ML23137A144

Sacramento Municipal Utility District (Smud) - Submittal of 2022 Annual Financial Report

ML23137A144
Person / Time
Site:	07200011
Issue date:	05/03/2023
From:	Gacke B Sacramento Municipal Utility District (SMUD)
To:	Allen C Division of Fuel Management, Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
DPG 23-063
Download: ML23137A144 (1)

Text

• Powering forward. Together.

May 3, 2023 DPG 23-063 Attn: Document Control Desk Director, Division of Fuel Management Office of Nuclear Material Safety and Safeguards U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Docket No. 72-11 Rancho Seco Independent Spent Fuel Storage Installation Renewed License No. SNM-2510 2022 ANNUAL FINANCIAL REPORT Attention: Chris Allen In accordance with 10 CFR 72.80(b), I am submitting the FinanciaI*statements- Report of Independent Auditors for the period ending December 31, 2022 and 2021 for the Sacramento Municipal Utility District (SMUD).

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

Sincerely~ .

n I) C /

~ - * - ' . , * * ...

Brad Gacke Manager, Rancho Seco Assets t-/ o/J I tJM :s s z o Enclosure cc: RIC: 1F.099 rJ;v/ 5 S 7_/.p NH~--5 Rancho Seco Nuclear Generating Station I 14440 Twin Cities Road I Herald, CA 95638-9799 I 916.452.3211 I smud.org

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Financial Statements Report of Independent Auditors December 31, 2022 and 2021 0170-23

SACRAMENTO MU,NICIPAL UTILITY DISTRICT

', 'TABLE' OF CONTENTS As of and for the Years'Endetl December 31, 2022 and,2021 Report oflndependent Auditors Required Supplementary Information - Oriahdited Management's Discussion and Analysis 4 Basic Financial Statements Statements ofNet Position 15 Statements of Revenues, Expenses and Changes in Net Position 17 Statements of Cash Flows 18 Notes to Financial Statements Note 1. Organization 20 Note 2. Summary of Significant Accounting Policies 20 Note 3. Accounting Change 28 Note 4. Electric Utility Plant 30 Note 5. Investment in Joint Powers Authority 32 Note 6. Component Units 34 Note 7. Cash, Cash Equivalents, and Investments 38 Note 8. Regulatory Deferrals 40 Note 9. Derivative Financial Instruments 42 Note 10. Long-term Debt 48 Note 11. Commercial Paper Notes 53 Note 12. Fair Value Measurement 54 Note 13. Accrued Decommissioning Liability 56 Note 14. Pension Plans 58 Note 15. Other Postemployment Benefits 63 Note 16. Insurance Programs and Claims 67 Note 17. Commitments 68 Note 18. Claims and Contingencies 69 Note 19. Subsequent Events 70

SACRAMENTO MUNICIPAL, UTI]µITY*DISTRICT TABLE OF CONTENTS - CQ:NT,NUED As 9f ?,nd for the Years Ended :Qecem her 31, 2022 and io21 Required Supplementary Information - Unaudited Schedule of Changes in Net Pension Liability and Related Ratios 72 During the Measurement Period - PERS Plan Schedule of Plan Contributions for Pension - PERS Plan

. ; J, Schedule of Changes in Net OPEB Asset or Liability and Related Ratios 74 During the Measurement Period Schedule of Plan Contributions for OPEB 75 ,;,

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(9 bakertilly

,I' Independent Auditors' Report t

To the Board of Directors of Sacramento Municipal Utility District Report on the Audit of the Financial Statements Opinion We have* audited the.accompanying finantiaf statements of the Sacramento Municipal Utility District, as of andfor ttie(years ~ndea December 31, 2022 and 2021', *and *the related notes to the finahcial statements, which cblledively comprise the Sacramento Municipal Utility District's basic financial statements as listed in the table of contents.

In o~r o~fhion," the 1\nancial statements' referred' to 'above present fairlY,: in.all material respects, the financial position bf the Sacramento Municipal Utility District as of December 31 ;' 2022 and 2021, and the* changes in finaricial'position and cash flows for the year then ended iri accordahce with accounting* principles generally accepted in the United States of America.

Basis fo~ Opfnion .

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicabl~ to financial audits contained in Government Auditing Standards 'issued by the Comptroller General of the United States (GAS).' Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent ofthe Sacramento Municipal Utility District and to meet our qther ethica_l responsibilities, in accordance with the relevant ethical requirements relating to our aud.its. We. believe that the audit eviderice we have obtained *is sufficient*and appropriate to provide a basis for our audit opinioh. * '* * * *. * * * * *, * ' * ** ' *

• Emphasis of Matter

• ,* .. )_

As discussed .in Note 3, the Sacra_mento Municipal Utility District adopted the provisions of GASB Statement No. 87, L~fJ$es, effective Janua!Y 1: 2022. "Accordingly, the accounting changes have been retroactively applied totbe,Rri9r

.. - . period presented. Our opinion is not modified with respect to this matter. *.

Responsil:iilities of Management for the Financial Statements Management is responsible for the preparatiori'and fair presentation of the financial statements in-accordance with ac*counting principles generally accepted in*the United States of America; and for the design, implementation and maintenance of internal control relevant fo the**prepa'ration and fair presentation of financial sfate1T1ents that are free from material misstatement, whether*due to fraud or error.

In prepa~ing the financial statements, managemerit is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Sacramehto Municipal Utility District's ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2020-2022 Baker Tilly US, LLP 1

Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and GAS will always detect a material misstatement when it exists. The risk of not detecting a material mis_s~atement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. ** ' *

• In performing an audit in accordance with GAAS and GAS, we:

. \.. )

• Exercise professional judgment and maintain professional skepticism throughout the audit

• • Identify and assess the r.isks of materjal;m_issta,ter,n.ent e>f the financial statements, whett,er 9ue to

• fraud or error, and d,esign a,nc;I perform audit pr'l)ce,dqre~ .r,esponsive to those* ri~~s. Suc~:proK~dures include examining, .on a .test basis, evidi0nce, regarding_ th~. amounts and displos'Lm:~~ inJh~ fin 9 n-~ial statements. * * * : . '., * "'-',~ *..:. * *

• . * . Obta.in an u11derstc!ridi11g, of inter,nal contro_l relevanpo ,ttw audit in order to _c;le~.lg.r, ~~di(proc~dures

• • that are appropriate in the. circum~tances,,bl.lt._not f9r th.e ,purpose of expre,ssi~g ~n opi6i9_11, o~_'t~e

.effectiveness of the $ai:;rc:1rnento MunicipaLUtility District's-internal contr,oL .Acc;9rdingly,,no.~uch .*

opinion is expressed. .*),, : , ** * * ,.C:' .....

• Evaluate the appropriateness of accounting policies used and the reasonablene.ss of significant .

accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. .. 1 . , 1 . , .-;

'*  :;\ -. ,;; ,*,-1("; , 1 , .* _:,. :** 1 *1. [' ', ' *. . *; *1*' *:,  ; ,' ' ' ' \

• Conclude whether, in ,our judgmen~, there ar,e condifipns pr events; cq*nsiderep in the aggregate, that

. raise substantial doubt apout ,the Sacr~IT]ento Mu~iqipa,I Utility .Di~fr,ict'.s ?.bility't~, qontinue as a going concern;for a r~asqn,able perioc;l of time, . , .. . , _ .. ** . *, , .

• We are required ~o *c~mmunicate ~ith' those charged wit~ govEfr~'anC!3 regafdirig, among 0th.er matters, the planned scope and timing of the audit, significant audit findings and certain internal control~related matters that we identified during the audit. * ' '

Required Supplementary Information 6f Accountin~ principles gene~ally accept;d i~ tt1eJ,Jnit~d St~tes America req~ire that the required supplementary informatjon, as listed_ ir,i ,the* table of contents be presented to suppiement tt,e ba~ic financial statements. Such information is ttie responsibility of management and, although not a part of the basic financial statements, is required by the G_overnmental Accounting Standards Board who conside_rs it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain l_imited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of ,a,.merica, which consisted of inquiries.of management about the me.thoqs of preparing the inf<;>rmation and cqrnparing the.

information for corn;;istency witt, management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on. the information becaµse the !imited procedures do not provide us yvith sufficient evidence to express an opinion or provid.e any a~sur,anc~. ' ** * * *

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Other Reporting Required by Gover.11111ent A'uditing1Standards In accordance with Government Auditi~g Standa'rds; ~~ have also issued our report dated February 24, 2023 on our consideration of the Sacramento Municipal Utility District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Sacramento Municipal Utility District's internal control overfinanclal repbrting 1or on compliance. That report is an integral part Cifan audifperformed in accordance with Government Auditing Standards in considering the Sacramento Municipal Utility District's internal control over financial, reporting and compliance.

§~ /ilfl 05,; ur Madison, Wisconsin,,

February 24, 2023 *

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Sacramento Municipal Utility District Management's Discussion and*A:nalysis - Unaudited For the Years Ended December 31, 2022 and 2021 Using this Financial Report * ,;. ,

This annualiinaiicial report for Sa~i-ai'nent? Municipal Utility District (SMUD) consists of management's di~c.ussion and analysi~,,md the financial statements, including notes to financi~l ~tatements. The Financial Statements consist of the Statements ofNet 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 Accou'l).tii;ig Principles for propri~taryJvnds as prescribed by the Governmental Accounting Standards Board (GASB). SMUD'~ accounting records generally follo*;.,.th~

Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulat~ry Com~ission (FERC), except as it relates to accounting for contributions of utility property in aid of construction. .,,,

• 1' Overview of the Financial Statements The following discussion and analysis of the financial performance ofSMUD provides an overview of the financial activities for the years ended December 31, 2022 and 2021. This discussion and analysis should be read in conjunction with the financial statements, required supplementary information and accompanying notes, which follow this section.

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

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

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

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

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

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

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

SMUD's vision is to be the trusted partner with its customers and the community, providing innovative solutions to ensure energy affordability and reliability, improve the environment, reduce the region's carbon footprint, and enhance the vitality of the community. SMUD's business strategy focuses on serving its customers in a progressive, forward-looking manner, addressing current regulatory and legislative issues and potential competitive forces. This includes ensuring financial stability by 4

establishing rates that provide acceptable cash coverage of all fixed charges, taking into consideration the impact of c,apital expenditures and other factors on cash flow.

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

In 2021, SMUD's 2030 Clean Energy Vision was translated into the 2030 Zero Carbon Plan, the flexible road map to achfove a zero-carbon power supply by 2030. The plan guides el!mination ofGHG emissions from SMUD's power plants, development of new distributed energy resource business models, research of emerging grid-scale carbon-free technologies, and expansion of investments in proven clean technologies while ensuring all communities benefit from the plan.

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

and disconnection policies resumed with disconnections_ occurring in mid-April 2022. SMUD is working proactively with electric customers to create.payment arrangements for those who need them. The effects of the pandemic hav~ resulted in an increase in the number of past due customer accounts.

In 2022 and 2021, SMUD received $9.9 million and $41.4 million, respectively, ~n ~alifomia Arrearage Payment Program (CAPP) funding that was applied t9 c;ustomers' bills, to support customers amid the ongoing challenges of th,e COVID-19 pandemic. The CAPP offers financial assistance for California energy utility customers to help reduce past due energy bill balances that increas_edduring the,COY,ID-19 pa1;1demic.,.As;ofDecember 31_, 2022 and 2021, the unco,l_lectible reserve for account write-offs was $38 million and $69 million, respectively. Other financial and operational impacts to SMUD associated with COVID-19 are noted throughout this rep~l'.1-Requests for Information For more information about SMUD, visit oui- website at www.sm~d.org or contact us at customerservices@smud.org.

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

CONDENSED STATEMENTS OF NET POSITION

-~2~0=2=2~.-~., 2021 {restated)* 2020 Assets Electric Utility Plant - net $ 4,001 $ 3,891 $ 3,747 Restricted and Designated Assets 183 289 _188 Cm;i;ent,Assets , . 1,426 1,244 . 1,239 Noncum;nt Assets 1 581 1 492 1 515 Total Assets 7,191 . 6,916 6,(,89 , .

Deferred Outflows of Resources 268 143 271 Total Assets and Deferred Outflows of Resources $ 7,459 $ 7,059 $. 6 960 Liabilities Long-Term Debt - net 2,886 * $ 3,081 *$ *-3;259 Current Liabilities  ! . *so2* 494 *  ::437 *.. ,

Noncurrent Liabilities *

• 428 216 .. * :;694' Total Liabilities 4J16' 3,791 '4,390.

Deferred Inflows of Resources 976 . 972 * "613

Net Position 2 367 2 296 1 957 Total Liabilities, Def~rred Inflows of Resources, and Net Position $ 1A59 $ 7. 059';, "'$ 6,960

• See Note 3 of the financial statements*for discussion ori the restatement oftfie Decemb'er.31, 2021 Statements.of Net Position.

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TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES' *, **

2022 Compared to 2021 Total assets in 2022 increased $275 million 9r 4.,0% over 2021, primarily due to the following: .

• An increase of $110 million in electric utility plant- net. See Capital Program below for further information.

• A $106 million decrease in restricted and designated assets primarily due to a $28 million decrease in a net pension asset and a $57 million decrease in net Other Postemployment Benefits (OPEB) asset based on the most recent actuarial results, a $30 million Rate Stabilization Fund transfer to revenue as a result of lower than budgeted energy deliveries from the Western Area Power Administration (Western), and a $25 miHion Hydro Rate Stabilization Fund (HRSF) transfer to revenue for below average precipitation, offset by $22 million Rate Stabilization Fund transfer from revenues for net auction proceeds received and funds spent on Assembly Bill (AB) 32 programs.

• A $182 million increase in current assets is primarily due to $115 million increase in hedging derivative instruments due to the gas hedging program and $44 million increase in wholesale and other receivables due to larger sales of power and gas sales in December.

• A $89 million increase in noncurrent assets primarily due to a $61 million increase in regulatory costs for future recovery due to recognition of those costs, a $48 million increase in hedging derivative instruments due to the gas hedging program, offset by a $30 million decrease in prepaid gas supply due to gas delivered.

Deferred outflows ofresources in 2022 increased $125 million or 87.4% from 2021, primarily due to increases in the unrealized pension and OPEB gains.

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2021 Compared to 2020 Total assets in 2021 increased $227 million ~~;13.4%~0\ler 202d; primarily due to the following:

• An in~rease of $144 million in electric utii,ity plant - net. See Capital Program below for further information.

0

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

• A $23 million decrease in noncurrent assets primarily due to a $39 million decrease in regulatory co~t_s for future ..

recovery due to recognition of those costs, a $26 million decrease in prepaid gas supply due to gas delivered, offset by a

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

Deferred outflows ofresources in,2021 decreased $1:28 million or 47.2% from 2020, primarily due to decreases in the_.unre;lized pension and ()J>]::B losses.

TOTAL LIABiLITIES AND DEFERRED INFLOWS OF RESOURCES 2022 Compared,to 2021 Total liabilities in 2022 increased $325 million or 8.6% over 2021, primarily due to an increase in current, liabilities of $~08 .

million due to $150 million issuance of commercial paper and $106 million increase in purchased power payable due to high purchased power prices in December. Non-current liabilities increased due to a $235 million increase in net pension liability based on the most recent actuarial results. This is offset by a decrease in long-term debt- net of$195 million.

,, *. .  ! *; ; ' * * . i. * . *: : '*, . ' **

Net position in.

• 2022. 'increased

$71. million

~r 3.1% over 20~1 based,. on*. r~sults. of operations'..

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2021 Compared to 2020 Total liabilities in 2021 decreased $599 million or 13 .6% over 2020, primarily due to a decrease in long-term debt-net of $178 million and a decrease in noncurrent liabilities of $478 million, primarily due a $470 million reduction in net pension liability based on the most recent actuarial results.

Deferred inflows ofresources in 2021 increased $359 million or 58.6% from 2020, primarily due to increases in the unrealized pension and OPEB gains.

Net position in 2021 increased $339 million or 17.3% over 2020 based on results of operations.

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RESULTS OF OPERAT IONS The following table summarizes the operating results for the years ended December 31 (in milijons).

CONDENSED STATEMENTS OF REVENUES, EXPENSE~ AND CHANGES IN NET POSITION 2022 2~21 (restated)* 2020 Operating revenues $ 2,147 $ 1,790 $ 1,588 Operating expenses (2,065) (l,~50) (1,389)

Operating income 82 340 199 Other revenues/(expenses) 90 108 63 Interest charges (101) (109) (109)

Chattge in net position 71 339 ' . 'f53 Net position - beginning of year 2,296 1957 ' ' 1804 Net position - end of year $ 2.~67 $ 2,296 ~ 1,257

• See Note 3 of the financ ial statements for discussion on the restatement of the December 31, 2021 Statements of Net Position.

2022 Compared to 2021 OPERATING REVENUES .,

Total operating revenues were $2,147 million for 2022; an increase of$357 million or 19.9 percent over 2021' operating revenues. The residential MWh sales increased 0.3 percent and sales revenues increased 3.6 percent compared to 2021, although usage is flat, the increase is related to the shift in the customer load shape. The commer~ial & industrial MWh sales 'increased 2.7 percent and sales revenues increased 2.9 percent compared to 2021, primarily due to more commercial businesses and schools returning to in-person 2022.

The following charts show the megawatt hour (MWh) sales, and sales revenue for the past three years by surplus energy sales (Surplus), commercial, industrial, and other (C&I), and residential (Res) customers:

M Wh Sales Sales Revenues 7,000 $900,000

$800,000 6,000

$700,000 5,000 .;- $600,000

-a C

4,000 liil Res

-a C

=

0

$500,000 0

liil C&I $400,000 J:.

~ 3,000 :E.

J:.

iii Surplus Surplus

$300,000

!i: 2,000

$200,000 1,000 $100,000 0 $0 2022 2021 2020 2022 2021 2020 8

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 2022, energy sales were high~r ~y $62 million as compared to 2021 due to higher energy prices and energy sales. Surplus gas sales were higher than 2021 by $96 million primarily due the unplanned outage of CPP and selling at 1

higher gas prices in 2022. **

OPERATING EXPENSES Total operating expenses were $2,066 million for 2022, an increase of $615 million or 42.4 percent over 2021 .

• Purchased power increased by $478 million or 120.8 percent primarily due to the unplanned outage ofCosumnes Power Plant (CPP), increased load, reduced hydro, and record high heat wave in September that led to increase procurement of power.

• Production expense decreased by $21 million or 6.0 percent primarily due to unplanned CPP outage for majority of the year.

• General, administrative and customer increased by $102 million or 66.6 percent primarily due to SMUD establishing regulatory accounting in 2022 for pension and OPEB regulatory costs and/or credits to defer recognition of certain expenses related to the amortization of pension and OPEB deferred outflows and deferred inflows of resources compared to 2021 there were large credit adjustments related to pension and OPEB based on the most recent actuarial results.

• Maintenance increased by $32 million or 23. l percent primarily due to increased costs related to tree trimming and JPA thermal plant maintenance.

The following chart illustrates 2022 operating expenses by expense classification and percentage of the total:

2022 Operating Expenses Purchase Power 42.3, Production Public Good Depreciation & Amort T&D Maintenance G&A and Customer G&A and Customer Depreciation & Amort Maintenance Production Purchase Power T&D Public Good 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

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OTHER REVENUES Total ot4er revenues (net) were $90 million for 2022, a decrease of $18, ~iJlion .6r 16'.7 percent over 2021. The decreas~ is clue to receiving $41 million in grant revenues from CAPP funding in 2021, offset by the increase in investment revenue related to gas swaps.

2021 Compared to 2020 RESULTS OF OPERATIO NS

• Total operating revenues .were $1,790 million for 2021, an increase of $202 million or 12.7 percent over 2020 operating revenues. The residential MWh sales decreased 3.2 percent and sales revenues increased 2.7 percent compared to 2020, primarily due to employees returning to work and children returning to school which reduced usage and shifted the customer load shape. The commercial&. industrial MWh sales increased 3.5 percent and sales revenues increased 9.6 percent compared to 2020, primarily due to commercial businesses and schools re-opening in 2021 compared to the California mandated shut down and limited re-openings of commercial businesses in 2020.

• In 2021, energy sales were higher by $47 million as compared to:2020 due to higher energy prices and energy sales. Surplus gas sales were higher than 2020 by $65 million primarily due to higher gas prices in 2021.

• Total operating expenses were $1,450 million for 2021, an increase of$61 million or 4.4 percent over 2020.

o Purchased power increased by $48 million or 13.7 percent due to higher .load due to wanner than anticipated weather and lower hydro generation due to lower precipitation levels.

o Production expense increased by $80 million or 28. 7 percent due*to lower hydro generation. due to lower precipitation levels led to increased thermal plant generation.

o General, administrative and customer decreased by $88 million or 36.3 percent due to lower costs related to reduced customer call volumes due to COVID and the* continued moratorium on electric shut offs, reduction in customer programs due to COVID and reduction in administrative and labor costs related to employees working remotely. In addition, large adjustments related to GASB 75 OPEB and GASB 68 Pension based on the most recent actuarial results.

o Public Good decreased by $11 tniHion or l"S.7 percent due*to lower e'.91Cndi~re for research and development programs and energy efficiency program incentives.

• Total other revenues (net) were $108 million for 2021, an increase of$4_5 rriilf_ion or 71.} percent over 2020. In 2021, SMUD recorded $41 million as grant revenues from CAPP funding recei;ved for delinquent customer balances and a

$15 million settlement related to Rancho Seco.

CAPITAL PROGRAM SMUD's ~,lectric utility plant includes production, transmission and distribution, and general plant facilities. The following table summarizes the balance of the electric utility plant as of December 31 (in millions).

2022 2021 (restated)* 2020 Electric Utility Plant $ 7,549 $ 7,232 $ 6,886 Accumulated Depreciation and Amortization {3,548) {3,341) (3,139)

Electric Utility Plant - Net $ ~.001 $ .. 3,821 $ 3,Z~Z

• See Note 3 of the financial statements for discussion on the restatement of the December 31, 2021 Statements ofNet Position.

The following chart shows the breakdown of2022 Electric Utility.Plant- net by major plant category:

2022 ELECTRIC UTILITY PLANT Transmission Distribution 12% - --- 43%

lill Distribution MI Other Generation

• Transmission Other 26%

The following chart shows the breakdown of2022 Electric Utility Plant capitalized additions by major plant category:

2022 ELECTRIC UTILITY PLANT ADDITIONS Generation Distribution 6% 40%

Distribution Other Generation Transmission 30%

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

SMUD's capital program includes investment in generation, transmjssio!), distribution, buildings, vehicles, technology, and other assets critical to meeting the energy needs of our customers. Capital investments ~e financed with revenues from operations, bond proceeds, investment income and cash on hand.

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

Budget Actual Actual 2023 2022 2021 Capital Program:

Transmission & Distribution $ 180 $ 154 $ 183 Generation 336 124 52 Other 108 70 49 Total $ 624 $ .HS $ 284 11

In 2022 and 2021, SMUD actual expenditures included work for Substation E & G, Advanced Distribution Management System, White Rock Tunnel Bolt Replacement, the purchase and operationalization of Chili Bar Hydroelectric facility, Substation J land purchase, distribution line work and continued work on UARP relicensing projects.

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Major capital expenditures planned in 2023 include completing work for Station G, additions to our wind farm with Solano Phase IV, the Country Acres solar project, and ongoing improvements in our Upper American River Project (UARP) area as part of our hydro relicensing. Programmatic capital planned in 2023 includes c~ble and pole replacement programs, installing new meters, ~nd new fle'et purchases. Technology investments included in th*e 20*23 Budget are to c~mplete the Advanced Distribution Manage111ent.System & Outltge Management System {ADMS-OMS) and improvements to HR systems and network communications systems with our Talent Technology Transformation (T3) project.

LIQUIDITY 'AND CAP ITAL RESOURCES SMUD maintains a strong liquidity position by setting a minimum number of days cash on hand and managing a $400 million commercial paper program. Our current days cash threshold is 150 days, the minimum amount of cash on hand before triggering a new debt or commercial paper issuance to replenish cash balances. On December 31, 2022, the days cash on hand was 214 days. The commercial paper program allows for short-term borrowing when needed in lieu of issuing long-term debt, similar to a credit card or line of crecjit.. On December 3.11 2022, SMUD,*had,$150 million of commercial paper Qotes outstanding.* A strong liquidity position is important in demonstrating to investors and rating agencies that SMUD can withstand various financial stresses.

In addition, SMUD targets strong financial metrics in cash flow coverage with its fixed charge ratio. The Board sets a minimum fixed charge of 1.50 tim_es operating cash flow; h~~ever, we aim for a',minimum of 1.70 as a sta~dard. On December 31, 2022, the fixed charge ratio' was 1.65 which decreased below our stand~rd but above our Board set mi~imum due to the higher commodity costs incurred from the CPP unplanned outage, record heat wave in September andhigher commodity prices.

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FINANCING ACTIVITIES In June 2022, SMUD issued $132.7 million of2022 Series).Revenue Refunding':Bonds. The purpose of this transaction was to refund the fixed rate debt associated with 2012 Series Y bonds,fuid.termiri1t¢chhe associated interest rate swap entered into in

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2019. This locked in the refunding's interest rates, generating $28*.6' niillion in Net Preserit Value savings, or annual cash flow savings of$3.l million through 2033.

DEBT SERVICE COVERAGE J *,, :

• Debt *service coverage forlong-term debt was 1l'.87 times and 2.50 times in2022 and 2021, respectively. SMUD's'bond

• resolutions contain various covenants thaf ihch.ide requirements to maintain minimum debt service coverage ratios of at least 1.40 times, certain other financial ratios, stipulated minimum funding ofrevenue bbnd reserves, and various other requirements including a rate covenant to raise rates to maintain minimum debt service coverage. SMUD is in compliance with all debt covenants:

CREDIT RATINGS We proactively manage our strong financial position to maintain high credit ratings. These strong credit ratings improve access to credit markets and result in a lower cost of borrowing. Both quantitative (financial strength) and qualitative (business and operating characteristics) factors are-considered by the credit rating agencies in establishing a company's credit.rating, As of December 31, 2022, SMUD's bonds had an underlying rating of"AA" from Standard & Poor's, "AA" from Fitch, and "Aa3" from Moody's. Some ofSMUD's bonds are insured and_are rated by the rating agencies at the higher of the insurer's rating or SMUD's underlying rating.

12

COMPETITIVE RATES

_; The-Board has independent authority to set Sl\1UD?.~;rate~ and charge~. Changes in rates require a public hearing and formal action by the Board. SMUD has committed to our customers in keeping rates low while continuing to deliver safe, reliable, _and environmentally responsible power and the products*_@d services they value.

In June 2019, the Board approved the 2020 and 20.21.. rate proposals including a 2.50 percent rate increase.effective Janup.ry 1, 2021, and a 2.0 percent rate increase yffective October I, 2021, for a!J customer classes. In October 2021, SMUD st<1,~ed

• . transitioning commercial customers to the new restructured rates. While the restructure is revenue neutral, it wiU improve SMUD's revenue stability and be~er align electric ch.arges with costs.

In 2021, the Board approved the Solar and Storage Rate (SSR), which wi_ll reduce the cost shift from Net Energy Metei:ing .

(NEM) and will incentivize customers to invest in solar paired with storage, providing greater benefits to SMUD and our customers, I.n 2021, the Board approved the 2022 and 2023 rate pi:oposal~ including rate ,increases of 1.5% in 2022 and 2% in 2023, ~hich is_.weU below th_e estimated rate of inflation. This ensures the necessary*revenue to meet SMUD's financiaL obligations, \(ey financial metrics, and delivery of our 2030 Zero Carbon Plan.

Progress on se".f1ral key rates a_nd programs, including the Virtual.Solar (V~) program and our optional residenti_al Critical Peak Pricing (CPP) rate, h~th, of.which will be available in June 2022. The:VS programw_i:11 proyide the benefits of solar to our under-resourced customers living in multi-family housing, and our residential CPP rate ,will provide customers t,he oppm:tunity to reduce their bills and help the environment while contributing to the 2030 Zero Carbon Plan.

Even with these increases, SMUD's rates continue to remain amongst the l_owest,in the state. Iµ 2022, the average system rate was 45 percent below the average rate of the nearest investor-owned utility.

ENERGY RISK MANAGEMENT SMUD 's commodity costs have prices locked in for most of our expected energy requiremen,ts to ensure cost and rate stability for customers. *Only a small portion ofbudgeted energy purchases . a~e exposed to s,hort-term market price fluctuations - a beneficial practice, especially during the price volatility currently reflected in California power and energy prices.

SMUD has mitigation measures in place for higher commodity costs due to reduced hydroelectric pro,duction that will lead to higher purchased power. In April 2022, $25.1 million was transferred from the HRSF to revenue as a result of low precipitation.

At December 31, 2022, the HRSF was $31.0 million and $56.6 million in the Rate Stabilization Fund (RSF), net of Low Carbon Fuel Standard and Cap and Trade funds. These reserve funds help absorb higher energy costs when hydroelectric production is down and serve as a buffer against unexpected financial developments.

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

The Board formally approved the 2022 Integrated Resource Plan (IRP) update in June 2022 and filed this update with the California Energy Commission (CEC) in September. Implementation of the plan has SMUD embarking on new pathways to completely decarbonize energy supply, including eliminating GHG emissions from the thermal power plants, developing new distributed energy resource business models, researching emerging grid-scale and carbon-free technologies and expanding investments in proven clean technologies.

13

DECOMMISSIONING SMUD has mad'e significant progress toward completing the* DecomriiissioninfPlan for its Rancho'Seco nuclear facility;'which was shut down in 1989. The plan consists of two phases that allow SMUD to*terminate its possession-only license. Phase I of the decommissioning was completed at the end of2008. Phase II consists'\)fa'stbrage period for.the Class Band 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 'license. SMUD also established and fonded ah external decommissioning trust fund as part of its assurance to the Nuclear Regulatbry Commission (NRC) to pay for th*e cost of decommissioning. Shipment of the previously stored* Class B and Class C radioactive waste was completed in November 2014 to a low-level radioactive waste facility located in Andrews, Texas. The remaining Phase II decommissioning activities required for terminatiort of the pbssession°only license commenced in 2015. In September 2017, SMUD formally requested the termination of the possession-only license and termination of the possession.:.oiJ.ly license was completed in 2018.

As part of the Decorrimissioning Plan, the nuclear fuel and Greater Than Class C (GTCC) radioactive waste is' being stored in a dry storagt':'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 respon*sible for pertrian~rtt disposal of used nuclear fuel and GTCC radioactive waste and SMUD contracted with the DOE for removal and disposal of that waste. The DOE has yet to fulfill its contractual obligation to provide a permanent waste disposal site. SMUD has filed 'a 'seri~s of successful lawsuits against the federal' government for recovery of the past *spent fuel costs; with recoveries to date in excess 'of $123 .1 million. SMUD will cdn'tinue to 'pursue cost recovery claim's until the DOE fulfills its'Obligation. " ,. * * ** .; ' *' V ' * '

The total Accrued Decommissioning balance in the Statements of Net Position, including Rancho Seco and other ARO's, amountedto $95.9 rriillion as ofDecembei" 31~ 2022. ' *, '* ,i; 1 SIGNIFICANT ACCOUNTING POLICIES

• 1 * :,. ' ' ;

In accordance with GASB No. 62, the Board has taken regulatory actions for ratemaking that res*ult in the deferral of expense and revenue recognition: These actions result in regulatory assets and liabilities.* *SMUD:hasregulatory assets*that cover costs related to decommissioning, derivative financiai instruments, debt issuance costs; pension*costs: an'd OPEB *costs. As of December 31, 2022, total regulatory assets were $813.6 million. SMUD also has regulatory credits that cover costs related to contributions in aid of construction, the RSF and HRSF, EAPR reserves, SB-1, grant revenues, and Transmission Agency of Northern California operations costs. As*ofDecember 31, 2022; total regulatory credits were $620.4 million.

' ' 14

, , SACRAMENJ:'0 MUNICIPAL UTILITY DISTRICT STA. TEMENTS OF NET POSITION December 31 2022 2021 (restated)

(thousands of dollars)

ASSETS ELECTRIC UTILITY PLANT Plant in service 7,20076 $ 6,864,040 Less accumulated depreciation and amortization (3,547,995)' (3,340,797)

Plant in service - net 3,653,281 3,523,243 Construction work in progress 347,758 367,297 Total electric utility plant - net 4,001,039. 3,890,540 RESTRICTED AND DESIGNATED ASSETS Revenue bond and debt service reserves 119,385 120,024 Nuclear decommissioning trust fund 8,980 8,874 Rate stabilization fi;nd 156,016 188,992 Net pension asset 27,738 Net other postemployment benefits asset -Q- 57,532 Other funds 30,424 22,411 Less current portion (131,852) (136,663)

• Total restricted and designated assets 182,953 288,908 CURRENT ASSETS Unrestricted cash iµ1d cash equivalents 268,653 584,998 Unrestricted investments 359,211 45,378 Restricted and il.esignated cash and cash equivalents 30,583 46,828 Restricted and designated investments ll)l,269 . 89,835 Receivables - net; Retail customers .181,606 190,987 Wholesale iµ1d other 102,305 58,628 Regulatory costs to be recoverea within one year 49,312 38,303 Investment qe1:.ivative_instrup.1ents.matw:ing within one ye_!lf 5,870 1,354 Hedging derivative instruments maturing within one year 151,349 36,620 Inventories . 113,120 99,941 Prepaid gas to b~ delivered within one year 29,452 26,059 Prepayments and other 32,881 25,330 Total current assets 1,425,611 1,244,261 NONCURRENT ASSETS Regulatory costs'for future recovery 764,246 703,748 Prepaid gas 637,000 666,452 Prepaid power and capacity 173 380 Investment derivative instruments* 329 803 Hedging derivative instruments 85,675 .37,753 Energy efficiency loans - net 7,32 1,298 Credit support collateral deposits 11,650 11,650 Due from affiliated entity 31,149 29,674 Prepayments and other 50,506 40,738 Total noncurrent assets 1 581,460 1,492 496 TOT AL ASSETS 7,191,063 6,916,205 DEFERRED OUTFLOWS OF RESOURCES Accumulated decrease in fair value of hedging derivative instruments 28,438 22,600 Deferred pension outflows 175,478 81,334 Deferred other postemployment benefits outflows 53,674 25,113 Deferred asset retirement obligations outflows ~,066 1,775 Unamortized bond losses 8,389 12,261 TOTAL DEFERRED OUTFLOWS OF RESOURCES 268,045 143,083 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 7,459,108 $ 7,059,288 The accompanying notes arc an integral p_i;u;t,9fthcse finan~/al.statements.

15. ;

SACRAMENTO MUNICiPAll !UTILITY DISTRICT STATEMENTS OF NEt,POSITION December 31, 2022 2021 (restated)

(thousands of dollars)

LIABILITIES "LONG-TERM DEBT- net $ 2,885,844 $ 3,081,707 CURRENT LIABILITIES Commercial paper notes 150,000 Accounts payable

• 159,463 121,925 Purchased power payable 135,570 30,103 Credit support collateral obligation 534  : 3,575 Long-term debt due within one year 138,195 , 132,150 Accrued decommissioning 7,549 6,889 Interest payable 49,784 50,739 Accrued salaries* and compensated absences 60,209 60,433 Investment derivative instruments maturing within one year 3;103' 2,757 Hedging derivative instruments maturing within one year 21,636 18,232 Customer deeosits and other . 75,9H' 67,064 Total current liabilities 80l,954 '. . 493,867 NONCURRENT LIABILITIES i, ti Net pension liability 235,451' Net other postempl6yment benefits liability 6,753' ,**:** Accrued decommissioning 88,385

• 88,168 Investment derivative instruments 'J,424 4,786 Hedging derivative instruments 6,802 4,368 Self insurance and other *89;910 118,146 Total noncurrent liabilities 428,725 215,468 TOTAL LIABILITIES *4, 116,523 ,1 3,791,042 DEFERRED INFLOW~ ,OF RESOURCES Accumulated i~crease in fair value of hedging derivative instruments . 237,025 74,374 Regulatory credits 620,373 543,014 Deferred pension inflows * ~6,656 229,707 Deferred other postemployment benefits inflows

• 49,838 94,902 Deferred lease inflows 18,187 17,373 Unamortized bond gains 20,473 9,246 Unearned revenue

• 3,230 3,369 TOTAL DEFERRED INFLOWS OF RESOURCES 975,782 971,985 NET POSITION Net investment in capital assets 1,491,548 . 1,349,688 Restricted:

Revenue bond and debt service 60,048 64,793 Net pension asset -0~ 27,738 Net other postemployment benefits asset -0" .. 57,532 Other funds 29,890 18,836 Unrestricted 785,317 777,674 TOTAL NET POSITION 2,366,803 2,296,261 COMMITMENTS, CLAIMS AND CONTINGENCIES (Notes 17 and 18)

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION . $ 7,459,108 $ 7,059,288

.J.

The accompanying notes are ail :integral part'of these financial statements.'

• 16

SACRAMENTO MUNICIPAL UTILITY DISTRICT SfJPPLEME~TAL CASHFLOW INFORMATION A reconciliation of the statements 9fcash flows,ope@ting.activities to operating income,<!~ follows:'*

Year Ended December 31, 2022 2021 {restated)

(thousands of dollars)

Operating income $ 81,682 $ 339,9~5 Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation 249,922 242,917 Regulatory amortization 36,688 35,369 Other Amortizations 22,909 .. 20,278

. *

• Revenue*deferred to (recognized from)' regulatciry credits 2~et (33,016) 19,483 Other (receipts )'payrhents - net 'i * .. 19,777 13,283 Changes in operating assets, deferred outflows, liabilities and deferred inflows:

Receivables - retail customers, wholesale and other (25,719) (15,543)

Iiw~ntories,,pr~ayments ~d other .. (29,479) (27,140)

Net pension and other postemployment benefits assets

• 85,270 (84,4~9)

• Deferred outflows of recources ' .. (122,706) 96,029

• Payables and accruals . 127,299 22,693 Decommissioning (6,049) * * (5,358)

Net pension liability 235,451 (469,820)

Net other postemployment benefits liability . 6,1sr Deferred inflows of resources ... (248,189) 251,493 Net cash provided by operating activities $ 400,593 $ 439,120 The supplementaldiscloin:ire.ofnoncash financing and investing.activities is-as follows:

Year Ended December 31, 2022 2021 (restated) 1

. * *' ' . (thousandsofdolfars)

Amortization of d(!bt related (expenses) anfi preµiiµms spet "$ ,.. 34,145 $. 34,969 Write-off unamortized premium and loss . .. ., 7,57~ 4,465 (Loss) Gain' on debt extingu1shment and refundings 6,677 3,925 Unrealized holding gain (loss) (5,890) (2,201)

Change in valuation of derivative financial instruments 163,871 93,719 Amortization of revenue for assets contributed in ~id of constnl(;tion . 19,226 18,208 Construction expenditures included in accounts payable, 55,787 43,470 (Loss) Gain on sale and retirement of assets - net * ** (2,036) (439)

Wnte-off capital projects and preliminary surveys . (3,720) ('.2'.057)

'* 'The aci:ohipanying ~otes irre **~ ilitegral part of these fiiiancial statements. *

• 19

', Sacramentq Mu':licipafUf~Uty ijistrict Notes to Financial Statements As of and for the Years Ended December 3'1, 2022 and 2021 NOTE 1*. ORGANIZATION

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

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

SMUD is exempt from payment of federal and state income taxes and, .under most circumstances, r~~l,and peiional property taxe~. SMUD is not exempt from real and personal property taxes ~ri assets it holds outside of its s~r,vice territqry. In addition, SMUD is responsible for the payment of a portion of the property taxes associated with *its real property in California that lies outside of its service area.

NOTE 2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES s

Method of Accounting. SMUD, a~counting records are maintained in accordailc~ with Gen~i-all'y Acce~ted 'Accounting Principles for proprietary funds as prescribed by the Governmental Accounting Standards B0ard (GASB). :SMUD's accounting records generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions of utility property in aid of construction. SMUD's Financial Statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are 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 as opera~ing na:~en,ue~.andexpehses. All other revenues and expenses are report~d as non-operating revenues and expenses.

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

Actual results could differ from those estimates.

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

Component Units. The component units include the Central Valley Financing Authority (CVFA), the Sacramento Cogeneration Authority (SCA), the Sacramento Municipal Utility District Financing Authority (SFA), the Sacramento Power Authority (SPA), the Northern California Gas Authority No. 1 (NCGA), and the Northern California Energy Authority (NCEA). The primary purpose of CVFA, SCA, SF A and SPA is to own and operate electric utility plants that supply power to SMUD. On October 26, 2021, SFA entered into Assignment and Assumption Agreements (the Agreements) with CVFA, SCA, and SP A. The Agreements transfer the assets and obligations, including ownership of the Carson Power Plant, Procter and Gamble Power Plant, Campbell Powt;r Plant, and Mcpellan Power Plant (assigned Power Plants) to SF A as of 20

November 1, 2021. The primary purpose,ofNCGA is to prep11y for natural gas to sell to SMUD. The primary purpose of NCEA is to prepay for commodities in the form of natural gas and electricity to sell to SMUD. SMUD's Board comprises the_

Commissions that govern these entities (see Note 6).

I, Plant in Service. Capital assets are generally defin_e9 by SMUP as tangible assets with an initial; individual cost of more, than five thousand dollars and an estimated use,fµI lj(e in excess oftw9 yyars. The cost of additions to Plant in Service and replacement propert)'. units is capitalized. Repair and maintenance costs are charged to expense when incurre,d.;-When S.(VIUD retires portions of its Electric Utility Plant, retirements are recorded against Accumulated Depreciation and the retired portion of Electric Utility Plant is removed from Plant in Service. The costs ofremoval and the related salvage value, if any, are

.charged or credited as appropriate to Accumul_ated Depreciation. SMUD generally computes depreciation on Plant in .Service on a-straight-li_ne, service-life basis. The,average annual composite depreciation.rates for 2022 and 2021 was 3.2 percent and 3.3 percent, respectively. Depreciation is calculated_ using the foll0.wing estimated lives:

Generation* ,; 8 to 80 years, Transmission and Distribution 7 to 50 years Gas Pipeline 10 to 90 years

General,:.,,. 3 to 60 years .

Investment in ,1oint Powers Auth9rity (JPA). SMUD's investment in the Transmission Agency ofNorthern California (TANC) is accounted for,µnder the.equity method of,accounting ano. is reported as a,compopent of Plant in Service. SMUD's share of the TANC debt service costs and operations and maintenance expense, inclusive of depreciation, is included in Transmis.~ion and,Distribution,expense in the Statt,ments of,R,evenues, Expenses ~nd Changes in Net Position (see Note 5).

SMUD's investment.in,the Balancing Authority ofNorthl:)rn Califqmia (BANC) is accounted for under the equity method of accounting. SMUD's share of the ~AN(: operations anc! maintenance expense is includeq in Tr;ansmission and Distribution expense in the, Statements qfRevenues, Expenses and Changes.in Net Position (see Not~ 5).

Leases. SMUD implemented Statement of Governmental Accounting Standards (SGAS) No. 87, "Leases" in 2022 (see Note 3).

Leases are c;ontracts that convey control ofthe,right.to use another entity's nonfina~cial asset as specified for a period of time in an exchange or ,el'.{change-like transaction without.the traqsfer ofQ)Vnershi,p ofth~ asset. The lease term is the period,oftime where there is a_noncanc::ellable right to use the,µnderlying_asst;t (see Note 4),. ..

For lessor contracts, lease receivables and deferred inflows of resources are reported_ at present value using SMUD's incremental borrowing rate on the Statements ofNet Position. The amortization of the discount for lessor contracts is recorded as Lease receivable for SMUD on the Statements of Net Position _with the offset.to intert!st inc9me in Int.erest and other income 9n the ,

Statements of Revenue, Expenses and Change in Net Position-(see Nqte 4).

For lessee contracts, lease assets and liabilities are reported at present value using SMUD's incremental borrowing rate on the Statements ofNet Position. The lease assets are amortized over the shorter of the lease term or the useful life of the underlying asset. The amortization of the discount for lessee contracts is recorded as Interest payable on the Statement of Net Position with the offset to Lease interest expense for SMUD on the Statement of Revenue, _Expenses and. Char,ige in Net Position (see,Note 4).

Restricted and Designated Assets. Cash, cash equivalents, and investments, which _are restricted by regulation or under terms of certain agreements for payments to third parties are included as restricted assets. Restricted assets include Revenue bond and debt service reserves, .Nuclear decommissioning tru~t fund, and Other funds. Board actions limiting the. use of such funds are included as designated assets. Designated assets include the Rate stabilization fund and $0.6 million of Other funds as of December 31, 2022 and 2021. When SMUD restricts or designates funds for a specific purpose, and restricted and designated and unrestricted resources are available for. 1,1se, it is SMUD's policy to use restricted and designated resomces first, then,µnrestricted resources as they are needed ..

21

Restricted Bond Funds. SMUD;s Indenture Agreements (Indenture)*tequires:tlfomainte'nance of minimum levels of reserves for debt service on the 1997 Series KBonds. ,,1, i ' , , *, *  ;

• Nuclear Decommissioning Trust Fund. SMUD made annual contributions to its Nuclear Decommissioning Trust Fund (Trust Fund) through 2008 to cover the cost of its pi-'imary decommissioning activ.ities associated with the Rancho Seco facility. Primary decommfssioning excludes activities associated with the speiit'fuel storage facility after 20018 and most non-radiological deccimrriissioning tasks. Interest earnings on the Trust Fund assets are recorded as Interest Income and are.

accumulated in the Trust Fund.

Asset Retirement Obligations (ARO). SMUD records asset retirement obligations (ARO) for tangible capital assets when an obligation to decommission facilities is legally required.

• SMUD recognizes AROs for its Rancho Seco nuclear power plant, and for the CVF A power plant facility (see Note 13). The Rancho Seco ARO is recorded as Accrued Decommissioning and

• the unfunded portion of the ARO is recorded as current and noncurrent Regulatory Costs for Future Recovery (see Note 8) in the Statements of Net Position. Other AROs are recorded as Accrued Decommissioning and a corresponding Deferred Asset Retirement Obligation Outflows in the Statements ofNet Position.

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

SMUD's non-perpetual leased land rights generally are renewed continuously because SMUD intends to utilize these facilities indefinitely. GASB No. 83 requires the measurement ofthe ARO to oe based on the.probability weighting ofpotential outcomes. Due to'the low probability thatthese leases wiiJ,be teiiftinated,* a liability has not* been recorded.'* ;, *:J -

Cash and Cash Equivalents. Cashand*cash equivalents inchide'aU debt ihstrumentspurchased*with an originahnanirity of 90 days or less, deposits held at financial institutions, all investments in the Local Agency Investment Fund (LAIF), and money market funds. LAIF has' an equity interest in the State of California (State) Pooled:Money lnVestment Account (PMIA). PMIA funds are on deposit with the State's Centralized Treasury System and are managed irfcompliarice with the

• California Government Code according'fo a statemenfofin:vestment policy which'sets forth*perrhitted investinent'vehicles, liquidity parameters, and maximum maturity of investments.

Investments. SMUD's investments are'foported at fair value iii accordance'with SGAS'No. 72','"Fair Value Measurement and.Application" (see Note 12).' Realized and untealized'gains aria losses are included-iii-Other income (expense)- net in the Statements ofRevenues, Expenses and Changes in Net-Position. Preniiums"arid discounts oh 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.

Electric Operating Revenues. Elecfri'c revenues are billed on the basis of monthly cycle bills and are recorded asrevenue when the electricity is delivered. SMUD records an estimate for unbilled revenues earned from the dates its retail customers were last billed to the end of the month. At December 31, 2022 and 2021, unbilled revenues were $80.5 and $93.6 million, respectively.

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

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

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

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

22

Customer Sales and Excise Taxes. SMUI),, is-reqµire_d by various governmental authorities, .including states and municipalities, to collect and remit taxes on certain customer sales. Such taxes are presented on a net basis and exclude_d from revenues and expenses in the Statements of Revenues, Expenses and Changes in Net Position.

Subsequent Events. Subsequent evepts fo_r:SMUD. have been.evaluated through February*24, 2023 (see Note 19).

Reciassifications., Certain amounts in the 2021 Financial Statements have been reclassified in-order to ,conform,to the 2022 presentation.

Re.ceIJ.t Ac.counting PrQnouncements, adopted. Jn Mar.ch +020, GASB issued SGAS No. 93, "Replacemen_t ofInterbank.-

Offered Rqtes" ((JASB. No. 93). The objective of this statement is to address accounting and financial reporting implications that result from the replacement of an interbank offered rate (IBOR), most notably, the London Interbank Offered Rate (LIBOR),

which is expected to cease to exist in its current form at the end.of2()21. This statement provides exceptions for certain hedging deriva,tive instruments toJhe,hedge accounting tt;@\i;iation provi~ions ,when an IBOR is replaced as the reference rate of the hedging1deri,va,tiyeins_trument's variable payment. Byrernqving LIBQR as an appropriate benchmark interest rate for the *.

qualitative.evaluatiqn:ofthe ";ffectiveness of an interi::st rate ~wap, GASB No ..93 identifies the Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate berwhmark interest rates.to replace LIBOR. :This statement i~ effective for SMUD in 2022. GASB No. 99 (see below) further states that the LIBOR is no longer an appropriate benchmark interest rate for a derivative instrument that hedges the interest rate risk of taxable debt when LIBOR ~eases to be determined by the ICE Benchmark Administration using the methodology in place as of December 31, 2021. SMUD utilizes the I-month LIB OR for its interest ra,te swap agr_eements, According to the ICE Benchmark Administratic;m, the_ I-month US dollar setti_ngs wi!J be detepniqed. and publi!)he~ unc!er_ the;1nethodology until ~he efld of June 2023. At this time, SMUD will 9etermine an appropriate benchmark intere.st rate;_ .. , .:-**.*;, ,_.,, ,

• In April 2022, GA.SB issued.~GA.S.No. 99, "Omnibus 202.2" (GASB No. 9Q). _This statement addresse.s a variety of topics and is effective for SMUD;io.2022, 2.023_, or 2024 depending on the r,equjrement. The only topic effe.ctive fqr SMUO.io,2022 is the replacement oflBOR,discussed above. SMUD chose to adopt provisions related to lea~es and*the implementation of GASB No.

87 that were effective in 2023 early. SMUI). im::qg,orat~d ,the <;Jarifications related to leases contained in GASB No. 99 during its implementation of.GASB 1',fo. 87. ~MUP i~ c;urrently asses~ing the .financial impac;t of adopting the remaining topics in this statement that ar~ effective.in 2023 and 2024_. . ,,.

Recent Accounting Pronouncements, not yet adopted. In March 2020, GASB. issued S(}AS No. 94, "Public.:.Private and, Public-Public Partnerships and Availability Payment Arrangements" (GASB No. 94). The primary objective of this Statement is to provide guidance for accounting and financial reporting related to public-private and public-public partnership arrangements (PPPs) and availability payment arrangements (AP As). A PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. An APA is an arrangement in which a government compensates an operator

• for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. This statement is effective for SMUO in 2023. SMUO is currently assessing the financial impact of adopting this statement but does not expect it to be material.

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

This statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for governments. The statement (1) defines a SBITA as a contract that conveys control of the right to use another party's information technology software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an exchange or exchange-like transaction; (2) establishes that a SBITA results in a right-to-use subscription asset and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs ofa SBITA; and (4) requires note disclosures regarding a SBITA. To the 27

extent relevant, the standards for SBITAs are based on the standards established in GASB No. 87, Leases, as amended. This statement is effective for SMUD in 2023. SMUD is'currehtly assessing'thdinahcial statement impact of adopting this*

• statement.

In June 2022, GASB issued SGAS No. 100, "Accounting Changes and Error Corrections - an amendment of GASB Statement No. 62" (GASB No. 100), to enhance accounting and financial'reporting-req'uirements for accounting changes*and error corrections. The statement defines accounting changes and sets forth requirements for reporting changes and error corrections in the financial statements. In addition, the statement contains requirements for disclosure in notes to financial statements of information about accounting changes and error corrections. Furthermore, for periods that are earlier than those included in the financial statements, information presented in required supplementary information and supplementary information should be restated for error corrections, but not for changes in accounting principles. This statement is effective for SMUD in fiscal year 2024. SMUD is currently assessing*the financial statement impact of adopting this statement.**

In June 2022, GASB issued SGAS No. 101, "Compensated'Absences" (GASB No. 101), to bettet meet the information needs of financial statement users by updating the recognition and *measurement guidance for compensated absences. The unified

• recognition and measurement model in this Statement will result in a liability for compensated absences that niore appropriately reflects when a government incurs an obligation. This statement is effective for SMUD in'fiscal year 2024. SMUD is currently assessing the financial statement impact of.adopting this statement" NOTE 3. ACCOUNTING CHANGE

• In June 2017, GASB issued SGAS No. 87, "Leases" (GASB No: 87), to *better meet the 'information needs offinancial statement users by improving accounting and financial reporting for leases by*govemments. The statemehtrequires recoghition*ofcertain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows ofresources based on the payment provisions of the contract. GASB No. 87 establishes a single model for lease accounting based on the foundational principle tHat leases ate financings of the right to use:an underlying'.asset: Under GASB No. 87, a lessee is required to recognize a lease lia6ility ahd *an intangible right-to-use lease'asset, and a lessor is required to recognize a lease-receivable and*a deferred inflow ofresources, 'SMUD implemented GASB No. 87 iri fiscal year 2022, retroactive to the beginning of fiscal year 2021. SMUD has*a'ssessed wheth'er its le'ases meet the requirements ofGASB No. 87.

The'implementation impacted the Statements of Net Positiori*when the lease assets; receivables, liabilities and deferred inflow of resources were recorded. The implementation also impacted the Statements ofRevemies, Expenses and Changes in Net Position as lease revenue, amortization expense, interest income, and interest expense were also recorded. Net Position was reduced by

$0.8 million for 2021 due to the restatement (see Note 4).

28

SMUD has restated amounts of the affected balances within'the financial statetnents for the period ended December 31, 2021, as follows:

STATEMENTS OF NET POSITION December 31 2021 (restated) 2021 Assets Electric Utility Plant Plant in service $ 6,864,040 . $ 6,782,493 Less accumulated depreciation and depletion (3;340,797) (3,314,820)

.1 Current Assets

• Receivables - net:

Wholesale and other 58,628 58,202 Noncurrent Assets Due from affiliated entity 29,674 29,687 Prepayments and other 40,738 23,576 Current Liabilities Interest payable 50,739 50,709 Customer deposits and other 67,064 41,003 Noncurrent [iiabilities . * ,

Self insurance and other. 118,146 87,617 Deferred Inflows ofRe;ourccis Regulatory credits '*' , 543,014 543,027 Deferred lease inflows 17;373 Net Position Net investment in capital assets . l,349,688 1,350,709 Revenue bond and debt service 64,793 64,823 Unrestricted 777,674 777,459 STATEMENTS OF REVENUE, E~PENSES AND CHANGES IN NET POSITION December 31 2021 (restated) . 2021 Operating Revenues Street lighting and other $ 41,739 $ 42,031 Operating Expenses Purchased power 395,572 420,350 Production 357,832 358,162 Administrative, general and customer 153,799 153,978 Depreciation and amortization 242,917 216,940 Non-operating revenues (expenses)

Interest income 6,777 6,501 Other income - net 93,302 93,432 Change in Net Position 338,749 339,585 Net Position - End of Year 2,296,261 2,297,097 29

STATEMENTS OF CASH FLOWS.

December31 2021 (restated) 2021 Cash flows from operating activities Receipts from customers $ 1,498,124 $ 1,498,982 Payments for wholesale power and gas purchases (599,268) (621,944)

Payments to vendors/others (320,201) (320,710)

Cash flows from capital and related financing activities Lease and other,payments (23,185) Cash received from leases 85.8 Reconciliation of operating income to net cash provided by operating activities:

Operating income 339,935 340,917 Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation 242,917 . 216,940 Other (receipts) payments - net 13,28~ 15,951 NOTE 4. ELECTRIC UTILITY PLANT The summarized activity of SMUD's Electric Utility Plant during 2022 is presented below:

Balance Transfers Balance ,.

January 1, and ' December31, 2022 Additions DispC>sals (thousands of dollars)

Nondepreciable Electric Utility Plant:

Land and land rights $ 169,544 $ 1,072 $ $ 170,616 CWIP 367 297 (372,978) 347 758 Total nondepreciable electric utility plant 536 841 (372,978) 518 374 Depreciable Electric Utility Plant:

Generation 1,751,920 21,801 (7,324) 1,766,397 Transmission 522,765 112,301 (341) 634,725 Distribution . '2,651,039

• 147,235 (12,699) 2,785,575 Investment in JPAs 34,761 5,947 40,708 Intangibles 526,923 44,394 571,317 General 1,125,541 45 634 (23,361) 1 147 814 6,612,949 377,312 (43,725) . 6,946,536 Lease Assets:

Land 1,764 1;764 Generation 76,804 76,804 General 2979 2 577 5 556 81,547 2,577 .

• 84,124 Less: accumulated depreciation and amortization (3,333,205) (248,672) 41,787 (3,540,090)

Less: accumulated amortization on JPAs (7,592) (313) (7,905)

(3,340,797) (248,985) 41,787 (3,547,995)

Total depreciable plan,t 3,353,699 (1,938)

Total Electric Utility Plant - net $ 3,890.540 $ (374 916) 30

• .The summarized activity of SMUD' s Electric Utility Plant during 2021 is presented below.:

Balance Transfers Balance January I, and December 31,

/*. 2021 Disposals 2021 (Restated)

(thousands of dollars)

Nondepreciable Elect.ric Utility Plant:

Land and land rights . $ 159,515 $ 10,835 $ . (806) ,$. 169,544 CWIP 461 319 298,426, (392,448), ..:. .*:_ ___,,3=67.,_,,=29'-'-7 Total nonqepreciable electric utility plant, 620 834 309,261 (393,254) *'--*-----"5'-"-36"'-'--"-84!..'-l Depreciable Ele.Gtric Utility, Plant:

Generation 1 1,7.10,420 49,594 (8,094) 1,751,920 Transmission ,, 410,567 113,776 (1,578) ~22,765 Distributfrm  ::.2,498,526, 162,177 (9,664) 2,651,039 Investmt1nt,in JPAs 30,012, 4,749 .34,761, Intangibles 517,415 18,016 . (8,508) *526,923 General 1,098,911 39 861 (13,231) 1,125,541 6,265;851 388,1_73., (f!J,075) 6,612,949 Lease, Assets:

Land 1,764 1,764 Generation 76,804 76,804 General 2 979 2 979 81,547 81,547 Less: accumulated depreciation and amortization (3,132,247) (242,313) 41,355 (3,333,205)

Less: accumulated amortization onJPAs  :*, {7,279) (313) (1,592)

(3,139,526) (242,626) 41,355 (3,340,797)

Total depreciable plant 3,126,325 3,353,699 Total Electric Utility Plant - net $ 3147 ]_~2 *: $ 3 820,540 Leases. SMUD engages in lease contracts for_ land, communicati9n ~ites, buildings, and a poVyer plant. S1\1,UD leases land to SFA, a component unit, and as described in Note 2, all of the activities 1;J.nd balances of.the component ur1its are bl.ended into and reported as part ofSMUD because of the extent of their operational and financiai relationships with SMC)D ..

Lessor. Lease agreements include land, communication sites, and a building. Lease terms range from 1.9 to 35 years including options to extend the.lease tenn after completion of the initial contracted term. Jhe likelihood thaf;the renewal options yvill be exercised ll.as been evaluated and it has been determined that Lessees will exercise the,renewal_ options with reasonable certainty.

The agreements allow for periodic increases to the lease payments. The interest rates range between 0.7 percent to 4.2 percent based on the AAA Muni Curve with the number of years to maturity that cor;rei;ponds to the lease term, plus an additional credit spread to account for a different credit ri:l,ting and other factors. At December.31, 2022 and 2021, lease receivables included ,in current assets, Receivables - Wholesale and other _(see Note 2), were $0.8 million and $0.4 million, respectively, and lease rece,ivables included in noncurrent assets, Prepayments and other, were,$ I 7 .8 million and $17.2 milliori, respectivdy. As of December 31, 2022 and 2021, deferred lease inflows were $1&.2 million and $17.4 million, respectively. SMUD recognized lease revenue of$0.7 million and $0.6 million in 2022 and 2021, respectively, which is reported in Street lighting and other on 31

the Statements of Revenues, Expenses and Changes in Net Position.' SMUD recognized interest income of $0.03 million in*2022 and 2021. There were no variable lease payments received in 2022 or 2021.

Lessee. Lessee agreements' include land, buildings, and a power plant. Lease terms range from 3 to 25 years including options to extend the lease term after completion of the initial contracted term. The likelihood that the renewal options will be exercised has been evaluated and it has been determ:ined that the lease agreements will be renewed with reasonable certainty. The agreements allow for periodic increases to the lease payments. The interest rates range between 0.1 percent 'to 4.2 percent based on the A'AA Muni Curve with the number of years to maturity that corresponds to the lease term, plus an additional credit spread to account for a different credit rating and other factors. As of December 31, 2022 and 2021, assets recorded under leases were

$84.1 million and $81.5 million, respectively, and accumulated amortization associated,with*lease assets was*$52'.0 million and

$26.0 million, respectively. SMUD recognized amortization expense of$26.0 million in 2022 and 2021 which is reported as Depreciation and amortization on the Statements of Revenues, Expenses and Changes in Net Position. As of December 31, 2022 and 2021, lease obligations included in current liabilities, Customer deposits and other, were $26.8 million and *$26.1 million, respectively, and lease obligations included in noncurrent liabilities, Self insurance and other, were $6.3 million and $30.5 million, respectively. There were no lease impairments in 2022 or 2021. There were no payments recorded in the 'cutrent period that' were not included in the measurement of the lease liabiiity. There is one lease commitment for which the lease term begins in 2024 and will be recorded as a lease asset and lease liability upon commencement of the lease term.

The following table summarizes the future !'ease principal and interest payments as of December 31, 2022:

PrinciQal Interest * -* 'fdtal ;, .

'2023 $ 26,767 $ 174 $ 26,941 2024 402 142 544 2025 419 137 556 2026 429 132 561 2027 438 127 565 2028-2032 (combined) 1,816 * '548 2,364 2033-2037 (combined) 939 422 1,361 2038-2042 (combined) 979 273 1,252 2043-2046 (combined) 919 99 I 018 Total '$' 33 108 $ 2 054 $ 35,162 NOTE 5; INVESTMENT IN JOINT'POWERS AUTHORITY TANC. SMUD and fourteen other California'rimnicipal 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 percent of TANC's COTP debt service and operations costs in exchange for entitlement to approximately 536 megawatts (MW) of TANC's 1,390 MW transfer capability. Additionally, SMUD has a 48 MW share ofTANC's 300 MW firm; bi-directional transmission over Pacific Gas and Electric Company's (PG&E) system between PG&E's Tesla and Midway substations (SOT). The total entitlement shares for the COTP and SOT described above include the long-term agreements *listed below.

In 2009, SMUD entered into a 15-year long 0 term layoff agreement with TANC and certain members; expiring January 31, 2024. This agreement provides for the assignment of all rights and obligations of the' City of Palo Alfo and the City of Roseville related to their COTP and SOT entitlements.\ This agreement increased SMUD's COTP entitlement by 36 MW and SOT entitlement by 2 MW. 'On July i, 2014, an amendment returned to the'City of Roseville all rights and obligations related to the COTP entitlements, which decreased SMUD's 'COTP entitlement by 13 MW.

' 32

a Effective July 1, 2014, SMUD entered into 25-year long-term layoff agreement with TANC and certain members that' provides for the assignment of all rights and obligations of Northern California Power Agency and partial rights and obligations of the ,City of Santa Clara related t0; tbe.ir ,COTP entitlements. This agreement increased SMUD's COTP entitlements by 130 MW. , * * '**

The long-term debt of T ANC, which totals $1,67.8 )llillion (ul).~udited) at December 31, 2022, is. collateralized by a pledge and assignment of net revenues of TANC supported by take or pay commitments of SMUD and other members, Should other members default on their obligations to TANC, SMUD would ~e fflquired to make itdditional payments tP .cover a portion-of such defaulted payments, up to 25 percent of its current obljgation. SMUD recorded transll).ission expenses,.related to, TANC, of$16.9 million and $16.5..million in 2022 and 2021, respectively.

Summary financial information for T ANC is presented below:

December 31

,f022 2021(restated)

(Unaudited} (Unaudited}

(thousands of dollars)

Total Assets $ 389,258 $ 372,434 Tot~! Peferreµ ,Outflows .of Resources 106 349 Total Ass7ts ~nd D~f.e_rryd Outflows otResources r . * $ 389.364. $ 372.783 Totai Liabilities $ 309,291 $ 307,554 Total Deferred Inflows ofResour~es 995 1,079 Total Net Position 79 078 64150 Total Liabilities a~d Net

• }

Pbsition r.,

$ 389 364 $ 372.783 Changes in Net Position for the Six Months Ended D~c~l_llber 31 , $ 7 $ . \. 'i Copies of the TANC annuai finJncial reports may b~ obt~ined from SMUD at P.O. Box 15830, Sa~ram:ento, Californi~ 95852 or online at www.tanc:us. . .. .

BANC. SMUD, City of Redding, City of Roseville, Modesto Irrigation District (MID), City of Shasta Lake, and Trinity Public Utilities District are members of BANC, a JPA formed in 2009_- In 2011, operational control bf Balancing Authority A~ea (BAA) operations was transfe~red from SMUD to BANC: BANC performs FERC approved BkA reliability functions that are managed by North American Electric Reliability Corporation (NERC)>nationally, and by Western Eiectricity Coordinating '

Council functions in the west. SMUD recorded expenses related t~ BANC of$3.9 inrllfon a:n'd $3.7 million 1n 2022 and 2021, respectively.

Summary financial information for BANC'is preserited below:

December 31 2022 2021 (Audited} (Audited}

(thousands of dollars)

Total Assets $ 15.028 $ 7.097 Total Liabilities $ 15028 $ 7,097 Total Net Position Total Liabilities and Net Position $ 15.028 $ 7,097 Changes in Net Position for the Year Ended December 31 $ $ Copies of the BANC annual financial reports may be obtained from SMUD at P.O. Box 15830, Sacramento, California 95852.

33

NOTE 6. COMPONENT UNITS

.i *,,

CVFA Carson Power Plant Cogeneration Project. CVFA is a JP A formed: by 'SMUD and the' Sacramento Regional County Sanitation District. CVFA operates the Carson Power Plant Project, a 65 MW (net) natural gas-fired cogeneration facility and a 42 MW (net) natural gas-fired simple cycle peaking plant. On November 1, 2021, CVFA transferred the assets and obligations, including the ownership of the CarsonPower Plant t6 SFA (see Note 2). .

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

SFA Cosumnes Power Plant Project. SFA is a JPA formed by SMUD and MID. SFA operates the Cosumnes Power Plant

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

"'sPA Campbell Soup Power Plant Cogeneration Project SPA is a JPA formed by SMUD aiid the SFA.'. SPA operates the Campbell Soup Power Plant Project, a 160 MW (net) natural gas-fired co generation fadlity; and the M~Clellin 'Power Plant Project, a 72 MW (net) natural gas-fired simple cycle peaking plant. On November 1, 2021, SPA transferred the assets and

. obligations, i~cludj\lg the ownership of the Campbell and McClellan Power Plants to SF A (see No~e2). * * *'* * * ,. ; * ' *

• NCGA. NCGA is a JPA,formed by SMUD and the SFA. NCGA has a prepaid gas contract with Morgan St~~iey C~pit~I Group (MSCG) expiring in 2027, which is financed primarily by NCGA revenue bonds. SMUD h~s c~~fracted ~itli NCGA to purchase all the gas delivered by MSCG to NCGA, based on markt;t prices. NCGA is obligated to pay the principal and

• . '*1 ' ' ., . '  !- I* . : ."

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 i~ Mscch credit rating below~ sp~dfied level. If this occ~rs, MSCG ~ill. be required to make a termination payment to NCGA based on the unamortized prepayment proceeds received by MSCG. * * ' *

.;_ ,*, *' *' *

• I NCEA. NCEA is a ~A formed by_ S.J\1.UD and the SFA, NCEA has a prepaid natu~al gas and electricity (~ommodity) contract with J. Aron & Co~pany _LLC (!,- Aron), e;,<:piring in 2049, whic~ is financed primarily by NCEA revenue bonds.

SMUD .has contracted with NCEA to purcha~t; a,11 the commo~~ty de)jvered by J. Aron to NCEA, based on market prices.

NCEA is obligated to pay the principal ard inter()st on the bon~s.. , Neither SMUD nor SFA is obliga~ed to make debt_ service payments on the bonds. NCEA can terminate the prepaid commodity contract under certain circumstances, including, a failure by J. Aron to meet its commodity delivery obligation to NCEA. If this occurs, J. Aron will be required to make a termination payment to NCEA based on the unamortized prepayment proceeds received by J. Aron.

34

The summarized activity of SMUD's component units for 2022 is presented below:

r**

CONDENSED STATEMENTS OF NET POSITION December 31, 2022 (thousands of dollars)

SFA NCGA NCEA Assets Electric Utility Plant - net $ 309,606 $  : $ *, Current Assets 109,01 I 40,591 36,148 Noncurrent Assets 682 112,872 524 549 Total Assets 419,299 153,463 560,697 Deferred Outflows. of Resources 3 258 Total Assets and Deferred Outflows of Resources: $ 422.557 $ 153,463 $ 560.697 Liabilities Long-Term Debt - net $ 95,553 $ 120,070 $ 544,562 Current Liabilities 44,332 24,404 20,537 Noncurrent Liabilities 15,215 208 Total Liabilities 155,100 144,474 565,307 Net Position 267457

• 8 989 (4,610)

Total Liabilities and Net Position $ 422.557 $ 153.463 $ 560.697 CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION December 31, 2022 (thousands of dollars)

SFA NCGA NCEA Operating Revenues . l $ 115,247 $ 28,472 $ 42,955 Operating Expenses 94 435 22,520 3 845 Operating Income 20,812 5,952 19,110 Non-Operating Revenues and Expenses Other Revenues 1,155 326 Interest Charges and Other (3,126) (6,610) {16,354)

Change in Net Position Before Dist~jbutions and Contributions 18,841 (332) 2,756 Distribution to Member (35,000) (590) (941)

Member Contributions 73 140 Change in Net Position (16,159) (849) 1,955.

Net Position - Beginning of Year 283,616 9 838 (6,565)

Net Position--,- End of Year $ 262,452 $ 8,989 $ (4,610) 35

CONDENSED STATEMENTS, OF CASH FLOWS December 31, 2022 (thousands of <;lo!Jars)

• , *SFA NCGA NCEA Net Cash Provided by Operating Activities $ 47,786 $ 25,312 $ 22,955 Net Cash Provided by (Used in)

Noncapital Financing Activities (35,000) (27,955) (22,694)

Net Cash Used in Capital Financing Activities (41,839) Net Cash Provided by (Used in)

Investing Activities 384 536 ., . (8;579}

Net Decrease in Cash and Cash Equivalents (28,669) (2,107) (8,318)

Cash and Cash Equivalents at the Beginning of the Year 69 630 14 823 10 877 Cash and Cash Equivalents at the '*_'. i'.,

End of the Year * $ 40.961 $ 12,716 $ 2;559

• nl:_;

The summarized activity of SMUD's component units for 2021 is presented below:

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

.SFA (Restated} NCGA NCEA Assets Electric Utility Plarit - net  :'$ 309,574 $ $ Current Assets 133,673 39,938 28,879 Noncurrent Assets 790 138,186 528,808 Total Assets 444,037 178,124 557,687 Deferred Outflows of Resources' 3 267 Total Assets and Deferred Outflows cif Resources $ 447,304 $ 178 124 $ 557.687 Liabilities Long-Term Debt - net $ 99,421 $ 142,935 $ 551,815 Current Liabilities 49,507 25,351 12,277

• Noncurrent Liabilities 14 760 160 Total Liabilities 163,688 168,286 564,252 Net Position 283,616 9 838 (6,565)

Total Liabilities and Net Position $ 447.304 $ 178 124 $ 557,687 36

CONDENSED STATEMENTS OF REVENUES,,.EXPE;~SES AND CHANGES-IN NET POSITION December 31, 2021 (th,o~sands of dollars)

• sFA

, I'*.* .. r* i (Restated) NCGA NCEA Operating Revenues $ 143,050 $ 27,092 $ Q.1,406

• Operating Expenses 137,234 f9 980 3 573'"

Operating'Income: 5,816 7,112 11;833' Non-Operating Revenues and Expenses Other Revenues 51 492 459 Interest Charges and Other ,, (3,464) (7,449) ' (16,774)

Change in Net Position Before Distributions, Contributions* and* Special Item (3,413) 155 1,518 Distribution to Member' (544) (843)

Membe~ Contflbutions * ~o-* 81 79 Special Item 161,298 Change 'in *Net' Position * '163,701 (308) 754 Net Position:...:. Beginning of Year 1;19 915 10 146 (7,319)

Net Position'-End of Year $*283:616 $ .. 9.838 ==$ ="'=<6-,5==6-5)

=*

C0NPENSEDSTATEMENTSOF CASH FLOWS -* 1 *

., .- p~c~ipber 31, 2021 ,1

,/ , . (thousands of dollars)

'(,'

. ; j '

SFA

@,estated) NCGA NCEA Net Cash Provided by Operating Activities $ 25,536 $ 26,145 $ 21,405 Net Cash Provided by (U,~ed in)

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

Net Cash Used in Capital Financing Activities (17,82,7) .

Net Cash Provided by Investing Activities 56 492 1 190 Net Increase in Cash and Cash Equivalents 45,764 11 -O-*

Cash and Cash Equivalents at the Beginning of the Year 23,866 14 812 10 877.

Cash and Cash Equivalents at the End of the Year $ 69.630 . ==$=*==14=.8=2=3 $ 10.877 As described in Note 2, all of the activities and balances of the component units are blended into and reported as,part of SMUD because of the extent of their operational and financial relationships with SMUD. Copies ofSFA's, NCGA's and NCEA's annual financial reports may be obtained from their Executive Office at P.O. Box 15830, Sacramento, California 95852 or online at www.smud.org.

37

NOTE 7. CASH, CASH EQUIVALENTS, AND INVESTMENTS',; **

. .. ', ~

Cash Equivalents and Investments. SMUD's investment policy is 'g~verned by the California State and Municipal Codes and its Indenture, which allow SMUD's investments to i11clude: obligations which are unconditionally guaranteed by the U.S.

Government or its agencies or instrumentalities; direct and general obligations of the State or any local agency within the State; bankers'. acceptances; commercial paper; certificates of deposit; repurchase and reverse repurchase agr,eements; medium term corporate notes; LAIF; and money market funds. 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 inve_stment will not fulfill its obligation to the holder of the investment To mitigate this risk, SMUD limits investments to those rated, at a minimum, "A-1" or equivalent for short~te1_111 investments a!1d "A" or equivalent for medium-term corporate notes by a nationally recognized rating agency, with tp_e exception, of the ,

• Guaranteed Investment Contracts (GICs) held by NCEA. NCEA's GICs are rated at the credit rating oft~e c9mmodity, supplier, or, if not rated, the guarantor of the commodity supplier which is currently Goldman Sachs rated~ '.'.BBB+" ..

l:,

Custodial Credit Risk. This is the risk that, in the event-.of the failure of a depository financial institutiop:Q.r eounterrai:ty to ,a transaction, SM;lJD's deposits a,nd in,vestments maY, notbe returned or SMUD will not be ab~e ~o reco~er_tpe,yalu~ oJjts-_,

deposits, investments or collateral ,securities _that are ,in the po~session of another party. SMUD do~s .not ~ave, a depo:,it or .-

investment policy for custodial credit risk.

• As of December 31, 2022 and 2021; $9. 7 million and $21.9 m'illioil in deposits were uninsured, respectively. The bank balance is also, per a depository pledge agreement between SMUD*an:d SMUD's bank, collateralized at 128 percent and 129 percent of the collective funds on deposit (increased by: the amount of ~ccrued but uncredited interest, reduced by deposits covered by Federal Deposit Insurance Corporation) at December 31, 2022 and 2021, respectively. SMUD had money market funds of$185.7 million and $141.6 million which wer~ uninsured at December 31, 2022 and 2021, respectively. SMUD's investments and money market funds are held in SMUD's n~~e.

Concentration of Credit Risk. This *is the risk of loss attributed to the magnitude of an entity's investment iri a single issuer.

SMUD places no limit on the amounts ,invested in any one issuer for repurchase agreements, US Treasu!les,' federal' agency, and state and municipal securities. *

• The following are the concentrations of risk greater tha~ five percent in either year:

December 31 2022 2021 Investment Type:

Federal Home Loan Banks 68% . 30%

Freddie Mac NIA . 13%

Corporate Note - Toyota Motor Credit Corp *.5% NIA Municipal Bond- CA Department of Water Resources NIA- 18%

Municipal Bond- State of Florida 5% 16%

Municipal Bond - State of California NIA 7%

Federal Farm Credit Bank i 6%* NIA Ebury NIA 7%

Guaranteed Investment Contracts 4% 7%

Interest Rate Risk. This is the risk of loss due to the fair value of an investment declining 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 38

investment maturities as a means ofmanaging*its expClsure to fair value losses arising from increasing interest rates. SMUD is exposed to interest rate risk on its interest rate swaps (see Note 9).

The following schedules iµdicate the credit and interest rate risk at December 31, 2022 and 2021. The credit ratings listed are from Standard & Poor's (S&P) or Moody's. (NIA is defined as not applicable to the rating disclosure requirements.)

At December 31, 2022, SMUD's cash, cash equivalents, and investments consist of the follow.iry.g:

Remaining Maturitie_s.(in years)

Credit Less -More Total Fair Description Rating Than I 1-5 Than5 Value (thousands of dollars)

. Ca,sh.and Cash Eql!ivaknts:

Cash NIA $ 2,453 $ $ $ 2,453 LAIF Not Rated 85,502 85,502 Money Market F~bds AAAm 185,709 185,709 Deposit at Notice ' I NIA 103,597 103,597 Commercial Pap~r- A-I 12 577 ------= ------" 12 577

' Total cash and bash equivalents *389,838 389,838 Investments:

Federal Home Loan Bank AA+ 218,532 123,332 341,864 Federal Farm _Credit ];3_a,nk AA+ . -q-. 29,377. _ 29,377 U.S.' Treasury Obligations Aaa 39,569 24,27:i 63,841 Corporat~ Notes * ** * *

• AAAIAA+IA~iA+IA ' . 48,490 48,490 Municipal abiids ' '  ;. AAA/AA+IAA~-, 24,582 '25,327 49,909 Guaranteed Investment Contracts * '*BBB+' _ _ _ _-;_,-0"-- 19 350 _ _ _,_*--"'0- 19,350 Total investments 282,683 210,148 552,831 Total cash, cash equivalents, and investments $ 672.521 $ 270,148 ~$=*=~ $ , 942.669 At December 31, 2021, SMµD's cash,ca~h equiyalents, and,investments consist-of the following:

• l ** * . ' ,I '

Remaining Maturities (in years)

Credit Less More Total Fair Description Rating . _.,...,T,..,h,,,a,...n....,.1_ 1-5 Than 5 Value

,(thousands of doHars)

Cash and Cash Equivalents:

Cash NIA $ 4;931 $ $ $ 4,931 LAIF Not Rated 526,297 526,297 Money Market Funds AAAm 141,605 * "141,605

• Deposit at Notice NIA 105,922 1 105,922 Commercial Paper A-1 9 893 --'------"0- ----'-'-..,,0- 9 893 Total cash and cash equivalents . 788,648 788,648 Investments:

Federal Home Loan Bank AA+ 44,992 44,992 Freddie Mac . AA+ 20,013 20,013 U.S. Treasury Obligations AA+ 39,993 -o: ' 39,993 Corporate Notes AA+ 3,975 3,975 Municipal Bonds AAAIAA+IAA- 37,947 24,851 62,798 Guaranteed Investment Contracts BBB+*_-'--------'-0,,_- 10,258 10,258 Total investments 146,920 35,109 182,029 Total cash, cash equivalents, and investments $ 935.568 $ 35.109 ,.,$===-~0- $ 970.677 39

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

.*J*: ' I"; * >~ '

December 31 2022 2021 (thousands of dollars)

Cash, Cash Equivalents, and Investments:

Revenue bond reserve and debt service funds:

Revenue bond reserve fund $ 2,004 $ 2,931 Debt service fund 81,263 78,922 Component unit bond reserve and debt service funds 36118 38 171 Total revenue bond reserve and debt service funds 119,385 120,024 Nuclear decommissioning trust fund 8,980 8,874 Rate stabilization fund 156,616

• 188;992 Component unit otherrestricted funds . 3,015 6,575 Escrow fund 12,484 , 15,182 Qther restricted funds , , 14,925 654 Unrestricted funds 1630,376 Total cash, cash equivalents, and iny~stments *$ 270.,6.71 NOTE 8. REGULATORY DEFERRALS The Board has taken variou~ regulatory actions that result in differences between the recognition of revenuis *ahd ex~erises for

' . . . : ,*, I' ' ,,,.,. ;'. . .

ratemaking purposes and their treatment under generally accepted accounting principles for non-regulated ~nt,ities (see Note 2). These ~tions result in regulatory assets and deferred inflo"Y of resources, which are summarized in the ~abl~s below.

Changes to .these balances, and their inclusion in rates, occ:ur pnly at the direction of the Board ..

Regulatory Assets (Costs)

Decommissioning. SMUD's regulatory asset relating to the unfunded portion of its decommissioning liability for the Rancho Seco nuclear power plant is being collected'througlr interesfearriings on the Tnist Fu:nd. Nuclear fuel storage costs and non-radiological decommissioning costs have been collected in rates since 2009.

Derivative Financial Instruments. SMUD's regulatory cost~ and/or credits relating to investment derivative instruments are intended to defer the net difference between the fair value ofd~rivative instruments and their cost basis, ifany. Investment derivative instruments are reflected in rates at contract cost and as such, the balance is charged or cr~dited into rates as the related asset or deferred inflow of resource .is,utilized (see ~ote 9).

Debt Issuance Costs. SMUD established a regulatory asset for costs incurred in connection with the issuance of debt obligations, principally underwriter fees and.legal costs. The regulatory asset is amortized through 2022 for the portion related to SMUD's debt issuance costs and over the life of the bonds for the portion related to the component units' debt issuance costs. Debt issuance costs after December31, 2013 are expensed.

Pension. SMUD established a regulatory asset for pension costs related to the implementation of GASB No. 68 which requires SMUD to record a net pension asset or a net pension liability. The regulatory asset is being amortized over a pei;iod of25 years starting in 2018.

OPEB. SMUD established a regulatory asset for OPEB costs related to the implementation ofGASB No. 75 which requires SMUD to record a net OPEB asset or net OPEB liability. The regulatory asset will be amortized over a period of25 years starting in 2020 ..

40

Pension/OPEa. In 2022, SMUD established regulato.ry,accounting for pension and OPEB regulatory costs and/or credits to defer recognition of certain expenses related to the amortization of the pension and OPEB deferred outflows and deferred inflows of resources to match such costs in the appropriate accounting period for rate-making purposes.

SMUD 's total regulatory costs for future recovery are. presented below:

December 31 2022 2021

. (thousands ofdollars)

Regulatory Costs:

Decommissioning $ 83,882 83,846 Derivative financial instruments 1,095 5,387 Debt issuance costs 1,255 1,464

• • Pension - implementation costs 340,544 357,571 Pension deferred outflows . 86,574 OPEB,- implementation costs 281,010 293,783 OPEB defei:red.outflows 19 198 Total regulatory costs Less: regulatory costs to be recovered within one year Total.regulatory costs for future recovery - net .

Regulatory.Cre~its CIAC. In 2022 and 2021, SMUD added ~IAC totaling $23.9-million ;ip.d $24.2 million, respectively, to Regulatory Credits in the Statements ofNet Position and recorded $14.8 million and $14.2 million of amortization, respectively, to Other income (expense),-net_in the Statements.of Revenues, Expenses and Changes in Net Position. SM)JD'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 increases when .costs exceed existing rates. At the direction of the Board, amounts may be either deferred into this fund (which reduces revenues), or amounts are recognized out of this fund (which increases revenues). The Board authorizes Rate Stabilization Fund (RSF) deferrals on an event driven basis.

In 2022 and 2021, $30.0 million and $11.4 million, respectively, was recognized as revenue from the RSF as a result oflower than budgeted energy deliveries from the Western Area Power Administration.

, SMUD participates in the carbon allowance auctions under AB-32, the Global Warming Solutions Act (see Note 2). The Board authorized deferral of AB-32 auction proceeds to match the revenue recognition with the related expenses. The ,*

difference between the auction proceeds received and the funds spent on AB-32 programs are deferred into future years. In 2022 and 2021, the Board authorized deferring the difference into the RSF and $23.0 million and $16'2 million, respectively, was deferred from revenue to the RSF.

SMUD sells LCFS credits under AB-32, the Global Wanning Solutions Act (see Note 2). In :?019, the Board authorized deferral ofLCFS credit sales to match the revenue recognition with the related expenses. The difference between the LCFS credit sales. and the funds spent on LCFS programs are deferred into future years. In 2022, the Board authorized deferring the difference and $0.7 million was deferred from revenue to the RS}!., In 2021, the Board aqthorized recognizjng the difference and $0.9 million was recognized from the RSF to revenue.

In 2021, the Board authorized SMUD to defel':$35.0 million from revenue. to the RSF to offset future one-time specific expenses which may have a significant finanpial impact.on SMUI) .. :In 2022, the Board authorized th~ use_ of$41.0 million of 41

deferred operating revenue to offset future Community Impact Plan expenditures from 2022 through 2025, a:nd:$1.5 million,.

was recognized from the RSF to revenue,

1,, ;.,,,,

Hydro Rate Stabilization. The Hydro Rate Stabilization Fund (HRSF) was established through the Hydro Generation Adjustment (HGA) mechanism, which helps manage volatility in energy-costs, The HGA mechanism applies a fonnula based on precipitation,and wholesale electricity prices to calculate needed withdrawals from or deposits to the HRSF. The maximum balance of the HRSF is 6 percent of the budgeted retail revenue and the maximum annual transfer in or out of the HRSF is 4 percent of budgeted retail revenue. If the HRSF is depleted, SMUD will apply a hydro rate surcharge to customers' bills up to 4 percent. When the HRSF reaches the 6 percent cap, the Board may authorize a hydro rebate to customers or direct the funds for another purpose, In 2022 and 2021, $25.1 million and $18.6 million, respectively, was recognized from theHRSF to revenue as a result of low precipitation.

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 difference between the surcharge revenues received and the funds spent on solar initiatives will be recognized or deferred into future years. SMUD has spent less than it collected in SBal :revenues and has recorded a regulatory credit. Collection of the solar surcharge ended in December 2017 when tota'.I' collections reached

$130:0 million. In 2022 and 2021, $0.04 million and $0.8 million was spent for SB-I programs, respectively!

Grant Revenues. ln 2009, SMUD was awarded several large grants under the American Recovery and Reinvestment Act, which provided significant reimbursements for capital expenditures. In 2010, the Board authorized the deferral of grant income for capital expenditures as regulatory liabilities. Thus, this regulatory credit was deferred to match the-depreciable lives of the related capital assets in order to 'offset the eamings effecfofthese non-exchange transa:cticins, .r-TANC Operations Costs; SMUD's cashpayment,stoTANC exceeded TANC's accniaJ:based*costs and SMUD has recorded a regulatory credit. , ,

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

December 31 2022 2021 Restated (thousands of dollars)

Regulatory Credits:

CIAC $ 298,026 $ 288,856 Derivative Financial Instruments 2,767 Rate stabilization 125,0*32 132,876 Hydro rate stabilization 30,984 56,117 Senate Bill I 3,430 3,470 Pension - deferred inflows 68,082 OPEB - deferred inflows 32,983 Grant revenues 27,920 32,021 TANC operations costs 31 149 29 674 Total regulatory credits $ 620 313 $ 543 OH NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS To help provide stable electric rates and to meet the forecasted power needs of its retail customers reliably, SMUD enters 'into various physical and financial fixed-price purchase contracts for electricity and natural gas. These fixed price contracts and swap agreements are intended to hedge the exposure due to highly volatile commodity prices. 'SMUD also enters into interest rate swap agreements to reduce interest rate risk. SMUD utilizes these derivative financial instruments to mitigate its exposure to certain market risks associated with ongoing operations: -SMUD has established policies set by- an executive committee for the use of derivative.financial instruments for trading purposes, These contracts are evaluated pursuant to SGAS No. 53,

• 42

"Accounting and Financial Reporting for Derivative Instruments," (GASB No. 53) to determine whether they meet the definition of derivative instruments, and if so, whether they effectively hedge the expected cash flows associated with interest rate and commodity price risk,exposures. _. :*

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

SMUD executed numerous new gas and power related purchase agreements, some of which are recorded as hedging or

. investment derivative instruments and are therefore included in the following table. All hedging or investment derivative .

instruments are recorded at fair value in the Statements ofNet Position (see Note 12).

43

' : -v: ,, '

The following is a summary of the fair value, changes in fair value and notional amounts of derivative instruments, grouped by trading strategy, outstanding at December 31, 2022 (amounts in thousands; gains shown as positive amounts, losses as neg'ative):

2022 Changes in Fair Value at Fair Value December 31; 2022 Current Non current' Current Noncilrrent Amount Amount Amount Amount Notional Cash Flow Hedges:

(thousands of dollars)

(thousands ofDekathermS (Dth))

Asset: Investment Derivative Instruments Gas - Commodity $ 1,936 $ (474) $ 3,110 $ 329 688 Dth Gas - Storage 87 87 77Dth Gas - Transportation 2493 2 673 155 Dth Total Investment Derivative Instruments $ 4,516 $ (474) $ 5,870 $ 329 Asset: Hedging Derivative Instruments Gas - Commodity $ 64,093 $ 19,348 $ 95,386 $ 52,029 57,997 Dth Gas - Storage 11 502 303 Dth Gas - Transportation 49,472 53,024 10,102 Dth Interest Rate 1 153 28 574 2 437 33 646 $245,865 Total Hedging Derivative Instruments $ 114,729 $ 47,922 $ 151,349 $ 85,675 Liability: Investment Derivative Instruments Gas - Commodity $ (2,071) $ 169 $ 2,076 $ 70 927 Dth Gas - Storage (90) 90 78 Dth Gas - Transportation Interest Rate 1 815 3 193 937 1 354 $68,450 Total Investment Derivative Instruments $ (346) $ 3,362 $ 3,103 $ 1,424 Liability: Hedging Derivative Instruments Gas - Commodity $ 2,493 $ (5,314) $ 12,859 $ 6,802 30,655 Dth Gas - Storage (7,637) 8,255 302 Dth Gas - Transportation 1,040 522 4,188 Dth Interest Rate 700 2 880 $0 Total Hedging Derivative Instruments $ (3,404) $ (2,434) $ 21,636 $ 6,802

- 44

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

2021 Changes in Fair Value at Fair Value December 31, 2021 Current Noncurrent Current Noncurrent Amount Amount Amount Amount , ,Notional Cash Flow Hedges:

(thousands of dollars}

(thousands ofDekatherms (Dth))

Asset: Investment Derivative Instruments Gas - Commodity $ 1,174 $ 770 $ 1,174 $ 803 2,445 Dth Gas,--, Storage sQ- Gas - Transportation 180 *. 180 78 Dth Total Investment Derivative Instruments 1,354 $ 770 $ 1,354 $ 803 Asset: Hedging Derivative Instruments Gas - Commodity, , - $ 29,964 $ *_ 30,356 $ 31,29~ _ $ . 32,681 76,850 Dth Gas - Storage -190 - .491 ~o- 380 Dth Gas - Transportation . 2,062 3,552., .-, 9,395 Dth Interest Rate (509) (1,209) 1 284 5 072 $263,535 Total Hedging Derivative Instruments $ 31,707 $ 29,147 $ 36,620 $ 37,753

'(

Liability: Investment Derivative Instruments Gas - Commodity .$ -4 $ ___ ,_. 24 $ 5 _$ .239 1,223 Dth Gas - Storage .- -0* ~o-Gas - Transportation -o-Interest Rate (1,360) 3 093 2 752 - 4 547 $74,375 Total Investment Derivative Instruments $ (1,356) $ 3,117 $ 2,757 $ 4,786 Liability: Hedging Derivative Instruments Gas - Commodity $ 5,314 $ 17,210 15,352 $ l,488 12,983 Dth Gas - Storage 479 ,_618 380 Dth Gas - Transportation (1,562) 1,562 3,805 Dth Interest Rate (179) 7 718 700 2 880 $157,785 Total Hedging Derivative Instrui:nents $ 4,052 $ 24,928 $ 18,232 4,368 45

Objectives and Terms of Hedging Derivative Instruments. The objectives and terms of SMUD' s hedging derivative instruments that were outstanding at December 31, 2022 are summarized inilie table below. The table is aggregated by the trading strategy. Credit ratings ofSMUD's counterparties can be found in the table under Credit Risk. Details ofSMUD's interest rate derivative instruments can be found in Note 10.

11' '

Notional. Beginning Ending Minimum Maximum AmountDth Date Date Price/Dth Price/Dth Gas'-- ommodity. 90,267 01/01/23 12/31/25 $ 1.18 $ 50.38 Gas Storage 760 01/01/23 02/28/23 1.19 20.50 Gas - Transportation 14,445 01/01/23 12/31/23 (2.86)

• 16.00 The objectives and terms of SMUD's hedging derivative instruments that were outstanding at December 31, 2021 are summarized in the table below. The table is aggregated by the trading strategy.

Notional Beginning Ending Minimum Maximum***

AmountDth Date Date Price/0th Price/0th

• Gas - Commodity 95,478 01/01/08 12/31/25 $ 1.00 '$*

• 7.80 Gas Storage '760 01/01/22 02/28/22 '* *:86 6.20 Gas - Transportation 13,278 01/01/22 12/31/22 (1.30) 1.35 SMUD hedges its *interest rate exposure wtth swaps. One swap is used to convert some of the interest expens'e associated with the 1997 Series K fixed rate bonds to a variable rate interest expense (see note* 10). SMUD also has a swap that is designed to fix the interest expense associated with commercial paper (see Note 11 ). SMUD has two forward starting sWa'ps that are designed to synthetically fix the interest expense associated with refunding bonds that are expected to be issued to refund the 2013 Series A and 2013 Series B bonds in 2023 (see Note 10).

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

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

Derivative Instruments Not Designated as Hedging Derivative Instruments Gas and Electric Contracts. SMUD utilizes certain gas swap and electric swap agreements under GASE No. 53 not designated as hedging derivative instruments to mitigate exposure to changes in the market price of natural gas and electricity.

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

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

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

The Board has deferred recognition of the effects of reporting the fair value of Investment Derivative Instruments for ratemaking purposes and maintains regulatory accounts to defer the accounting impact of these accountiqg ~djustntepts (see Note 8). Fair values may .have changed significantly since December 31, 2022.

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

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

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

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

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

47

The counterparties' credit ratings at December 31, 2022 and 202 f ,are shown in' the table below. The credit ratings listed are, from S&P or Moody's: ,,,, ;

December31 2022 2021 Counterparty Gas Contracts: .

Bank of Montreal A+ A+

Barclay;; Bank PLC A A Citigro~p Inc. . BBB+ BBB+

EDF Trading Group Baa2 Baa2 J.P. Morgan Ventures Energy Corp. A- A-Merrill Lynch A2 A2 Mitsui Bussan A ****A**

Morgan Stanley Capital Group, -Inc. BBB+ BBB+

Nextera A- A-,

Royal Bank of Canada AA- AA-Shell Trading Market Risk A A Interest Rate Contracts:

' Barclays Bank PLC A A' Goldman Sachs Capital Markets, L.P. (J. Aron) I.,

BBB+' BBB+

Morgan Stanley Capital Services, Inc. ,,. * , A+***  : A+

.,. .:i*.  !*' *.',;'1 NOTE 10. LONG-TERM DEBT t*

SMUD's tqtal long"'t\}nndept is pi:esc1nted ?elow:

,, Dec!ilmber 31, 2022.. 2021

(!hqu~ands oUollars)

Electric reyenue bonds, 2,13%-6.32%, 2o;n-29so $ J,841;715 $ 1,966,925 Subordinated electric revenue bonds, 5.0%, 202_3-2049 *200,000 200,000 Total electric revenue bonds 2,041,715 2,166,925 Component unit-project revenue bonds, 5.0%, 2023- 4030,  :.~9,735, . 101,185 Gas and Commodity supply revenue bonds, index rates_ a,nd 4.0%-5.0.%,.2023,204,9 682,550 703,100 Total long-term debt outstanding 2,814,000 2,971,210 Bond premiums - net 210 039

• 242 647 Total long-term debt 3,024,039 Less: amounts due within one year (138,195)

Total long-term debt - net $ 2,885,844 The summarized activity of SMUD's long-term debt during 2022 is presented below:

Defeasance Amounts January 1, Payments or December 31, Due Within 2022 Additions Amortization 2022 (thousands of dollars)

Electric revenue bonds $ 1,966,925 $ 132,725 $ (257,935) $ 1,841,715 $ 111,165 Subordinate electric revenue bonds 200,000 200,000 Component unit project revenue bonds 101,185 (11,450) 89,735 1,845 Gas and Commodity supply revenue bonds 703 100 (20,550) 682,550 Total 2,971,210 132,725 (289,935) 2,814,000 Unamortized premiums - net 17,986 (50,594) 210,039 Total long-term debt $ 150,111 $ 3,021,032

. 48

The summarized activity ofSMUD's long-term debt during 2021 is presented below:

.; .. ,,r*.\*

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

Electric revenue bonds $ 2,085,120 $ 106,875 $ (225,070) $ 1,%6,925 $ , 100,150 Subordinate electric revenue bonds 200,000 .200,000

• Component unit project revenue bonds 112,085 (10;900) .101,185 11,450 Gas*and Commodity supply revenue bonds 721 550- (18,450) 703 100 20,550 Total -3,118,755 106,875 (254,420) 2,9:71,210 $ 132,150

• • Unamortized premiums - net 267 947 23,373 (48,673) 242 647

. Total long-term debt $ 3,386,702 $ 130,248 $ (303,023) $ 3,213,857 AtDecember 31, 2022 scheduled annual principal maturities.and interest are as follows:

Princi11al* Interest Total (thousands of dollars) _,

.2023 $ 138,_195,. $ 139,057.* $ 277,252 2024 139,330 129,638 268,968 2025 151,115 122,436 273,551.

2026 157;575* 113,645: 271,220 2027 166;245 105,782 272,027 2028 - 2032 (combined) 536,515 429,877 966,392 2033 - 2037 (combined) 575,125 278,362 8_~.3,487 2038 - 2042 (combined) 403,785. 158,167.., 561,952 2043 - 2047 (combined) ., -:.:-: 362,275 79,450 441,725 2048 - 2050 (combined) 183 840 13 131 196 971 Total requirements $ 2,814,000 $ 1,562 545 $ 4,383,545 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 u,sing the debt interest rate of 70.0 percent of 1 month London Interbank Offered Rate.(LIBOR,.);plus a fixed fee. The LIBQR rate is based on the rate in effect at December 31, 2022 for the issu1;1s. The 2019 Series A an_d 2019, Series B. Put Bonds i:tssume a 3..0 per<;:ent fixed rate coupon after mandatory remarketing. The 2018 NCEA Put.B011ds assume a 4.0 percent fixed rate coupon after mandatory remarketing. Principal in the preceding table includes known prindpal,payments and the amortization schedule for mandatory remarketing bonds.

49

The following bonds have been issued and are outstanding at December 31, 2022:

Final  ; "Interest Original Outstanding

• Date Issue Maturity . Rate Amount Amount (thousands of dollars)

Electric Revenue Bonds 06/15/1997

• 1997 Series K Bonds 07/01/2024 5.25% $ 131,030 $ 38,165 05/15/2009 2009 Series V Bonds 05/15/2036 6.322% 200,000 200,000

. 07/29/2010 2010 Series W Bonds 05/15/2036 6.156% 250,000 250,000 05/21/2013 2013 Series A Bonds 08/15/2041 .* '3.75% - 5.0% 132,020 132,020 05/21/2013 2013 Series B Bonds 08/15/2033. 3.0%- 5.0%

• 118,6-15 81,820 07/14/2016 2016 Series D Bonds 08/15/2028 2.125% - 5.0% 149,890. 104,060 12/14/2017 2017 Series E Bonds 08/15/2028 5.0% 202,500 111,585 07/12/2018 2018 Series F Bonds 08/15/2028 *' 5.0% *165,515 103,245 07/25/2019 2019 Series G Bonds 08/15/2041 2.375% - 5.0% 191,875 191,875 05/07/2020 .* 2020 Series H Bonds 08/15/2050 * .. 4.0% - 5.0% 400,000 400,000 07/14/2021 2021 Series I Bonds** 08/15/2028 5.0% 106,875 96,220 06/23/2022 2022 Series J Bonds** 08/15/2033 *. 5.0% 132,725 '132,725 Subordinated Electric Revenue Bonds :

07/25/2019 2019 Series A Bonds 1 08/15/2049 5.0% 100,000 *100,000 07/25/2019 2019 Series B Bonds .

• 08/15/2049 5.0% 100,000 100,000

• • .r; :i JPA Revenu*e Bonds 06/03/2015. 2015 SFA Bonds 07/01/2030 5.0% , 1-93,335 89,735 05/31/2007 2007B NCGA#l Bohds 07/01/2027 Index Rate  ;, 668;470 142,935 12/19/2018' 2018 NCEA Bonds 07/01/2049 4.0%- 5.0% ,',539,615 539,615 2022 Bond Issuances. In June 2022, SMUD issued $132.7 million of2022 Series J Revenue Refunding Bonds. The purpose of this transaction was to refund the fixed rate' debt associated with 2012 Series Y bonds. Proceeds from the 2022 Series J bonds combined with swap termination receipt defeased all the outstanding Series 2012 Series Y bonds. A total of$157.8 million of bonds were defeased through a legal defeasance,"and accotdingly;*the liability for the defeased bonds has been removed from Long-Term Debt - net in the Statements ofNet*Position. the refunding resulted in the recognition of a deferred accounting gain of$6.7 million, which is being amortized over the life of the refunding issue. The 2022 refunding reduced future aggregate debt service payments by $30.9 million arid resultecl in a total *economic gain of $28.6 million, which is the difference between the present value of the old and new debt service payments.

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

50

Component Unit Bond Defeasances .. In.September 20\9,,SCA defeased $12.9 million of'.?009 Series ~onds m!lturing July 2020 and July 4021, alop.g with the accnied interest,t1sin~ SCA's available funds and $7.9 ITiillipn from SMUD . .The corresponding amount was placed in an irre:vocable trust which had a remaining balance of$6.9 r,nillion.as of December 31, 2020. In July 2021, the remajning balance WlJ? pai(\_9qwn to zero.

Terms of Debt Indentures. Debt indentures contain a provision that in an event of default, the holders pf the majority 9fthe debt outstanding are entitled to declare the outstanding amounts due immediately.

Interest Rate Swap Agreements. A ~U/llmary of SMUD's four interest rate swap agreements as ofD;ecember 31, 2022 are as follows.* The credit ratings. listed are frqm S&P. , ,

, Notional Counterparty Amount .SMUD Fixed .*Floating Term/p.ation Credit (thousands}  :, . ~ Pays Rate  ! Rate Date Rating

$ ': 38,165- Variable 5.)66% SIFMA 07/01/24 BBB+

68,450 Fixed 2.894% 63% of I M LIBOR 08/15/28 A+

132,020 Fixed 0.7179% 70% of lM LIBOR 08/15/41 A

, 7;5,,g80. * , Fixed. 0.5543% 70% .of lM L;IBO;R, 08/15/33 A A sum.mary of,SMUD's five interest rate swap agreements as of December 31, 2021 are as follows:

.Notional Counterparty Amount SMUD Fixed Floating Term,ination C:redit (thousands) - Pays Rate* Rate Date .Rating

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

74,375 Fixed ;2,894% 63% of 1 M ~IBOR, 08/15/28 - A+

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

132,020 Fixed 0.7179% 70% of lM LIBOR 08/15/41 A 75,680 Fixed 0.5543% 70% of IM LIBOR '. I 08zl5/33 A At December 31, 2022 and 2021, SMUD had a fixed,-tp-variab)e iT,1terest rate.swap .agreement with a notional amount of

$38.2 million and $55.8 million, respectively, which is equivalent to the principal amount ofSMUD's 1997 Series K Electric Revenue Bonds. Under this swap agreement, SMUD pays a var.iable, rate equivalent to the Sect1rities Industry and Financial Markets Association (SIFMA) Index (3.66 percent and .10 percent at De9ember 31, 2022 and 2021, respectively) and receives fixed rate payments of5.166 percent as of December 31, 2022 and 202-1., In connection with the swap agreement, SMUD has a put option agreement, also with a notional amount of $38.2 million and $55 .8 million. as. of December 31, 2022 and 2021, respectively, which gives the counterparty the right to sei1 to SMUD, at par, either the 1997 Series K Bonds, or a portfolio of securities sufficient to defease the 1997 Series K Bonds. SMUD receives fixed rate payrne_nts of0.01,percent as. of December 31, 2022 and 2021, in connection with the put option agreement. The exerci.se of the optionJer1Tiinates the swap. at no. cost to SMUD. The term pf both the swap and the put .is equal to the maturity of the _1997 Series K Bonds.

At December 31, 2022 and. 2021, SMUD had one variable-to-fixed interest rate swap agreement with a notional amount of

$68.5 million and $74.4 million, respectively. :rhis swap was originally entered into for the purpose of fixing the effective interest rate associated with certain of its subordinated bonds that were refunded during 2008. The notional value of the swap is amortized over the life of the swap agreement. SMUD can terminate the swap agreement. at any time, with payment or .

receipt of the fair market value of.the swap as of the date of termi.nation. The obligation.s of SMUD under the swap agreement are not secured by a pledge of revenues of SMUD's ele~tric, system or any ot\}er property of SMUD.,.

Additionally, i.n June 2029, S.MUD executed a,variable-to-fi;c,e~ interest.rate ~:wap agreement with Barclay~ Bank PLC with a notional amountof$132.0 milljon for the purpose.offo~ing the effe9tive interest rate associate~ with the potential refunding of 51

the 2013 Series A Bonds. The Barclays 2013 Series A swap becom~s ~ffective iiHi.dy 2023. Also, in June 2020, SMUD*'

executed a variable-to-fixed interest rate swap agreement with Barclays Bank PLC:: with a*notional am*ount of $75.Tmillion for the purpose of fixing the effective interest rate associated with the potentfartfuhtling of the *2013 Series B' Bonds. The Barclays 2013 Series B swap becomes effective in July 2023. The n6tioha:l"values of the two swaps are amortized over the life of their respective swap agreements. SMUD can terminate both swap agreements at any time, with payment or receipt of the fair-market value of the swaps as of the date of termination. The obligatioris of SMUD under the swap agreements are not secured by a pledge ofrevenues of SMUD's electric *system or any other property ofSMUD.

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

$127 .0 million for the purpose of fixing the effective interest rate associated with the potential refunding of the 2011 Series X Bonds. The J. Aron swap became effective in July 2021. The J. Aron swap was terminated in July 2021. As part of the termination, SMUD made a termination payment to J. Aron in the amount of$3.0 million. Also, in December 2019, SMUD executed a variable-to-fixed interest rate swap agreement with Morgan Stanley Capital Services with a notional amount of

$157 .8 million for the purpose of fixing the effective interest rate associated with the potential refunding of the 2012 Series Y Bonds. The Morgan Stanley Capital Services swap was due to become effective irt July 2022 but was terminated in June 2022. J,,,;', *.;,,.{;

Component Unit Interest Rate Swap Agreements. NCGA*had*one interest rate swap agreement as ofDeceml:ier 31, 2022, which is summarized as follows. The credit ratings listed are from S&P.

Credit- Support Notional Provider

'Amount NCGA Fixed Floating Termination *;' redit (thousands} 'Pays* Rate Rate '"Rating

$ 142,935 Fixed 4.304% 67% ofLIBOR + .72% 07/01/27 NCGA had one interest rate swap agreement as of December 31, 202i, which anfsummarized as*follows:

Credit Support I :

Notional

• Provider Amount NCGA' Fixed Floating Termination Credit (thousands) Pays Rate Rate Rating

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

At December 31, 2022 and 2021, NCGA had a variabfe-to-fixed 'interest rate swap agreement with a counterparty for the purpose of fixing the effective interesfrate 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 the three-month LIBOR (4.77 percent and 0.10 percent at December 31, 2022 and 2021, respectively)*pJus an interest rate spread, as specified in the swap agreement. The total notional amount of the swap at December 31, 2022 and*2021 was $142.9 million and $163.5 million, respectively, and was equivalent to the outstanding principal balance on the NCGA Bonds. The swap is amortized over the life of the swap agreement in a manner corresponding to the principal- repayment schedule of the NCGA Bonds. Early termination of the swap would occur upon termination of the prepaid agreement for any reason. Upon early termination; the swap 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.

Component Unit Bonds. The component units of SMUD have each issued bonds to finance their respective projects. The revenue stream to pay SFA bonds' debt service is provided by a "take-or-pay"*power purchase agreement and is therefore not dependent on the successful operation of the prdject. SMUD guarantees to make*payments sufficient to pay principal and interest and all other payments required to be made under SF A's indenture of trust. SFA is not required to repay SMUD for any amounts paid under this guarantee. The revenue strea1fr to. pay*NCGA' and NCEA bonds' debt service is provided by "take-and-pay purchase agreements. Therefore, principal and intere*st associated with these bonds are paid solely from the 52

revenues and receipts collected in connectionw:ith the;.(<).peration of the project. Most operating revenues earned by NCGA and NCEA are collected from SMUD in connection with the sale of gas or electricity to SMUD. The ability for NCGA and NCEA to service debt is dependent on various parties (particularly MSCG, as gas supplier for NCGA and J. Aron, as commodity supplier for NCEA) meeting their contractual obligations.

Callable Bonds. SMUD has $488.8.million of Electric Revenue Bonds that are currently callable, $450.0 million of which are fixed rate Build America Bonds debt and $38.8 million of2016 Series D Bonds. SMUD also has $207.7 millicm of bonds that become callable from 2023 through 2027, and these bonds can be called until maturity. SMUD also has a four-month.call period on the 2019 Series A and 2019 Series B Bonds in advance of their mandatory remarketing purchase date in 2023 and 2025, respectively.

Collateral. The principal and interest on SMUD's bonds are payable exclusively from, and are collateralized by, a pledge of the ri~t revenues o'fSMUD's electric system. Neither the credit nor the taxingpower of SMUD is pledged to the payment of

• the bonds atid the general fund of SMtJD is not liable for the payment thereof.

Covenants. SMUD's bond resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios, certain other financial ratios, stipulated minimum funding of revenue bond reserves, and various other requirements including a rate covenanrto raise rates to maintain minimum debt service coverage.

SMUD has pledged'future net electric revenues, component unit net project revenuds, and net gas supply p'i'epayment revenues to repay, in electric revenue, component unit project revenue, and gas supply prepayment revenue bonds issued from 1997 through 2022. Proceeds fro'm*the bonds provided financing for various capital improvement projects, component unit capital projects; and the prepayments of a twenty-year supply of natural gas and a thirty*year supply of commodity: The bonds are payable solely from the net revenues generated by SMUD's electrical sales, component unit project reverlues, :and gas supply prepayment revenues and'are payable througn 2050 at December 3 i; 2022; * :

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:

• December31 2022 2021 (thousands of dollars)

Pledged future revenues 2,814,000 Principal and interest payments for the year ended Total net revenues for the year ended Total remaining principal and interest to be paid $ 4,693,100 Annual principal and interest payments as a percent of net revenues for the year ended NOTE 11. COMMERCIAL PAPER NOTES SMUD issues Commercial Paper Notes (Notes) to finance or reimburse capital expenditures. SMUD's commercial paper program is $400.0 million. At December JI, 2022, there were $150.0 million Notes outstanding and at December 31, 2021, there were no Notes outstanding. SMUD's commercial paper program is backed by $407.4 million in letter of credit agreements (LOCs) artd a revolving credit agreement with three separate banks. The LOCs are calculated as the sum of the maximum principal amount of the Notes plus interest thereon at a maximum rate often percent per annum for a period of90 days calculated on the basis of a year of 365 days and the actual number of days elapsed. There have not been any term advances under the LOCs or the revolving credit agreement The LOCs and revolving credit agreement contain a provision that in an event of default, the outstanding amounts may become immediately due.*

53

The summarized activity ofSMUD's Notes during 2022 and 2021 is* presented below:

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

. (thousands of dollars)

DecemberJI, 2022 * $ ' $ I50,000 $ $ r 150,000 Deceinber JI, 2021 $ . $ $ $ ' NOTE 12. FAIR VALUE MEASUREMENT GASB No. 72 defines fair value as the price that would be received to sell an asset or. paid to transfer a liability in an orderly _

transaction between market participants at the measurement date (an exit price). SMUD utilizes mark~t, <lat.a or, assµmptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

GASB No. 72 establishes a fair value hierarci)y that prioritizes the inputs used to measure fa,ir value. Thy hie~archy giv,es.the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I) and the lowest priority to unobservable, inputs, (Level 3) .. The three levels of the fair valµe hierar.chy defin_eq _by G,:\.SB No. 72 are _as, fopows: .. , -

• Leve.I I inputs are quoted prices (unadjusted) in active markets for identical as_seti, or liabilitiys. * * .. ,

~ Level 2 inputs are inputs other than quoted price_s include.<;! in Level I that_a~e observable f9rar as~et ~rliabnity,.either i

directly orindirectly.

• Level 3 inputs are unobservable inputs that reflect SMUD's qwn a~~umptions a9outfa~!9rs that market p~rticipants would use in pricing the asset or liability.

The valuation methods of the fair value measurements are as follq'Ys:_

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

• U.S. Government Agency Obligations - uses a market based approach which considers yield, price of comparable .

securities, coupon rate, maturity, credit quality and dealer-provided prices._

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

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

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

• Investment and Hedging Derivative Instruments (see Note 9): _

o Interest rate swap, agreements - uses the present value technique. The fair value of the interest rate s~ap agreements are calculated by discounting the expected cash flows at their corresponding zero cqupon rate. The cash flows and discount rates are estimated based on.a I-month LIBOR forward curve from Bloomberg and assuming_ SIF1\1A is equal to 70.0 percent of I-month LIBOR.

o Electricity and Gas related agreements - uses the market approach based on monthly quoted prices from an independent external. pricing service-. The fair values ror natural gas and electricity deriv1:ttive financial instruments are estimated. by comparing contract prices to prevailing market quotes.in active markets (i.e., Hency Hub and So Cal) where identical contracts are available. When external quoted market prices are not available, SMUD uses an internally developed valuation model utilizing short-term observable inputs.

54

The following tables identify the level with_in the fair value hierarchy that SMUD's financial assets,and liabilities were accounted

. for on a recurring basis as of December 3:1,.2022 and 2021, respectively. As required by GASB No. 72, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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

Recurring Fair Value Measures At fair value as of December 31, 2022 Level 1 Level2 Total (thousands of dollars)

Investments, including cash and cash equivalents:

LAIF $ $ -85,502 $ 85,502 lJ.S .. Government Agency Obligations 371,241 371,241 U.S. Treasury Obligations 63,841 63,841 Corporate Notes 48,490 48,490 Municipal Bonds 49 909 49 909 Total Investments, including ca~h and cash equivalents $ 63.841 $ 555.142 $ 618.983 Investment Derivative Instrument Assets:

Gas related agreements $ 6,199 $ $ 6,199 Total Investment Derivative Instrument Assets $ 6 122 .* $ -o~ $ fl 122

• HedgingDerivative Instrument Assets:

Gas related a'gteements $ ,. 200,941 $ . -0" $

• 200,941 Interest rate swap agreements 36 083 36,083 Total Hedging Derivative Instrument Assets $ :200;241 $ -36,083- $ 237.024 Investment Derivative Instrument Liabilities:

• Gas related agreements $ .* 2;236 $ ~0- ' $

• 2,236 Interest rate swap agreements 2 291 2 291 Total Investment Derivative Instrument Liabilities $, .

• 2,236. $ 2,291 $ 4 527 Hedging Deri:v.ative Instrument _Liabilities;. .'

Gas related* agreements ..* '. $ 28,438 $ $ 28,438 Interest rate swap agreements . -0~ Total Hedging Derivative Instrument Liabilities*** $ 28,438 $ $ 28.438

. 55

Recurring-Fair Value Measures :1 i:.1., ': At fair value as of December 31, 2021

. , Total* .

Levell Level i2,

.

• tJ. (thousands of dollars)

Investments, including cash and,~ash equivalents; '1:: l, LAIF '$ $ 526,297 $ 526,297 U.S. Government Agency Obligations 65,005 65,005 U.S. Treasury Obligations 39,993 39,993 Corpm:ate N9tes ., -0~,- 3,975 3,975 Municipal Bonds 62 798 62 798 Total Investments, including cash and cash equivalents $ 39,293 $ 658,075 $ 698,068 ti Investment Derivcttive Instrument Assets:

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

Gas related agreements $ 68,017 $ - $ 68,017 Interest rate swap agreements 6 356 6 356 Total Hedging Derivative Instrument Assets $ 68,017 $ 6,356 ; $ 14,373

' '~ ,, ,,

.Investment Derivative Instrument Liabilities: tP'. :_;,'

Gas related agreements $ 245 $ $ 245 Interest rate swap agreements , 7 298 7 298 Total .Investment Derivative *Instrqment Liabilities $ 245 $ ' 1;298 )* 1$*0 1,543

,. j" Hedging Derivative Instrument Liabilities:  !*

Gas related agreements $ 19,020 $ $ 19,020 Interest rate swap agreements " :1.' ._ ,,3 580 3 580 Total Hedging Derivative Instrument Liabilities $ 12,020 $ -3.580 . $ 22,600 NOTE 13. ACCRUED DECOMMISSIONING LIABILITY *-* ,:: ,1;,*

Asset Retirement Obligations (ARO). SMUD recognizes AROs for its Rancho Seco riuciear power plant facility and the

• . I * ' *. '

CVFA power plant facility. This statement requires measurement of the ARO be based on the bes_t estimate of the current value of outlays expected to be incurred. The best estimate should be determined using all_ availal,Jle.evidence*and r~quires.probability weighting of potential outcomes when sufficient evidence is available. This statement also requires the current value be adjusted for the effects of the general inflation or deflation and an evaluation of relevant factors that may significantly change the estimated asset retirement outlays at least annually.

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

The Department of Energy (DOE), under the Nuclear Waste Policy Act (NWPA) of 1982 as amended, is responsible for permanent disposal of spent nuclear fuel and GTCC radioactive waste, which are currently stored in the Part 72 licensed ISFSI. SMUD has a contract with the DOE for the removal and disposal of SNF and GTCC waste. All SMUD's SNF and GTCC waste are currently stored in sealed canisters in the ISFSI. However, the date when DOE will remove the fuel and GTCC waste is uncertain. In 2010, the DOE formally withdrew the application for licensing of Yucca Mountain as a 56

high-level waste repository. While the court-ordered reinstatement ofNRC license review activities of Yucca Mountain have yielded generally positive results, Yucca Mountain remains speculative as a disposal option for SMUD's used nuclear fuel.

. The DOE also.announced in January 2010 the cr.e.atio11 ofa Blue-Ribbon1Comn:iissi0n to study alternatives for developing a repository for the nation's used nuclear fuel., The*Con1mission provided a final,report on alternatives in January 2012. The DOE evaluated the recommendations and publishedthe,report "Strategy for the Management and Disposal of Used Nuclear Fuel and High-Leyel 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, two license applications have been submitted to the NRC for the construction and operation of Consolidated. Interim Storage Facility(s) that would store SNF and GfCC waste on an interim basis. One of these applications has been apprqyed (g11d a-license issued) and one application is currently-under review by the NRG. Should the NRC license one or b_oth facilities, Congress will have to modify the NWPA to allow for its use. In May 2018, the U.S. Hou~e,ofRepresentatives passed H.R. 3053 -the Nuclear Waste Policy Amendments.Act, which was cqssponsored by Represeptative D.or.is Matsui and \09.other members of Congress. This bill includes a provision to allow a Consolidated Interim Storage Facility to store fuel from permanently shut down sites like Rancho Seco. The U.S. Senate did not act on the bill. U.ntil legislation is passed which. incl.udes a signifipant step towards removal of the used nuclear fuel at the Rancho Seco facility, SMUD is committed to the safe and secure storage ofit~ SNF and GTCC waste under its Part 72 license until DOE fulfills its obligation to dispose of this material in accordance with NWPA. In support of this commitment, SMUD submitted its ISFSI license i:enewal applicat_ion to the.NRG in March of2018,. The NRC issued Renewed Licensee No. SNM-2510 on March 9, 2020. This renewed license authorizes the continued storage ofSMUD's SNF and,GTCC.until June 30, 2060.

The Rancho Seco decomm.issioning liability is based on an internal study of the remaining decommissioning costs, which consist of: 1) annual spent'fuel management costs, 2) transportation of the canisters in the ISFSI and 3) termination of the Part 72 license. The largest-par): of the decommissioning estimate is the annual spent fuel management costs; next year's annual .

budget is used for the estimate. The other costs were estimated based on prior experience and studies and prepared by management representatives of the nuc.lear power plant facility. The costs in the estim_ate were:in 2019 dollars., An employment cost index was used to adjust the other costs portion of the obligation for inflation in 2022. Probability weighting was assigned for two scenarios: 1) spent nuclear fuel will be removed from the site by 2028 and 2) spent nuclear fuel will be removed from the site by 2035. SMUD uses its Trust Fund (see Note 2) to demonstrate financial assurance to the NRC that there are enough funds to complete the termination of the Part 72 license; the balance of the Trust.Fund at Decem~er 31, 2022 is $9 .0 million.

SFA's Carson Power Plant (Carson). SF A's ground lease agreement with the Sacramento Regional County Sanitation District for Carson requires SFA to restore the premises to its original condition upon termination of the contract. A new study to determine the current value of the asset retirement obligation- w~ conducted by-an external contractor who specializes _in decommissioning studies. The expected costs and scope of work were based on the most recent cost estimate and assumes.a contractor will be responsible for the work and that decommissioning would take place between 2025 and 2027. The estimated costs were in 2018 dollars. The result of this study was used to determine the new balance of the ARO and the deferred outflows at January 1, 2018, in order to account for the 2018 activity. The annual All Urban Consumer Price Index was used to adjust this obligation for inflation in 2022 . .The remaining useful life of Carson's assets is three years at December 31, 2022.

The current portion of the Accrued Decommissioning liability represents SMUD's estimate of actual expenditures for Rancho.

Seco in the next year, as set forth in the annual budget.

At December 31, 2022 and 2021, SMUD's Accrued Decommissioning balance in the Statements ofNet Position was.$95.9 million and $95.1 million, respectively.

. 57

NOTE 14. PENSION PLANS **!* ***

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

• *' I Plan Description and Benefits Provided. SMUD participates irt PERS; an agent multiple-employer public employee defined benefit pension plart (PERS Plan). PERS provides retirement *and disability benefits; annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as' a*commoh investment ano adm1nistrat1ve agent for ,

participating public entities within the State.* Benefit provisions and all other requirements are*established by State statute and SMUD policies. The pension plan provides retirement benefits, survivor benefits, and death and disabiiiWbenefits based upon employee's years 'of credited service,' age, and final compensation: A*full description of the pension pla:n regarding number of employees covered, benefit provision, assumptions (for funding; but riot accounting purposes), and *meinbersliip in'.rormation are included in the annual actuarial valuation reports as of June 30'; 2021 and June 30, 2020.

,') ,,; **,"*

GASB No. 68 requires that the reported 'results must pertain to liability and asset information within certain defined tinieframes.

The following'timeframes are u'sed-for thb year ended: * '*

PERS Plan December 31

• 202.2i . 2021 Valuation date **June*30,'2021 ,, '-June 30, 2020 Measurement date , June 30;*2022. June 30, 2021 Employees Covered by Benefit Terms. The following employees were covered by the benefit tetms for the year ended:

PERS Plan ,. December 31 2022 2021 Inactive employees or beneficiaries currently receiving benefit1 payments* * *3,116 3,068 Inactive employees entitled to but not yet receiving benefit payments 987 974 Active employees 2 168 2 214 Total employees covered by benefit terms* 6,271 6,256 Contributions. Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined'oll'an annual basis by the actuary and shall be effective on the July 1 following*

notice of a: change in the rate. The total plan contributions are determined through PERS' annual actuarial valuation 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 any unfunded 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 years ended June 30, 2022 and 2021, the average active employee contribution rate is 6.8 percent of annual pay. For the PERS fiscal year ended June 30, 2022, the employer's contribution rate is 9.0 percent of annual payroll plus $36.3 million for the unfunded accrued liability contribution. For the PERS fiscal year ended June 30, 2021, the employer's contribution rate is*9.l percent of annual payroll plus $33.5 million for the unfunded accrued liability contribution. Employer contribution rates may change if plan contracts are amended. For the fiscal years ended June 30, 2022 and 2021, SMUD made contributions recognized by the PERS Plan in the amount of$114.5 million and $229.4 million, respectively.

58

Net Pension Asset (NPA) or Liability (NPL). SMUQ's, NPA orNPL at December 31, 2022 and 2021 was measured at ..

June 30, 2022 and 2021, respectively. The total pension liability used to calculate the NPA or NPL was determined by actuarial valuations as of June 30, 2021 and 2020 rolled forward using generally accepted actuarial procedures to the June 30, 2022 and2021 measurement dates.foF the.PE:R.S Plan.

Actuarial Methods and Assumptions. The actuarial methods and assumptions used for the December 31, 2022 and December 31, 2021 total pension liabilities are as follows for the PERS Plan:

December 31, 2022:

Actuarial Cost Method Entry age actuarial cost method Discount Rate 6.90%

Inflation 2.30%

Salary Increases Varies by entry age and service Mortality Rate Table The mortality table used was developed based on PERS' specific data. The probabilities .

of mortality are based on the 2021 PERS' Experience Study for the period from 2001 to 2019. Pre-retiremen~ and Post-retirement mortality rates include generational m9rtality improvement using the Society of Actuaries Scale 80% of scale MP-2020.

Post Retirement Benefit Increase . For 2022 and io21, the lesser of contract COLA or 2.30% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.30% thereafter December 31, 2021:,* ,

Actuarial Cost Method Entry age normal Discount Rate 7.15%

Inflation 2.50%

Salary Increases Varies by entry age and service .

Mortality Rate Table The mortality table used was developed based on PERS' specific data. The probabilities

.* ,of mortality are based on the 2017 PERS' Experience Study for the period from 1997 to 2015. Pre-retirement*and Post-retirement mortality rates include 15 years of projected mortality improvement using the Society of Actuaries Scale 90% of scale MP-2016.

Post Retirement Benefit Increase For 2021 and 2020, the lesser of contract COLA or 2.50% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.50% thereafter Discount Rates. For the PERS Plan, the discount rate used to measure the total pension liability for the years ended December 31, 2022 and 2021 was 6.90 percent and 7.15 percent, respectively. For the year ended December 31, 2022, the projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the PERS Plan was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied ,to all periods of projected benefit payments to determine the total pension liability.

The long-tenn expected rate ofreturn on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Using historical returns of all the funds' asset classes, expected compound (geometric) returns were calculated over the next 20 years using a building-block approach. The expected rate ofreturn was then adjusted to account for assumed administrative expenses of 10 Basis .points.

. 59

The expected real rates 'of return by asset class used for December 3 J?, 2022 are as follows:

.-.: ]j _.,

Asset Class Assumedi A:ssetAUocation Real Return Global Equity - Cap-weighted 30.0% 4.54%

Global Equity - Non-Cap-weighted, 12.0% 3.84%

Private Equity 13.0% 7.28%

Treasury 5.0% 0.27%

Mortgage-backed Securities 5.0% 0.50%

• Investment Grade Corporates 10.0% 1.56%

High Yield '5.0% 2.27%

Emerging Market Debt 5.0% 2.48%

Private Debt 5.0% 3.57%

Real Estate

• 15:0% 3.21%

Leverage l(5.0%) (0.59%)

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

• Curtent"Target *. *Real Return* *Real Return Asset Class ', Allocation Years 1-10 Years 11+

Global Equity 50.0% 4.80% 5.98%

Global Fixed Income 28.0% 1.00% 2.62%

Inflation Assets 0% 0.77% 1.81%

Private Equity 8.0% 6.30% 7.23%

Real Estate 13.0% ', 3.75% - 4.93%

Liquidity 1.0% 0% (0.92%)

Changes in the NP A or NPL. The following table shows the changes in NP A onNPL recognized over the year ended December 31', 2022:

. Increase (Decrease) Net Pension

. .Total Pension Plan Fiduciary Net (Asset) Liability Liability (a) Position (b) (a) - (b)

(thousands of dollars)

Balances at January 1, 2022. 2,486,667 $ 2,514,405 ~$_ _ _(~27~,7~3-8)

Changes recognized for the measurement period:

Service cost 41,885 41,885 Interest 167,926 167,926 Changes in assumptions 26,275 26,275 Differences between expected* and actual experience (31,370) (31,370)

Contributions - employer . 114,476 (114,476)

Contributions - employee 18,096 (18,096)

Net investment income (189,479) 189,479 Benefit payments (137,603) (137,603} Administrative expense (1,566) 1 566

• Net changes 67133* (196,076) 263 189 Balances at December 31, 2022 $ 2,553 780 "$ 2,318,322 *$ 235 451 60

Thefoll,o'Ying table sq9ws the changes in:NP A_,or, NPL;recognized over the year enqed December 31, 2021:

Increase (Decrease) Net Pension Total Pension Plan Fiduciary Net (Asset) Liability Liabili!Y (a} Position (b} (a}- (b}

(thousands of dollars)

Balances at January 1,, 2021 $ 2,415,034 $ 1,945,214 .,. $ 469,820 Changes recognized for the measurement period:

Service cost 38,900 -0.-: r 38,900 Interest 168,984  :~0- '. . *168,984

• Changes in assumptions ' Differences between expected and actual experience (5,875) (5,875)

Contributions - employer 229,440 (229,440)

Contributions*" employee 17,552 (17,552)

Net investment inco_me . 454,518. (45,4,518)

.,Benefit payments ,.(130,~76) (130,376) -Administrativ~ expense ,, (1,943) 1 943 Net changes, :- .,,. 'Zl 633 569 191 (497,558)

Balances at December 31, 2021 $ 2,486,667 . ,$ 2,5'14,405 . ' $ (27 738)

Sensitivity of the NP A or NPL to Changes in the Discount Rate. The following prese.nts th,e NP A or NP.L of the Plan as of the measurement date, calculated using the current discount rate, as well as what the NP A or NPL would be if it were calculated using a di_scount rate that is 1 percentage-point lower or 1 percentage-point higher than the current discount rate:

!%Decrease Current Discount 1% Increase PERS Plan (5.90%} Rate (6.90%} (7.90%}

(thousands of dollars)

Plan's NPL (NPA), December 31, 2022 $ 562,974 $ 235,451 .$ (36,397)

!%Decrease Current Di~count 1% Increase (2.15%} Rate (7.15%} (8.15%}

Plan's NP,L (NPA), December 31, 2021 . 28~,474 (27,738) . (289,153)

Pension Plan Fiduciary Net Position. Detailed information about tqePERS Pl~'s.fid1,19iary net position is available in the separately issued PERS Plan financial statements. This report, the a,udited financial statements, and other reports can be obtained at the PERS' website at www.calpers.ca.gov.

Pension Expense or Income and Deferred Outflows of Resources and Deferred Inflows of Resources_ llelated, to Pensions. For the year _ended December 31, 2022 SMUD recognized pension expense of $41.0 1,11illion and for the year ended December 3J, 2021, SMUD recognized a credit to pension expense of$27.9 million.

61

At December 31, 2022 and 2021, SMUD reported deferred outflows 6fresources and deferred inflows of resources related 'to pensions from the following sources:

December31 2022 2021 (thousands of dollars)

Deferred outflows of resources:

Changes of assumptions

• 19,866 Differences between expected and actual experience 2,495 9,710 Differences between projected and actual earnings on pension plan investments 121,257 Employer's contributions to the Plan subsequent to the measurement of total pension liability 31 860 71 624 Total deferred outflows of resources $ 175,478 $' 81,334

• • Deferred inflows of resources:

Changes of assumptions $ -o~ -$ * -o-Differences between expected and actual experience ' 26,6S6 - 4,406 Differences between projected and actual eaniings*on pension plan investments !0- - 225,301 Total deferred inflows of resources ==$====26-,6=5==6 -' ==$='*===2==29-,7==0==7

• Amounts reported as deferred outflows ofresourcei; and deferred inflows ofresources related to pensions will'be subject to regulatory accounting as foliows (see Note 8):

Year ended December 31:

2023 ,, $ *, ' 20,052 -

2024 15,538 2025 8,976 2026 72,396 2027 Thereafter* *,, Other Plans. SMUD provides its employees with two cash deferred compensation plans: one pursuant to Internal Revenue Code (IRC) Section 40l(k)'(401(k) Plan) and one pursuant to IRC Section 457 (457 Plan) (collectively, the Plans). The Plans are contributory plans' in which SMUD's employees contribute the funds. Each ofSMUD's eligible full-time or permanent part-time employees may participate in either or both Plans, and amounts contributed are vested immediately. Such funds are held by a Trustee in trust for the employees upon retirement from SMUD service and, accordingly, are not subject t6 the general claims ofSMUD'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 the Plans' asset values. SMUD employees are responsible for determining how their funds are to be invested and pay all ongoing fees related to the Plans. The Plans are currently not subject to discrimination testing, nor the requirements of the Employee Retirement Income Security Act of 1974. SMUD employees participating in the Plans are allowed to contribute a portion of their gross income not to exceed the annual dollar limits prescribed by the IRC.

SMUD makes annual contributions to the 401(k) Plan on behalf of certain employees pursuant to a memorandum of understanding with both of its collective bargaining units. SMUD also matches non-represented employee contributions to the 401(k) Plan up to a set amount. SMUD made contributions into the 401(k) Plan of$7.0 million in 2022 and $6.1 million in 2021. 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 totaling $32.4 million in 2022 and $30.6 million in 2021.

NOTE 15. OTHER POSTEMPLOYMENT BENEFITS a * * *,

_Summary of Significant Accounting PQlicies. f qr purposes of measuring the net OPEB asset or liability, deferred outflows of

.  : ** .- .*;*, 1; _. .. .

resources and deferred inflows of resom;9~s fl';!at~qJ9 OPEB, I ,_.. , *. , '. *,.* *\ *: _,,q,, ,

and OPE~ l',Xpense, information about. the fiduc:iary net position of I

• the OPEB plan and additio_ns to/deductions frolll t~ty OPEB plan's fiduciary 11et position have been ,d~termined. an the same basis as they,are reported by the California Employer;' _Retiree Benefit Trust (CERBT). For this purpose, SMUD recognize~ benefit

'

• I (  :  : \ ' * */ *

• payments wh~n due and payable _in accordance with the benefit terms. Inxestments are reported at, fair _vi,ilue. , , . _, 1

• Plan Description a~d Benefits Provided. SMUD is a member ~fCERBT. The CERBT Fund is IRC Section I Trust set an is up for the purp9se of receiving employ~; contributions to pref~nd OPEB for retirees and their beneficiaries: CERBT is an agent 0 multiple-employer defined benefit OPEB plan °(0PEifPlan) ad111.ini~tered by PERS. The OPEB Plan provides m edica1; dental and long-term disability benefits for retirees and their beneficiaries, in accordance with SMUD policy and negotiated agreements with employee representation groups. The benefit, benefit levels, retiree contributions and employer contributions are governed

, . I '!* ,. 1:! ,' '; ,,- . '.,* " . * , . ,,.

by SMUD and can be amended by SMUD through its personnel manual and union contracts. Any changes to these benefits

_would be approved by SMUD's Board and unions .

. ,.  ! . l

• Employees' Covered *by Benefit Terins. The following employees were covered by the benefit terms:

December 31 2022 2021 Inactive employees or beneficiaries currently receiving benefit payments 2,349 _2,302 Inactive employees entitled to but not yet receiving benefit payments 46 42

. Active employees 2 144 2 114

.. Total employees covered by benefit terms 4 539 4 458 Contributions. OPEB contributions are elective and not required. In December 2018, SMUD split its CERBT assets across two asset strategies to better'align trust assets with liabilities (Strategy I for active employees and retirements after June 30, 2018 and Strategy 3 for retirements before July I, 2018). SMUD contributes the normal cost to the CERBT, but annually receives reimbursement for cash benefit p'ayments from the CERBT. SMUD may also elect to put additional contributions into the OPEB Plan. For the OPEB Plan's fiscal years' ended June 30, 2022 and 2021, SMUD made contributions recognized by the OPEB Plan in the amounts of$0.9 million and $0.8 million, respectively.

Net OPEB Asset (NOA)' or Liability (NOL). SMUD's NOL at December 31, 2022 and NOA at December 31, 2021 were measured as of June 30, 2022 and 2021, respectively, and the total OPEB liability used to calculate the NOA/NOL was

• determined by actuarial valuations as of those dates.

• Actuarial Methods and Assumptions. The actuarial methods and assumptions used for the December 31, 2022 and December 31, 2021 total OPEB liabilities are as follows:

Discount Rate 5.88% (2022). Blended discount rate based on projected benefit streams expected to be paid from each Strategy_. 5.84% (2021)

Inflation 2.50% (2022 and 2021)

Salary Increases Aggregate- 2.75%; Merit - PERS 2000-2019 Experience Study (2022); PERS 1997-2015 Experience Study (2021)

_Mortality, Retirement, Disability, Termination PERS 2000-2019 Experience Study (2022); PERS 1997-2015 Experience Study(2021)

Mortality Improvement Mortality projected fully generational with Scale MP-21 (2022), MP-20 (2021)

Healthcare Cost Trend Rates Non-Medicare: 6.25% for 2024, decreasing to an ultimate rate of3.75% in 2076 (2022);

6.5% for 2022, decreasing to an ultimate rate of3.75% in 2076 (2021)

Medicare: 5.45% for 2024, decreasing to an ultimate rate of3.75% in 2076 (2022);

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

Kaiser Medicare: 4.45% for 2024, decreasing to an ultimate rate of 3.75% in 2076 (2022);

4.6% for 2022, decreasing to an ultimate rate of3.75% in 2076 (2021) 63

Discount Rates. For the OPEB Plan, the discount rate used to measure the total OPEB liability was 5.88 percent and 5.84 percent for the years ended December 31, 2022 and 2021, respectively'.'*this rate'is a blended discount rate 'bas~d on project~d benefit streams expected to be paid from Strategies 1 and 3. The proJ~dtiorf ot'\~ash flows used to determine the discount rate

.\ I * * '  : l': .; .

assumed that 'SMUD contributes the full normal cost to the trust *and orily takes reimbursement from the trust of the cash a

benefit payments. Because the implied subsidy benefit payments have l~~ger present value than the payments toward the unfunded accrued liability, there should be sufficient plan assets to pay all benefits from the trust. Based on those assu~ptions, the 9,PEB Plan'_s fiduciary net position was projected to be available to ~ake alJ projected OPEB payments for

• * * . ~ * . . J * ~

. ' \ ,. , *' .* *-*

current active and mact1ve employees. The long-term expected rate ofreturn of6.25percent for Strategy 1 and 5.25 and 4.75 percent forStrat~gy 3 was appiied to all period's of projected benefit Pi:lcY~ents't/cteien~i~e the total OPEB liabiEty fo~ the

) ' * ' ( ' .' \ ~ ' i  ; . ' ' ,- * . * *' .

years ended December 31, 2022 and 2021, respectively. * * *,

The expected real rates of retrirn by asset class used and presented as geometric means for December 31, 2022 are as foliows:

Target Allocation Expected Real Asset Class CERBTStrat~gy I Rate of Return Global Equity 49.0% 4.56%

Long US Treasuries 5.1% 0.29%

Mortgage-Backed Securities 5.1% 0.49%

• ' Investment Grade Corporates 3.9% 1.56%

High Yield 3.9%':. '3.00%

Sovereigns 5.1% 2.76%

TIPS 5.0%. (0.08%)

Commodities ),0%.,' 1.22%

REITS .,20.0% 4.06%

Ji:irget Alloca~io,i:i . Expected Real

,Asset Class C:p_RBT Strategy: 3 , Rate of Return Global Equity 23.0% 4.56%

Long US Treasuries 11.2% 0.29%

Mortgage-Backed Securiti_es,. 11.2% 0.49%

Investment Grade Corporates . 8.7% 1.56%

High Yield 8.7% 3.00%

Sovereigns 11.2% 2.76%

TIPS 9.0% (0.08%)

Commodities 3.0% 1.22%

REITS 14.0% 4.06%

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

Target Allocation

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

Fixed Income 25% 0.78%

TIPS 5% (0.08%)

Commodities 3% 1.22%

REITS. 8% 4.06%

64

• r r Target Allocation Expected R,~al Asset Class )*i: CERBT Strategx 3 Rate of Return Global Equity .,'.: * ' ' . 1_, -

-22% 4.56%

Fixed Income 49% 0.78%

TIPS 16% (0.08%)

Commodities 5% 1.22%

REITS 8% 4.06%

Changes in the NOA or NOL. The following table shows the changes in NOA or NOL recognized over the year ended December3 l, 2022:

Increase (Decrease) NetOPEB

',)\

Total OPEB Plan Fiduciary Net (Asset) Liability Liabili!Y (a) Position (b) (a) - (b) l (thousands. of dollars)

Balances ,at.January 1, W;22 $ 392,519 ,,$ 450,051 $ (57;532)

.~h~nges,recogn\zed for thi:

measurement period: l.i Service cost 8,744 8,744 Interest ,., 22,728 22,728 Cjlanges in assumptio_ns (7,127) (7,127)

Differences between .:;xpected .and a~tual experience (12,231) (12,231)

Contributions - em,pJoyer 8~0, (860)

Net investment ,income (52,917) 5+,917 Benefit payments (24,169) (24,169) Administrative yxpense . (114) 114 Net change~ : . (12,055) (76,340) " 64 285 Balances at December 31, 2022 $ 380 464 $ 373,711 $ 6,753 The following table shows the; change~ in in NOA or NOL recognized over the,: year t;nde_d DeceITiber 31, 2021:,

Increase (Decrease) NetOPEB

.Total O_PEB.

• Plan Fiduciary Net (Asset) Liability Liabili!Y (a) Position (b). (a)-(b)

(thousands of dollars)

Balances at January 1, 2021 $ 396.209 $ 396,979 $ (770)

Ch;mges recognized for the measurement period:

Service cost 8,426 8,426 Interest 25,008 25,008 Changes in assumptions ,5,895 5,895 Differences b,et\veen expected and actual experience (18,938) . sO- (18,938)

Contributions - employer 818 (818)

Net investment income 76,479 (76,479)

Benefit payments (24,081) (24,081) Administrative expense (144) 144 Net changes (3,690) 53072 (56,762)

Balances at December 31, 2021 $, 322 512 $ 450,Q51 $ (57,532)

. 65

Sensitivity of the NOA or NOL to Changes in the Discount Rate. The following presents the NOA or NOL of SMUD as of the measurement date, calculated using the current discount rate, as well as what the NOA or NOL 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 (4.88%} Rate (5.88%} (6.88%}

(thousands of dollars)

NOL/(NOA), December 31, 2022 $ 52,612 $ 6,753 $ (31,557)

J \_.,,, };: ... ;

!%Decrease Current Discount (% Increase (4.84%} Rate (5.84%} (6.84%}

(thousands of dollars)

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

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

Current Healthcare

!%Decrease Trend Rate *' I% Increase

• (thousands of dollars)

(NOA)/NOL, December 31, 2022 $ (35,780) $ 6,753 $'* < .* 58,812 (NOA), December 31, 2021 $ (102,004) $ (57,532) ! ' * $' (3,060)

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

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB. For the years ended December 31, 2022 and 2021, SMUD recognized a credino OPEB expense of $8.2 *millioh and $18.8 *million, respectively.

At December 31, 2022 and 2021, SMUb reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:*

December 31 2022 2021 (thousands of dollars)

Deferred outflows of resources:

Changes of assumptions $ 8,919 $ 13,132

• Differences between projected and actual earnings on OPEB plan investments 32,477 Employer's contributions to the OPEB Plan subsequent to the measurement

• of total OPEB liability 12 278' 11981 Total deferred outflows of resources $ 53 674 $ 25.113 Deferred inflows ofresources:

Changes of assumptions $ 11,428 $ 7,504 Differences between expected and actual experience 38,410

• 48,300 Differences between projected and actual earnings on OPEB plan investments .. 39 098 Total deferred inflows of resources $ 49,838 "'=$====94,...,9"""0""'2 66

Amounts reported as deferred outflows ofresources and deferred inflows ofresources related t_o.OPEB wiU be subject to regulatory accounting as follows (see Note 8):

Y ~ar ended December 31: ,,i*

2023 $ ,(5,788)

. 2024 (4,849) 2025 (~.,47~)

2026 10,337 2Q27 .: . .,,:\; . (2,670)

Thereafter J.'IOTE 16. INSURAN°CE PROGRAMS AND CLAIMS SMUD is exposed. to v~rious risks of loss related to torts, theft of and destruction to assets, errors and omissions, cyber activities, natural dis~sters, employee injuries and illnesses, and other exposures. SMUD carries commercial insurance coverage to cover most claims in excess of specific dollar thresholds, ranging from $5 .0 thousand to $5 .0 million per claim.

General liability liriilts are $ 140 .0 million, excess of a $5 .0 million self-insured retention. As of December 31, 2022, wildfire liability limits are $255.0 million ($192.5 million commercial insurance plus $62.5 million self-insured retention). As of Dece~ber 31, 2o'2ijMUb h~ci"$176.0 milliori ~ommerci~l ~overaMplus $74.0 million self-insured retention within a $250.0 1

million total program value. SMUD's property insurance coverage is based on the replacement,value of the ~sset.' There have been no significant reductions in insurance coverage. In 2022, 2021, and 2020, the insurance policies in effect have adequateiy 'covered ~II jettlements of the claims against SMUD. No claims have exceeded the limits of property or liability insurance in any oft!ie past three years. In 2022, SMUD filed a partial claim under business interruption insurance for the

• Cosumnes Power i>Jant o_utage and received a $50.0 million advance on that claim in 2022.

The claims liabili~, is ,included as a component of Selflnsurance and Other in the Statements of Net Position.

SMUD's total claims liability, comprising claims received and claims incurred but not reported, at December 31, 2022, 2021 and 2020 is presented below: * *'

2022 2021 2020 (thousands of dollars)

Workers' compensation claims $ 7,554 $ 8,666 '$ 9,166 General and auto claims 3,178'. 3,596 3',766 Short and long-term disability claims 58 47 92 Claims liability $ 10,720 $ 12,302 $ 13,024 Changes in SMUD's total claims liability during 2022, 2021 and 2020 are presented below:

2022 2021 2020 (thousands of dollars)

Claims liability, beginning of year $ 12,309 $ 13,024 $ 14,073 Add: provision; for. claims,

. . l current ye~r 1,556 1,450 l,~19 (Decrease) increase in provision for cl,aims in prior years 1,826 (122) . '(8)

Less: payments on claims attributable to current and prior years (4,901) (2,043) (2,460)

Claims liability, end of year $ '10.7?0 *' $ 12,302* $ 13.024 67 L__ - --

NOTE 17. COMMITMENTS Electric Power and Gas Supply Purchase Agreements. SMUD has numerous power purchase agreements with other power producers to purchase capacity, transmission, and associated energy to supply a portion of its load requirements. SMUD has minimum take-or-~ay commitments for energy on some contracts. SMUD has numerous long-term naturai 'gas supply, gas transportation and gas Storage agreements with Canadian and U.S. companies to supply a portion of the consumption needs of SMUD's natural ga~~fired power plants.

At December 31, 2022, the approximate minimum obligations for the "take-or-pay" contracts over the next five years are as follows:

Electric Gas (thousands of dollars) .

.i 2023 $* . 7i,863 . $ 'I , 1'0:238 2024 5_8,905 7,588 2025 46,634 5,633

• ".:*,;. ri 2026 47,111 4;234 2027 47,~~9 j, 4,273

'. *f ) ' j At December 31_, 2022, the approximate ,minimum obligations for the remaini~g contracts, assuming the energy Q( gas is

~ I ' ' J *; I '* '

delivered over the next five years, are as follows: * * .

,1 ' ' ( } I , ' * * ' * , r l :.: ' *:

~ < '

Electric

• Gas (th6usands.of do,llars)*

2023 . 289,09] $ .. .215,951 2024

"306,55 ( 135,011 2025 2,94',1i'4 108,226 2026 277,78?, 48,798

.-!*\

2027 219,986 44,590 Contractual Commitments beyond 2027 - Electricity. Severai or°SMUD's purchas~ p.o-~er and ti-ansmiss.ion contracts extend beyond the five-year summary presented above. These contracts expire between 2028 and 2054 ~nd provide for power under various terms and conditions. SMUD estimates its annual minimum commitments under the take-or-pay contracts ranges between $48.0 million in 2028 and $21.0 million in 2054. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the'~nergy is delivered, ranges between $221.3 million in 2028 and $29.0. million in 2050. SMUD's largest purchase power source (in volume) is the Calpine Sutter contract, where SMUD h<!s contracted ownership of258 MW's of thermal generation capacity. The Calpine Sutter contract expires on December 31, 2026.

Contractual Commitments beyond 2027 - Gas. Several ofSMUD's natural gas supply, gas transportation and gas storage contracts extend beyond the five-year summary presented above. These contracts expire between 2028 and 2049 and provide for transportation and storage under various terms and conditions. SMUD estimates its annual miniinum commitments under the take-or-pay contracts ranges between $4.3 million in 2028 and $2.7 million in 2049. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the gas is delivered, ranges between $40. 7 million in 2028 and $11. 7 million in 2049.

G~s Price Swap Agreements. SMUD has entered into numerous variable-to-fixed rate swaps with notionaJ amounts totaling 99,222,500 Dths for the purpose of fixing the rate on SMUD's natural gas purchases for its gas-fueled power plants and gas indexed electric contracts. These gas pric~ swap agreements result in SMUD paying fixed rates ranging from $2.319 to $4.161 per Dth. The swap agreements expire periodically from January 2023 through Decembe~ 2026 ..

Gas Transport CaJJacity 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 frorri the supply basins in 68

Alberta to the California-Oregon border and from supply basins in the southwest and Rocky Mountains to the ,Southern ,

California border. These gas transport capacity agreements provide for the delivery of gas into SMUD-owned pipeline capacity within California. The gas transport capacity agr,yeme~ts provide SMUD _with 53,265 Dth per day (Dth/d) of natural g~ pipeline

. '* '* I, ,. . ** . ,. .

capacity from the . . North, including

. . the Canadian)3asins through 2023 ap.d_

39,710. Dtµ/d from the Southwest or Rocky Mountain Basins through atleast 202,3.

Gas Storage Agreements. SMUD. ~!so has an agreement for the sto~age of up t~ 2:0 million Dth of n*atural gas at regional facilities.through March 2023, dropping to,1.0 million Dththrough M~rch 2026. * * * * * * *** * ,: * * . *

. I * *. .' * ',; *,' .'

• li~s a h ydr~ H~;ns-~ f~i- a term of 50 years effective July 1, 2oi4 (see Note 2). *sMUD 0

Hydro License Agreements. 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 $58.5 million at December 31, 2022.

Construction Contracts. SMUD has entered into various construction contracts for the construction of a new substation, control building, and improvements to the Union Valley bike trail in the UARP. As of December 31, 2022, the not-to-exceed price for these contracts totaled $235.8 million. The remaining contract obligations for these contracts as of December 31, 2022 was $191.1 million.

NOTE 18. CLAIMS AND CONTINGENCIES FERC Administrative Proceedings. SMUD is involved in a number ofFERC administrative proceedings related to the operation of wholesale energy markets, regional transmission planning, gas transportation, and the development ofNERC reliability standards. While these proceedings are complex and numerous, they generally fall into the following categories:

(i) filings initiated by the California Independent System Operator Corporation (CAISO) (or other market participants) to adopt/modify the CAISO Tariff and/or establish market design and behavior rules; (ii) filings initiated by existing transmission owners (i.e., PG&E and the other Investor Owned Utilities) to pass through costs to their existing wholesale transmission customers; (iii) filings initiated by FERC on market participants to establish market design and behavior rules or to complain about or investigate market behavior by certain market participants; (iv) filings initiated by transmission owners under their transmission owner tariffs for the purpose of establishing a regional transmission planning process; (v) filings initiated by providers of firm gas transportation services under the Natural Gas Act; and (vi) filings initiated by NERC to develop reliability standards applicable to owners, users, and operators of the bulk electric system. In addition, SMUD is an active participant in other FERC administrative proceedings, including those related to reliability and cybersecurity standards, variable resource integration, and transmission planning and cost allocation. SMUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.

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

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

69

NOTE 19. SUBSEQU_ENT EVENTS SMUD evaluated subsequent events through February 24, 2023, tii'e dAte;tii'ahhefinancial statements were av~ilableto be issued, tn:

for events requiring recording ~r disclosure irt 'th~ firia'ncial statements'.** :i~miJi-y 2023, SMUD' expetienced a seri~s of winter storms that brought heavy rains and high winds causing significant damage to SMUD's grid and widespread outages for SMUD's customers. By the time the storm response was complete, SMUD had experienced the largest mobilization of personnel and re~toration crews in its history. SMlJJ;> incurred costs related to removing d6wried trees, restoring power from downed poles and broken lines, replenishing inventory, comci'uni6ating with and pr~vidin~ 'assistance to customers, maintaining IT systems, and coordinating with local emergency agencies. SMUD is pursuing claim,s with Federal_ and State agencies .

t f

./*

70

Required Supplem~ntary Information - Unau~ited For the Years End~d December 31, 2022 and 2021 71

l Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period - PERS Plan December 31, 2022 2021 2020 2019 2018 2017 2016 2015 2014 (thousands of dollars)

Total pension liability:

Service cost $ 41,885 $ 38,900 $ 38,901 $ 38,061 $ 36,029 $ 35,040 $ 29,044 $ 27,991 $ 28,170 Interest 167,926 168,984 164,044 157,976 151,354 150,119 147,497 142,468 137,546 Changes of assumptions 26,275 (61,585) 123,043 (34,228) Differences between expected and actual experience (31,370) (5,875) 9,981 18,877 1,293 (29,276) (8,357) (10,613) Benefit payments, including refunds of employee contributions (137,603) (130,37~ (125,581) (117,548) (111,763) (104,428) (99,155) (94,636) (90,175)

Net change in total pension liability 67,113 71,633 87,345 97,366 15,328 174,498 69,029 30,982 75,541 Total pension liability, beginning of year 2,486,667 2,415,034 2,327,689 2,230,323 2,214,995 2,040,497 1,971,468 1,940,486 1,864,945 Total pension liability, end of year (a) $ 2,553,780 $ 2,486,667 $ 2,415,034 $ 2,327,689 $ 2,230,323 $ 2,214,995 $ 2,040,497 $ 1,971,468 $ 1,940,486 Plan fiduciary net position:

Contributions - employer $ 114,476 $ 229,440 $ 98,344 $ 69,119 $ 90,141 $ 32,389 $ 27,645 $ 22,499 $ 21,511 Contributions - employee 18,096 17,552 18,095 17,411 16,832 15,845 15,271 14,503 15,346 Net investment income (189,479) 454,518 92,534 115,867 138,739 171,596 8,316 35,797 245,659 Benefit payments, including refunds of employee contributions (137,603) (130,376) (125,581) (117,548) (I 11,763) (104,428) (99,155) (94,636) (90,175)

Administrative expense (1,566) (1,943) (2,628) (1,270) (7,474) (2,275) (969) (1,795) (2,028)

Other miscellaneous income/(expense) 4 (4) 34 (25) Net change in plan fiduciary net position (196,076) 569,191 80,764 83,583 126,471 113,lp (48,858) (23,657) 190,313

-J Plan fiduciary net position, beginning of year 2,514,405 1,945,214 1,864,450 1,780,867 1,654,396 1,541,269 1,590,127 1,613,784 1,423,471 N Plan fiduciary net position, end of year (b) $ 2,318,329 $ 2,514,405 $ 1,945,214 $ 1,864,450 $ 1,780,867 $ 1,654J96 $ 1,541,269 $ 1,590,127 $ 1,613,784 Net pension liability/(asset), ending (a)-(b) $ 235,451 $ (27,738) $ 469,820 $ 463,239 $ 449,456 $ 560,599 $ 499,228 $ 381,341 $ 326,702 Plan fiduciary net position as a percentage of the total pension 90.8% 101.1% 80.5% 80.1% 79.8% 74.7% 75.5% 80.7% 83.2%

liability Covered payroll $ 256,965 $ 257,613 $ 254,756 $ 247,759 $ 235,902 $ 223,685 $ 207,119 $ 197,481 $ 191,439 Net pension liability/(asset) as a percentage of covered payroll 91.6% -10.8% 184.4% 187.0% 190.5% 250.6% 241.0% 193.1% 170.7%

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

Notes to Schedule:

Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2021 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit.

Changes in Assumptions: Effective with the June 30, 2021 valuation date (2022 measurement date), the accounting discount rate was reduced from 7.15% to 6.90%. In determining the long-term expected rate of return, CaIPERS took into account long-term market return expectations as well as the expected pension fund cash flows. Projected returns for all asset classes are estimated, combined with risk estimates, and are used to project compound (geometric) returns over the long term The discount rate used to discount liabilities was informed by the long-term projected portfolio return. In addition, demographic assumptions and the inflation rate assumption were changed in accordance with the 2021 CaIPERS Experience Study and Review of Actuarial Assumptions. The accounting discount rate was 7.15% for measurement dates 2017 through 2021, 7.65% for measurement dates 2015 through 2016, and 7.50% for measurement date 2014.

Schedule of Plan Contributions for Pension - PERS Plan

',} ~

~) .. }

{~ ->:, December 31, 2022 2021 2020 2019 2018 2017 2016 2015 2014 (thousands of dollars)

Actuarially determined contribution $: 44,599 $ 54,315 $ 52,276 .. $ 49,119, $_ 40,142 $ 32,389 *$ 27,~5 .. $

• 22,499 $ 21,511 Contributions in relation to_ the actuarially determined contribution * (114,~76) (229,440) (98,344) (69,119) (90,142) (32,389) (27,645) (22,499) (21,511)

Contnbution excess $ (69,877) $ (175,125) $ (46,068) $ (20,000) $ (50,000) $ $ $ $ ,.

Covered payroll $ 256,%5 $ 257,6q . $ 254,756 $ 247,759 $ 235,902 $ 223,685 $ 207,119 $ 197,481 $ 191,439 Contnbutions as a percentage of coVe~d 44.5% 89.1% 38.6% 27.9% 38.2% 14.5% 13.4% 11.4% 11.2%

payroll PERS Plan.* The scheduie of pension contributions is presented above for the years for which SMUD has available dat;t.

SMUD will add to this schedule each year and when it reacbes 10 years it will contain the last 10 years data which will then be updated eachJear gain~ {~rward. '

Notes to Schedule The actuarial methodsand assumptions used to set the actuarially determined contributions for the year erided December 31, 2022 was:derived from the.June 30; 2019 fundiµg\aluation r,eport. ' '

Actuarial cost method

• Entry ~ge Actuarial Cost Method Amortization method/period

• For details, see June 30, 2019 Funding Valuation Report Asset valuation method Fair value of assets. For details, see June 30, 2019 Funding V~luation

• -Report Inflation 2.5%

Salary increases Varies*by entry age and service Payroll growth 2.7.5%

Investment rate of return 7.00% Net of pension plan investment and administrative expenses; includes inflation Retirement age The probabilities of retirement are based on the 2017 PERS Experience Study for the period from 1997 to 2015 Mortality The probabilities of mortality are based on the 2017 PERS Experience Study for the period from 1997 to 2015. Pre-retirement.and post-retirement mortality rates include_ 15 years of projected mortality improvement usin'g Scale MP-20i'6 published by the Society of Actuaries.

In 2021, the investment rate ofreturn was 7.00%. In 2020, the investment.rate ofreturn was 7.25%. Prior to 2020, the probabiliti~s of mortality are based ~n the 2014 PERS E~perience Study for the period from 1997 to 2011. Pre-retirement and post-retiiement mortality rates include 20 years of projected mortalitfimprovement using Scale BB published by the S6ciety of Actuaries. Prior to 2017, the retirement age and'mortality assuinpticms ~ere based on the 2010 PERS Experience' Study for the period from 1997 to 2007. In addition, the mortality assumption for pre-retirement and post-retirement rates included 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries.

73

Schedule of Changes in Net OPEB Asset or Liability and Related Ratios During the Measurement Period OPEB. The schedule of changes in NOA or NOL and related ratios is presented above for the years for which SMUD has available data. SMUD will add to this schedule each year and when it reaches 10 years it will contain the last 10 years data which will then be.updated each year going forward. *

\,,.

_I?ecember31, 2022 202i 2020 2019 2018 2017 (thousands of dollars)

Total OPEB liability:

Se1Vice cost $ 8,744 $ 8,426 $ 8,903 $ 8,946 $ 9,263 $ 8,993 Interest on total OPEB liability 22,728 25,008 26,653 26,766 29,656 28,676 Changes of assumptions (7,127) 5,895 (11,453) 15,332 3,105 Differences between expected and actual experience ,J12,231). , (18,938) (23,529) (6,885), (59,92!) .  ;

Benefit payme~is * * * * * (24)69)' (24,081i (23,848) (24,521) '* (24,672) . (22,192)

Net change in total OPEB liability (12;055) (3;690) * (23,274) '19,638' (42\569)

• 15,477 Total OPEB liability, beginning of year 392,519 396,209 419,483 .. . 399,8.45 ) ' 442,414 .. , . 42q,937 Total OPEB liability, end of year (a) $ 380,464 $ 392,519 $ 396,209 $ 419,483 $ 399,845 $ 442,414 Plan fiduciary net position: .J:, ~ .. ',1 __-

Contri_butions -,ell)p.loye~ .. , . $ 860, $ . 818, ,$ 13,299 $ .. 13,963; ,/S.. .34,243 ;;, $_ ,114,573 Net investment income (52,917) 76,479 20,447 20,132 27,295 24,104 Benefit payments '(2(i69) (24,081) (23,848)' * (24,521) ,, '* ~ (24,67~) (22,192)

Administrative expense (114) (144) (191) (81) (635) (123)

Net change in plan fiduciary net position (76,340) 53,072 9,707 9,493 36,231 116,362 Plan fiduciary net position, beginning of year 450,051 , 396,979 387,272 377,779' I,. i> 341,548 225,186 Plan fiduciary net position, end of,year(b) $ 373,711,* $ 450,051 $ 396,979 $ ' 387,272 *!$ 377,'779 $ 341,548 Net OPEB (asset) or liability, ending (a)- (b) $ 6,753 ,$ (57,532) $ (770) $ 32,211 $ 22,066 $ 100,866 Plan fiduciary net position as a percentage of the total OPEB liability 98.2%, 114.7% 100.2% 92.3% 94.5% 77.2%

Covered payroll $ 301,746 $ 289,014 $ 287,001 $ 282,993 $ 269,753 $ 252,211 Net OPEB (asset) or liability as a percentage of covered payroll . 2.2% -19.9% -0.3% 11.4% 8.2% 40.0%

Notes to Schedqle Benefit Changes: The~e were no changes to ben~fits.

Chang~s in Assumptions: In 202.+,_.the long-term rate of return for Strategy 3 was updated based on newer target asset allocation, the discount rate was updated b~sed' on crossover test, the dem~graphic assumptions were updated to CalPERS 2000-2019 Experience Study, and the mortality improvement scale was updated to Scale MP-2021. In 2021, the discount rate was updated due to weighting of Strategy 1 and Strategy 3 and up_dated .~apital market assumptions, the _1,11ortality imprqvement seal~ was updated t~ Scale MP-~020, the inflation rat~ was changed to 2.5% and the implied subsidy.was rempved fo~ Medicare A~vantage Plans. In 2020, the discom1t rate reflected tµe split of assets between Strate.gy 1 a~d Sti-at~gy 3, the mortality improvement .

scale was updated to Scale MP-2019, and the* Kaiser . , .

Medicare 1 .

trend rates were updated.' * *

• 74

Scheditle of Plan Contributions for OPEB

!:.j;_ \ ... *,r J~

OPEB Plan. The schedule of OPEB contribuHotls presented below for the years for which SMUD has available data. SMUD will add to this schedule each year and when it r~iibHes 10 years it will contain the last 10 years data which will then be updated each year going forward.

December 31, 2022 2021 2020 2019 2018 2017 (thousands of dollars)

Actuarially detennined contribution $ 5,425 $ 8,661 $ 12,201 $ 10,710 $ 15,366 $ 16,472 Contributions in relation to the actuarially detennined contribution (1,157) (8532 (13,233) (13,155) (35,128) (116,181)

Contribution deficiency (excess) $ 4,268 $ 7,808 $ (1,0322 $ (2,445) $ (19,7622 $ (99,709)

Covered payroll $ 318,094 $ 285,425 $ 289,552 $ 286,835 $ 277,193 $ 260,210 Contributions as a percentage of covered payroll 0.4% 0.3% 4.6% 4.6% 12.7% 44.6%

Notes to Schedule The actuarial methods and assumptions used to set the actuarially determined contributions for the year ended December 31, 2022 were derived from the June 30, 2021 funding valuation report.

Actuarial cost method Entry age normal Amortization method Level percent of pay Amortization period 24-year fixed period for 2022 Asset valuation method Market value of assets Discount rate 6.25% for all actives and retirements after 6/30/2018, 5.0% for all retirements before 6/30/2018 Inflation 2.5%

Medical trend Non-Medicare: 6.5% for 2023, decreasing to an ultimate rate of3.75% in 2076 Medicare (Non-Kaiser): 5.65% for 2023, decreasing to an ultimate rate of 3.75% in 2076 Medicare (Kaiser): 4.6% for 2023, decreasing to an ultimate rate of 3.75% in 2076 Mortality PERS 1997-2015 experience study Mortality improvement Post-retirement mortality projected fully generational with Scale MP-20 In 2022, the amortization period was for a 24-year fixed period. Mortality assumption used PERS 1997-2015 experience study.

The mortality improvement projected fully generational with Scale MP-20. In 2021, the amortization period was for a 25-year fixed period. Mortality assumption used PERS 1997-2015 experience study. The mortality improvement projected fully generational with Scale MP-19. In 2020, the amortization period was for a 26-year fixed period. Mortality assumption used PERS 1997-2015 experience study. The mortality improvement projected fully generational with Scale MP-18. In 2019, the amortization period was for a 27-year fixed period. Mortality assumption used PERS 1997-2015 experience study. The mortality improvement projected fully generational with Scale MP-17. In 2018, the amortization period was for a 28-year fixed period. Mortality assumption used PERS 1997-2011 experience study. The mortality improvement projected fully generational with Scale MP-16. In 2017, the amortization period was for a 29-year fixed period. The inflation rate was 3.0%

and the discount rate was 7 .25%. The mortality projected fully generational with Scale MP-14, modified to converge in 2022.

75