $319 .4 million and $505. i'million, . respectively. At June 30, 2015 and 2014, the pfan was 55.2 and 25.6 percent funded, respectively. The covered payroll (annual payroll of active employees covered by the plan) at June 30, 2015 and 2014, was $191.4 million and $187.2 million, respectively.The ratio of the UAAL to covered payroll was 74.8 percent at June 30, 2015. Annual OPEB Cost. The annual OPEB cost (expense) is calculated l;>ased on the ARC of the employer, an amount . actuarially determined in accordance with the of SGAS No." 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions." The ARC -represents level of funding that, . . I if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any .unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. For 2015, SMUD's annual OPEB Cost (expense) was $27.7 million. -The following table shows the components of SMUD's annual OPEB for the year, the amount actually paid in premiums, and changes in the net OPEB obligation: Year Ended December 31, *201s . 2014 (thousands of dollars) Annual required contribution ( $ 28,815 $ 29,833 Interest on net OPEB obligation (5,720) (2,704) Annual required contribution adjll;stment 4,595 - Annual OPEB

  • 27,690 29,380 Contributions made (46,047) (70,361) Increase/(Decrease) in'net OPEB obligation*

(18,357) (40,981) Net OPEB (asset), beginning o{year (77,723) (36,742) *-Net OPEB (asset), end of year $ (96,080) $ (77,723) SMUD's Net OPEB Obligation (asset) is recorded as a component of Prepayments and other on the CoJ].solidated Statements of Net Position. ' Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SMUD's arl:nual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the two precedfog years is as follows: Percentage of Annual Net OPEB Year Ending Annual OPEB Cost

  • OPEB Cost Contributed (Asset) (thousands of dollars) December 31, 2015 $27,690 166% $(96,080)

December 31, 2014 $29,380 239% $(77,723) December 31, 2013 '$29,147. 106%' .$(36,742) . . Actuarial Methods anq Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members)and include the types of benefits provided at the tin;ie of each valuation and the historical pattern of sharing the benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed _to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. . . The entry.age normal was in the June 30, 2015 and 2014 actuarial valuation. The actuarial assumptions used for the June 30, 2015 and 2014 valuations were 7.25 percent an4 7.36 investnlent rate, ofreturn (net ofadrnini_strative expenses), respectively, and a 3.0 percent inflation assumption for both years. The actuarial assumptions for an -annual cost trend growth rate for 2015 and 2016 was based on actual premiums and ranged from 7 .0 to 7.2 percent for 2017. The UAAL will be as a percentage of payroll over: a closed 30-year period. At June 30, 2015 and.2014 the actuarial value,of the assefs was $176.2 and $129.5 million, respectively. valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the propability of occurrei;ice of events far into tlie future. Examples include assumpti,:ms about future employment, mortality and the healthcare cost trends. Amounts determined regarding the funded stattis of the plan and the ARC of the employer.are subject to continual revision as actual results are compared with past ef(.pectations and new estimates are made about the future. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents mul'tiyear trend information that shows whether the actuarial va!ue of plan assets is increasing or decreasing over time relative to the actuarial accrued Jiabilities for benefits. ) NOTE 15. INSURANCE PROGRAMS AND CLAIMS SMUD is exposed to various risks of loss related to torts, theft of and destruction to assets, errors and omissions, and natural disasters. In addition, SMUD is exposed to of_loss due to injuries to, and illnesses of, its employees. SMUD carries commercial insurance coverage to cover most claims in excess of specific dollar thresholds, which range*from $5 thousand to $2.5 million per claim with total excess liability insurance coverage limits for most claims of$140.0million. SMDD's property insurance coverage is b.ased on the replacement value of the asset. There have been no significant reductio_ns in insurance coverage, and in some cases, certain coverages increased. In 2015, 2014 and 2013, the policies in. effect have adequately covered 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 a component of Self Insurance, Unearned Revenue and Other in the Consolidated. Statements of Net Position.

,,. Sacramento Municipal Utility District I 2015 Annual Report NO.JES TO* CONSOUDATED FINANCIAL STATEMENTS SMUD 's daims liability, comprising claims received and claims incurred but not reported, at December 31, 2015, 2014 and 2013 is presented below: Workers'. compensation claims General and auto claims -Short and long-term disability claims Claims liability $ $ 2015 10,983 698 343 12,024 2014 ' (thousands of dollars) $ 11,220 825 121 $ 12,166 2013 $ 11,291 669 391 $ 12,351 Changes in SMUD's total* claims liability during 2015, 2014, W13 are presented below: Claims liability, beginriing of year Add: provision for claims, current year 'Increase in provision for claims in prior years Less: payments on claims attributable to current and prior years Cfaims liability, end of year NOTE 16. COMMITMENTS 2015 $ 12,166 1,827 2,782 (4,751) $ 12,024 (thousands of dollars) $ 12,351 2,122 2,930 (5,237) $ 12,166 2013 $ 10,093 4,105 3,433 {5,280) $ 12,351 Electric Power and Gas Supply Purchase Agreements. SMUD has numerous power purchase agreements with other power producers to purch'!se capacity, transmission, and energy to supply a portion of its load requirei:;nents. 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_agreements with Canadian and U.S. companies supply a*poftion: of the consumption needs of SMUD's natural gas-fired power plants, which ep.pire through 2040. At December 31, 2015, the approximate minimum obligations for the "take-or-pay" contracts over the _next five years are as follows: Electric Gas (thousands of dollars) 2016 $ 36,901 $ 14,846 2017 36,392 15,074 2018 35,383 15,382 2019 35,607 15,714 202'0 33,847 16,088 At December 31, 2015, the approximate minimum obligations for the remaining contracts, assuming the energy or gas is delivered over the next five years; are as follows: Electric Gas of dollars) 2016 $ 127,593 $ 121,861 . 20J7 135,101 109,437 2018 170,075 111,652 2019 177,030 107,108 2020 185,130 106,640 '""D """ "'D" '°" I Fotwud I Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED' FINANCIAL'STATEMENTS Contractual Commitments 2020 - Several of SMUD's purchase power and transmission contracts extend beyond the summary presented_ above. These contracts expire between -2021 and 2043 and provide for power under various terms and conditions. SMUD estimates its annual minimum commitments under the take or pay contracts ranges between $27.4 million in 2021 and $0.0 million in 2033. SMUD estimates its annual minimum commitments the remaining contracts, assllining the energy is delivered, ranges between_ $188.0 million in 2021 and $0.2 million in 2043. SMUD's largest purchase power source (in volume) is the Western Base Resource contract, whereby SMUD receives 25 .4 percent of the amount of energy made available by Western, which equals.an equal share of their revenue requirement._ The Western contract expires on December 31, 2024. Contractual Commitments beyo,nd 2020 -Gas. Several of SMUD's natural gas supply, gas transportation_ and gas storage contracts extend beyond the five-year summary pres.ented .above. These contracts expire between 2021 and 2040 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 $16.4 million in 2021 and. $8.9 million in 2040. SMUD its annual minimum commitments under the remaining contracts, assuming the gas is delivered, ranges between $97.9 million in 2020 and $16.2 million in 2040. Solano Wind. In December 2011, SMUD into an agreement to sell the Solano Wind Phase 3 project (see Note 2). SMUD will buy all output from the plant under the terms of the Power Purchase Agreement. The *plant.began commercial operation in April 2012 and SMUD receives all output generated. Under the terms of the various agreements, SMUD lias the option to-buy _the plant back upon the sixth, or fifteenth anniversary of the commercial operation date or the end of the delivery term. Gas Price _Swap SMDD has entered into numerous variable to fixed rate swaps with notional amounts totaling 127,727,500 Dths for the purpose of fixing-the rate ori SMUD's natural gas purchases for its gas-fueled power plants and gas indexed electric contracts. These gas price swap agreements result _in SMDD fixed rates ranging from $2.82 to $7*.l 7 per Dth. The swap agreements expire periodically from January , 2016 through December 2022. 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 in Alberta to the California-Oregon border arid from supply basins in the southwest and Rocky Mountains to the Southern California border. These gas transpmt capacity agreements provide Tor the delivery of gas into SMUD-owned pipeline capacity within California. The gas transport capacity agreements provide SMUD with 56,600 Dth per day (Dth/d) of natural gas pipeline capacity from the North, including the Canadian Basins through 2023 and 54,000 Dth/d from the Southwest or Rocky Mountain Basins through at least 2018 .. Gas Storage Agreements. BMUD also has an agreement for the storage of up to 2.0 million Dth of natural gas at regional facilities through March 2016, dropping to 1.0 million Dth through March 2018. Hydro.License Agreements. SMUD has a hydro license for a term of 50 years effective July 1, 2014 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 $55.0 million at December 31, 2015. , Sacramen.to Municipal Utility District I 2015 Annual Report _ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. CLAIMS AND CONTINGENClE'S Administrative Proceedings. SMUD is involved in a number of EERC administrative proceedings related to . the operation ofwholes!ile 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 CAISO Tariff and/or establish market design and behavior rules; (ii) filings initiated by existing transmission owners (i.e. PG&E !ind the other Investor Owned Utilities) to pass-through costs to their *existing wholesale transmission customers; (iii) filings initiated by FERC or market participants to establish market design and behavior rules or_ to complain 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 finp. gas transportation service under the Natural Gas Act; and (vi) filings initiated l?y NERC tp develop reliability standards applicable to owners, users, and operators of the bulk electric system. SMUD's 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 SMUP. Currently, SMUD is party.to various claims, legal actions and,eomplaints 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, liquid_ity 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 ancl/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 settlement agreements or consent will be reopened, possibility exists. any of the settlement agreements or consent *orders is reopened, SMUD management does not believe that the outcome will have a material adverse impact on SMUD's position, liquidity or results of operations. North City Remediation. In 1950, SMUD purchased .. property (North City Site) from the City of and the Western Railroad Company. Portions of the North City Site prior to the sale had been operated as a landfill by the City of Sacramento. SMUD currently operates a bulk substation on the North City SMUD intends to assure compliance with State standards at closed lanafill sites and is in the process of determining the appropriate remediation for the North City Site. In 2009, SMUD recorded a liability related to the investigation, design and remediation necessary for the North City Site in the amount of $12.0 million estimated for the entire project. As the owner of the North City Site, SMUD will have a role in the remediation selection and activities, as may those who operated or used the North City Site for landfill purposes. SMUD has estimated its exposure to such costs based on its proportionate share of the remedy. However, should others become unable to participate due to insolvency or otherwise unable to pay their share of the costs, SMUD's share ofremediation costs wou_ld SMUD's management does not believe this will occur. Even if SMUD were to ultimately be responsible for all remediation costs associated with the North City Site, SMUD management believes that the outcome of these remediation costs will not have a material adverse impact on SMUD's financial position, liquidity or . results of operations. s.acramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIOATED FINANCIAL STATEMENTS Former Community Linen Rental Services. (Community) Property. In 1981, SMUD purchased property from Community located at 1824 and.1826 61st Street (Site). That same year, Community sold its linen business and equipment to Mission Laundry (Mission). SMUD continued to lease portions of the property to Mission until 1985. SMUD settled with these businesses and waived a potential future legal claim for cleanup funding. The property to the north of the Site was owned by f<ramer Carton Company (Kramer) and used for 60 years as a carton manufacturing facility. In 2009, Kramer filed for bankruptcy protection from its creditors. The Kramer property was encumbered by a first and second deed of trust, where the second deed of trust was held by Willamette Capital Management, Ltd. (Willamette). Willamette purchased the note on the first deed of trust. In 2011, Willamette foreclosed on the Kramer property and now holds title to the Kramer property. Based on environmental investi.gations, it has been determined that there is contamination at the Kramer property, the Site, and at areas south of the Kramer property. The contamination appears to emanate primarily from the Site, with some, albeit minor, contribution from the Kramer property. Preliminary environmental investigations of the Kramer property, the Site and areas south of the Kramer property indicate that total remediation costs will likely $2.0 million. SMUD has recorded a liability for the estimated costs of the remediation. Although SMUD does not believe that it is the source of the contamination, it appears that one or more of its predecessors in.interest may be the cause of most of the contamination. Moreover, since Kramer is bankrupt and Willamette contends it is exempt from liability under* a secured creditor exemption, it is unclear whether it would be beneficial for SMUD to take legal action for contribution. SMUD has made an offer to purchase the Kramer property at a.cost reflecting the proportionate share of the parties' predecessors' respective contributions to the contamination, giving SMUD an asset with value that will materialize after the cleanup. Even if SMUD were to ultjmately be responsible for all remediation costs associated with the Site, SMUD's management believes that the remediation of the Site will not have a material adverse impact on SMUD's financial position, liquidity or results of operations. Buena Vista Biomass Power LLC. On_ October 2, 2015, SMUD informed Buena Vista Biomass Power, LLC (Buena Vista) of its intent to terminate its existing power purchase agreement (PPA) in accordance with the terms of the PPA, due to Buena Vista-'s failure to meet its contractual obligations. On December 4, Buena Vista informed SMUD ihat it disputed SMUD's right to terminate, and threate_ned to pursue arbitration if it were forced to shut d<:Jwn the Project. On December 21, SMUD issued Buena Vista a termination notice, effective December 31, 2015. At the same time, the parties entered into a short power purchase effective January 1,'2016, while the parties attempted to negotiate a longer term arrangement on commercial terms acceptable to both parties. The short term agreement will expire on February 29, 2016. SMUD is unable to predict at this time whether Buena Vista will bring a claim under the terminated PPA, to the extent that the parties are not successful in negotiating a replacement PPA. However, SMUD management does not believe that the *outcome will have a adverse impact on SMUD's position, liquidity or results of operations. Sacramento Municipal Utility District I 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Patua Project LLC. In 2010, SMUD entered into a power purchase agreement. with Patua Project LLC, a subsidiary at the time of Vulcan Power Company, to deliver 116 MW of geothermal power in three phases* from. a geothermal resource area east of Reno, Nevada. The project was soon sold to Gradient Resources (Gradient). The project subsequently exp.erienced technical difficulties stemming from poor permeabillty of the subterranean resource that led to repeated delays and eventual downsizing of the project to no more than 38.67 MW in two phases. Gradient finally achieved commercial operation of Phase 1 more than a year behind schedule and well below the intended capacity, which led to insolvency. Consequently, the project was sold to Cyrq Energy (Cyrq) in November 2015. Soon after closing, SMUD discovered that Gradient delivered a portion of non-renewable power to SMUD in breach of the PPA, and has made claims upon Cyrq damages. In response, Cyrq has pressed several of its own financial claims that potentially exceed SMUD's. The parties are now engaged in settlement , discussions, which if unsuccessful, could lead to arbitration. Even if Cyrq is successful in arbitration, SMUD management does not believe that the outcome will .have a adverse impact 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, ipcluding 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. Sacramento Municipal U'tility District I 2015 Annual Report . ' REQUIRED SUPPLEMENTARY INFORMATION Cunauditedl Schedule of Changes in Net Pension Liability and ReJated Ratios During the Measurement Period Pension. The schedl!le of changes. in NPL and related ratios 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 'Yhich will then be updated each year going forward. Total pension liability: Service cost. .Interest Differences between expected and actual experience Changes of assumptions . Benefit payinents, including refunds of employee contributions Net change in total pension liability Total pension liability, beginning of year Total pension liability, end of year (a) Plan fiduciary net position: Contributions _:employer Contributions -employee Net irivestnient income Benefit payments, including refunds of employee contributions Administrative expense Other change_s Net change in plan fiduciary net position Plan fiduciary net beginning of year Plan fiduciary net position, end of year (b) Net pension liability, end of year (a)-(b)

  • Plan fiduciary net position as a percentage of the total pension liability . Covered-employt;:e payroll Net pension liabrlity as a percentage of covered-employee payroll Notes to Schedule December 31, 2015 2014 (thousands of dollars) $ . 27,991 $ 28,170 142,468 137,546 -(10,613) (34,228) (94,636} (90,175) 30,982 75,541 1,940,486 1,864,945

$1,971,468 $ 1,940,486 $ 30,481 $ 31,366 6,521 5,491 35,797 245,659 (94,636) (90,175) (1,795) (2,028) (25} (23,657) 190,313 1,613,784 1,423,471 $1,590,127 $ 1,613,784 $ 381,341 $ 326,702 80.7% 83.2% $ 219,590 $ .208,863 173.7% 156.4% Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2014 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit. Changes in Assumptions: The discount rate was changed from 7.5 percent (net of administrative expense) to 7 .65 percent. .-.. --Sacramento Municipal Utility District I 2015 Annual Report REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) Schedule of Plan Pension. The schedule of pension 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 then be updated each year going forivard. December 31, 2015 2014 (thousands of dollars) Actuarially determined contribution $ 22,499 $ 21,511 Contributions in relation to the actuarially determined contribution Contribution deficiency (excess) {22,4992 {21,511) $ $ Covered-employee p_ayroll $ 219,590 $ 208,863 Contributions as a percentage of covered-employee payroll 10.3%0 Notes to Schedule The actuarial methods and assumptions used to set the* actuarially determined contributions for the years ended December 31, 2015 and 2014 were derived from the June 30, 2012 and 2011 funding valuation reports. Actuarial cost method Amortization method/period Asset valuation method Inflation Salary increases Payroll growth

  • Investment rate of return
  • Retirement Mortality Entry age normal For details, see June 30, 2012 and 2011 Funding Valuation Reports Actuarial value of assets. For details, see June 30, 2012 and 2011 Funding Valuation Reports 2.75% Varies by el}try age and service 3.0% 7.5% Net of Pension Plan Investment and Administrative expenses; includes inflation The probabilities ofretirement are based on the 2010 PERS Experience Study for the period from 1997 to 2007 ' The probabilities of mortality are based on the 2010 PERS Experience Study for the p-eriod from 1997 to 2007. Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA
  • published by the Society of Actuaries.

.10.3% There were no changes in methods or assumptions used to determine the actuarially determined contributions for the years reported above. Sacramento Municipal Utility District I 2015 Annual Report REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) Schedule of Funding Progress OPEB. The schedule of funding for the other postemployment benefit healthcare plan is presented below for the three recent years_ for which SMUD has available data: Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability AAL Funded Covered of Covered Valuation Assets r (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) * (c) ((b-a)/c) (thousands of dollars) 06/30/2015 $ 176;239 $ 319,431 $ 143,192 55.2% $ 191,414 74.8% 06/30/2014 $ 129,493 $ 505,142 $ 375,649 25.6% I $ 187,151 200.7% 06/30/2013 $ 103,251 $ 492,651 $ 389,400 21.0% $ 179,733 216.7% ' . (

  • sMUD* Sacramento Municipal Utility District CUSTOMER SERVICE CENTER 6301 S Street Sacramento, CA 95817 MAILING ADDRESS P.O. Box 15830 Sacramento, CA 95852-0830 1-888-742-SMUD (7683) smud.org *}}
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