ML24158A380

Smud, 2023 Annual Financial Report

ML24158A380
Person / Time
Site:	07200011
Issue date:	05/21/2024
From:	Ed Miller Sacramento Municipal Utility District (SMUD)
To:	Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
DPG 24-258
Download: ML24158A380 (1)

Text

~ SMUD May 21, 2024 DPG 24-258 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 2023 ANNUAL FINANCIAL REPORT Attention: Chris Allen Powering forward. Together.

In accordance with 10 CFR 72.80(b), I am submitting the Financial Statements - Report of Independent Auditors for the period ending December 31, 2023 and 2022 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) 732-6239.

Sincerely,

~~--

Ernest Miller Manager, Rancho Seco Assets Enclosure cc:

RIC: 1 F.099

!vjat>'/

IIJH--55 ZD

)JJ-1 ss Zp

µ fj _5S Rancho Seco Nuclear Generating Station I 14440 Twin Cities Road I Herald, CA 95638-9799 I 916.452.3211 I smud.org

Financial Statements Report of Independent.

Auditors December 31, 2023 and 2022 0167-24

SACRAMENTO MUNICIPAL UTILITY DISTRICT

TABLE OF CONTENTS As of and forthe.Years Ended December 31, 2023and 2022 Report of Independent Auditors Required Supplementary Information - Unaudited Management's Discussion and Analysis Basic Financial Statements Statements of Net Position Statements of Revenues, Expenses and Changes in Net_Position Statements of Cash Flows Notes to Financial Statements Note 1. Organization Note 2. Summary of Significant Accounting Policies Note 3. Accounting Change Note 4. Electric Utility Plant Note 5. Investment in Joint Powers Authority Note 6. Component Units Note 7. Cash, Cash Equivalents, and Investments Note 8. Regulatory Deferrals Note 9. Derivative Financial Instruments Note 10. Long-term Debt Note 11. Commercial Paper Notes Note 12. Fair Value Measurement Note 13. Accrued Decommissioning Liability Note 14. Pension Plans Note 15. Other Postemployment Benefits Note 16. Insurance Programs and Claims Note 17. Commitments Note 18. Claims and Contingencies Note 19. Subsequent Events

'4 17 18 20 20 28 31 34 35 39 42 45 50 56 56 58 60 65 70 71 73 74

SACRAMENTO MU~]CIPAL UTILITY DISTRICT

• ;_. ')*; TABLE O.F1C,ONTENTS-CONTINUED *. *:.

As of and for the Years Ended December 31, 2023 and 2022 Required Supplementary Information - Unaudited Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period - PERS Plan 76 Schedule of Plan Contributions for Pension - PERS Plan

\\

., *'iJ.7*

Schedule of Changes in Net OPEB Asset or Liability and Related Ratios*

During the Measurement Period Schedule of Plan Contributions for OPEB

.,,,78.

79 r,

Ct bakertilly

'.fnd~pendent Auditors'"Report w,

t 1'

j To the Board of Directors of *

• 'I,,

Sacramento Municipal Utility District Report on the Audit of the Fin~~-cia] Staieh,e~ts Opinion We hc:1ve audite~ the a'c¢o~pc:inying fit1.ancial statem.~nti, of the. Sac'rarrfin~o Municip~I Utill~Y. rnstr.!ct, as of and for the years ended*Oecember 31, 2023 and 2022, and the related' notes to the financial statements, which coll~ctively' cdmp'r/s'e 'the Satra'mento Munidpal' Utility-District's basic finahd'af'staterrients as listed in the table of contents.

J *

• lh o~*r 6pin10~1; the_ ac_(?ompariyfng ftnsn_~,ial st9terne_nti referred td ab_6ve 'pr~1?ertt f~idy,' _fir all'materi~I respects, the 'financiar position**of the Sacramento :Munidp~I Utility District as of December 31, '.2023 arid 2022, and the changes in firi'ancial position aild casti fl6ws*forthe\\ie~rs ttier1 ended iri'accdrdanc~\\i\\lith accouriting principles generally accepted in the United States of America.

v

, *

,,c Basls:fc:frb~inion'. - * *,:::.

__.;; to !:t,J:*~*.; ** -i~~-

.~ 'J:_*

'fee We conducted our audits in accordance with auditing standards generally accepted lh'the::united states of America (GMS) and the standards applicable to financial audi_ts contained in Government Auditing Standaids-,issued by the C6mptrcill~r-General'of the.United States (Government Auclitirig Standardi3). Our respdnsibilities*tinder those sfauidards' are fcfrther-de~crioed'in t_he Auditors' Respohs11::iilities for thefAudit of the Financial Statements section of our report. We are requifetrto'be independenfofthe Sacramento Municipal Utility [?istrict and to meet our other ethicql responsibilities, in accordance with the relevant ethical requiremehts*relating to our audits:'we*b¢tieverthat the audit evidence we ha\\/e*obtained is sufficient and * *.1 appropriate hprovide a basis fo(c:i:ur audit opihiori: ; ; : * '*t *

• '1 Emphasis of Matter As discussed in Note 3, the Sacramento Municipal Utility District adopted the provisions of GASB Statement

~o. 96, Sub'scription~Based*lnfoliriatfon TecnnologyAmlngeme'rits, effective Jar\\l.1ary:1, 2023. Accordingly;.

the' accountir'lg changes h'ave bedri retrdactively applied ~o the p*rior period p~s'enteid. Our 6pinioh is riot.

• mo~ifiedwithrespe.cttothi$!11attet'

,' Y **, *.'.*

Resp'onsibilitie_. s of Management for the Fina~cial Statements*.*-,:

• ** ;i-

• .

• 1 :,

)

1

~ l Management is r'espdnsible for the preparation and fair presentation of the financial statements in accordante with accounting principles generally accepted in' the-United States of America; and for the design, implementation and maintenance of internal coritrol:relevant to the preparation and fair pre*sentation of finan9ial statements that are free from*material *misstaterii'erit, whether due to'fraud!c:ir error. *..

t' *.,*

\\*#,,'t '*

*,_.,;*

\\; ~.

,, -..,i, I In preparing the financial statements, management.is'i"equired to evaluate whether there*are conditions or,.,

events, considered in the aggregate, that raise substantial doubt about the Sacramento Municipal Utility District's ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doub~ 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 Baker Tilly US, LLP 1

~

1' ~~ f ~.:. ~~ *.,.

}\\~"

'!..~

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 Government Auditing Standards will always detect a material misstatement w.h~n it e?<i~\\s. The risk of not _de_tecting a material misstatement resulting from fraud is higher than for one' resulting from error, as* fra 1ud '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 wo~I-~. i,nfluen_ce the judgment made by a reasonable user based on the financial statements.

• 1 ,:,* * '

~ *,* H.,:;

'1 *:* **

In performing an audit in accordance with GAAS and Governmen,t Auditing ~t!:,)nd,ards, we:.,

~

s C

0, Exercise professional judgment and maintain professional skepticism throughout the audit.

Identify a11d asse!?S tne risk!;i of material misstatement of the financiaJ stateme.nts, whether due to

.

• fraud o(e~ror, and design ~hd pe_rform aY,dit procedures _r~sponsive to thqse 'ri~ks. Such procedures

,include examining, on ~ test,ba~is,..evidence ~egarding the an:iouhts a.nd disclosures. in th~ financial statements....

9~t~\\1'1. an: und~~l:!ta~ding of,int~rnal contr91. re!~vant t(! the, ~udi' in,or9er"'to ct~,sign c;1udit proc,edures that~~e_,appropri~te inJ.n~ ~ircumstan97~. bu,, ~pq9r;t?.Y-pyrpqse of ~~pre~sirig a.~,.opip!9!\\9n t~e

• ~ffect1ver:1e~s,pf the.Sacramen,tQ MurnQIP?I Ut1htyJ)Jstnct's,mt~rnal c,ontrol. f..c.cor,dll"Jg!y., no S!PCh op.inionls-exp"ressed.* '

~**-:-**~! \\ :."f

• • )**}I. f....,\\**

"t

'*.:*;. :*j;' *,.:~is,*.**:')

Evaluate the app~opriateness of accounting policies used and the reasonablene~s:.!?f,~j~!,lifj9pp~.,:,.1 accounting estimates made by management, as well as evaluate the overall presentation of the

,--~i.1Jqnµi9!stat!=l~~i:it~;-:.:..

• • d,.*-:. *1.'*.;

.,,,,:*...... -.:;,**.,,,... r;,,..,,... * * *

,<*.:r,/.*,*!;:r,,x.... *

• \\~,;ii.,~~*.:/;*.~~,..':: __

f1i ~)~i-, :;r,}: '. 1,*

t

..,. **.,*::'r.'J

~::;t~_,-:jl~

• )* **,

.... ~.l.. *

,t'1*-*: 1::-y~,E;:~1f:B1

• * *. : go_n9lude,wl;leto~r, (nou,r jµqgment,,the.r~ (jlr~ eq_pqitior:is.or e\\Se,nts, c9nl?id,er9jd _in t_h,~ ~99f.Esg~t.e_;. that 1 *: *,,rai!?.e:subst_antic)I qqubi.about;the ~cicram~n.t(_))\\ll,\\mi9ip~I: Utility Qistrict's, ability to,cqi;,tin,~e.a~.a_,gqing

-con<;ernJorarea!?OIJ_abl~-period.oftime"':

• \\1,-,,,-*;***.,*

. *-*"' i*;.,;,:,,,,**,_*,

• .** '.,'t)r~* :,,,.,; '

'- }:

,\\i

'),".".f

, _ _

,..:. *:,'.1**

• ,:*v*:

• -'/~ '.t* *,, j

'* *, *; *,J i*

• ~*

• I.

• ,.*'.*..,;\\.

,:-<( :i,

We*are requireq t9 cpmmunicate wi~h thos~ charged with govern;;inc.e regarding,.. pmong otber.matt~rs, the planned scope' and timin'g of the audit,' sign'iticant audit find(9,9,~,arid*~ert~in intern'al 'qc:mtrol,relat~d. matters that we identified during the audit.

Required Supplementary Information I

1

/ \\,/ :

I i!

,I~

'.,,.it*,

. ~

Accounting. principles gen~r9.lly cl9Fepted jn_ i~e Un(,ed: States_ of Amer,ic;a re91.1ire that the.,reqµir~d supplementary informatipn_,.as, listed in..the, tabl~ of contents be presented to supplement the.basic fi_nancial.

statements. Such inforniatio*n is the responsibility of management and, although no\\ a part of the basic*.,

financial statements, is required by the Governmental Accounting Standards Board who'considers it to be an essential part of financial reporting for placing the qasic.financial-statements in.an,appropriate, operation;:il, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance.with.auditing standards generally accepted in-the United St~tes of America, wqi~h consisted. ofinquiries of management about the niethoqs qf preparing the information and comparing the ;,

information for consiste.ncy with management's responses tp,our inquirjes, the basic financial statements, and other knowledge we obtained during Olff audit of the basic.Jinancial statements. We do nqt express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an,opinion or provide any assurance;,

2

Other Reporting Requir~dJ~y J;overnment Auditing $taf1difi.rds,,

In accordance with Gov~mment'Auditing Standards',' we h'av~ ai~o issued our report dated February 23, 2024 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 i_r:iJemal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness bf the Sacramento-Municipal Utility District's internal control*over financial reporting or on compliance. That r-eport-is a*n integral part of, an audit performed in accordance with.Government Auditing. "',;

Standards.in consideringJhe S_acramento Municipal Utility Distric(s internal 9ontrol over financial reporting and compliance.

Madison, Wisconsin February 23, 2024 3

I I

".n *.

• {*. 1:>*,*, -**

. d, ' ':

, I

• ,:'1 Sacramento Municipal Utility District Management's Discussion and Analysis"' Unaudited

.. E<>r the Y~a_rs Endecl, Qecember 31, 2023 and 7022

~.

Using this Fin:incfal Rep:ort r.:

This annual financial report for Sacramento Municipal Utility District (SMUI>) con~ists ofmanagemenfs.c;li~.cu~sion and analysis and the financial statements, including-notes to financial statements. The Financial Statem'1nts consist of the-Statements of Net Position, the Statements of Revenue/Expenses and Changes in Net Position and the Statements 'of Cash.flows.

SMUD maintains its accounting records in accordance with Generally.Accepted Accounting Prine/pies for proprietary funds as

~..

'. {

prescribed by the Governmental Accounting Standards Board (GASB). SMUD\\~ accounting re98rds generally fo_llow the Uniform System of Accounts for Public Utilities and Licensees prescribed by *th~ Federal Ener~y-Reg~l~tory Co~mission (FERC), except as it relates to accounting for contributions of utility property in aid of constructfon.

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, 2023 and 2022. This discussion and analysis should be read in conjunction with the financial statements, required supplementary information and accompanying notes, which follow this section.

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

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

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

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

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

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

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

SMUD's vision is to be the trusted partner with its customers and the community, providing innovative solutions to ensure energy affordability and reliability, improve the environment, reduce the region's carbon footprint, and enhance the vitality of the community. SMUD's business strategy focuses on serving its customers in a progre.ssive, 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 capital 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 2022, SMUD's 2030 Clean Energy Vision was translated into the 2030 Zero Carbon Plan, the flexible road map to achieve a zero-carbon power supply by 2030. The plan guides elimination of Greenhouse Gas (GHG) emissions from SMUD's power plants, development of new distriputed 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 At the start of the pandemic in March 2020, SMUD provided its electric customers with suspension of disconnections and stopped collections, late fee, and security deposit processes for all customers to support them during this difficult time. In February 2022, normal payment, late fees, and disconnection policies resumed with disconnections occurri*ng 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 have resulted in an increase in the number of past due customer accounts.

In 2022 and 202 1, SMUD received $9.9 million and $41.4 million, respectively, in California Arrearage Payment Program (CAPP) funding that was applied to customers' bills~ to support customers amid the ongoing challenges of the COY.ID-19 pandemic. The CAPP offers financial assistance for California energy utility customers to help reduce past due energy blll balances that increased during the COVID-1 9 pandemic. As of December 3 1, 2023 and 2022, the uncollectible' reserve for account write-offs was $26 million and $38 million, respectively. Other financial and operational impacts to SMUD associated with* CO V ID-19 are noted throughout th is report:' *'

Requests for Information For more information about SMUD, visit our website at www.smud.org or contact us at customerservices@smud.org.

5

FINANCIAL.POSITION.

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

CONDENSED STATEMENTS OF NET POSITION I.*

2023 2022 frestatt:!d)*

Assets Electric Utility Plant - net 4,245 4,028 Restricted and Designated Assets 239

\\ 184 Current Assets 1,250 1,424

• Noncurrent Ass~ts 1 587

• '.J' 581 Total Assets., '

7,321

• • 7,217 Deferred Outflows of Resources 338 268 Total Assets and Deferred,Outflows of Resources 7,659 7,485 Liabilities.

Long-T ~rm,Debt - :net,

'; l 2,9211 2,886 Cu~r~nt Liabilities

.. 701.

&09 Noncurrent Liabilities

• 530,,

447.

Total Liabilities 4,152 4,142 Defeqed _lnflqyvs, <;>_f Resqu,rc~s i;:i_*

'I

• '!) *,,,,

920

?.76 Net Positiop _.

>I,.. ~' ~..., L:r-t

'.;

2,587, ***j 2 367 Total Liabilities, De.:f~_rry9 Infloi':"s of Respµpc~s, "i i*1 r:.

• 'f': :~ri

,.ii,nd NetPositio_p.,;.,.. I

• \\,

7,659,

.7,485,

2021' 3,891 289

'.' 1,244 1 492 6,916 143 7,059

. J,08t

. 494 216.

3,791

,I'

.. 9,72

~,2%.,1;

.,.'J,059 '/.

• ;

• I. ' * ' :: * (J ' I r

• I ;

L

• r :,.

• ~

/ :

~ I i

. \\ -,~

I. ~ *.. '. ; ' (,<,- r **:

• See Note 3 of the financial statements for discussion on the restatement,of the D.e,cen;iber 31, 202_2 *Statfrmep~s.qf,Net ~<;isition.

TOT AL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 2023 Comparc;d, fo 20~2 Total assets in 2023 increased $104 million or 1.4% over 2022, primarily due to the following:

An increase of $216 million in electric utility plant - net. See Capital Program below for further information.

A $56 million increase in restricted and designated assets primarily due a $65 million Hydro Rate Stabilization Fund (HRSF) transfer from revenue for an above average precipitation water year, a $1 million Rate Stabilization Fund (RSF) transfer from revenue as a result of higher than budgeted energy deliveries from the Western Area Power Administration (Western), and, offset by $10 million RSF net transfer to revenues for net auction proceeds received and*

funds spent on Assembly Bill (AB) 32 programs.

A $174 million decrease in current assets is primarily due to $140 million decrease in hedging derivative instruments due to the gas hedging program and $37 million decrease in wholesale and other receivables due to larger power and gas sales in December 2022.

Deferred outflows of resources in 2023 increased $70 million or 26.1 % from 2022, primarily due to an adjustment to our hedging derivative instruments from the gas hedging program.

6

2022 Compared to 2021 Total assets in 2022 increased $301 million or 4.4% over 2021, primarily due to the following:

An increase of,$1 38 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 (OPES) asset based on the most recent actuarial results,~ $30 million RSF transfer to revenue as a result of lower than budgeted energy deliveries from the Western, and a $25 million HRSF transfer to revenue for below average precipitation, offset by $22 million RSF transfer from revenues for net auction proceeds received and funds spent on AB 32 programs.

A $ J ~Q million increase in current assets is primarily due to $1 15 million increase in hedging derivative instruments due to the gas hedging program and $44 million increase in wholesale and other receivables due to larger sa.le,s 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 of resources in 2022 increased $125 million or 87.4% from 2021, primarily due to increases in the unrealized pension and OPES gains.

TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES 2023 Compared to 2022 Total liabilities in 2023 increased $ 10 million or 0.2% over 2022, primarily due to the following:

A ?ecrease of~ I 0~ million in current liabili.ties <Jue to a $97 million dec.rease in purchased po~er payable due to high

_pu~cnased power price~ in December 2022,that impact~d commodity costs jn th.e prior Y.ea(.

A $~3 million increase in non-current liabilities is due to ~ $25 mUlion increase in accrued decommissioning for the future nuclear spent fuel costs at Rancho Seco and a $42-million increase in net pension and other postemployment 1

I,

(

I I

benefits liability based on the most recent actuarial results.

Deferred inflows of resources in 2023 decreased $56 million or 5.7%, du~ to a $19 1 million d~crease in value to our hedging derivative instruments from the gas hedging program offset by a $138 million increase to r~gulatory credits related to the.HRSF,

~

pension and OPES deferred costs.

Net position in 2023 increased $220 million or 9.3% over 2022 based on results of operations.

2022 Compared to 2021 Total liabilities in 2022 increased $35 1 million or 9.3% over 2021, primarily due to an increase in current liabilitie~ of $315 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 $23 1 million increase in net pension tiability based on the most recent actuarial results. This is offset by a decrease in long-term debt-net of $195 million.

Net position in 2022 increased $71 million or 3. 1 % over 2021 based on results of operations.

7

RESULTS OF OPERATIONS The following table summarizes the operating results for the years ended December 3 1 (in millions).

CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating revenues Operating expenses Operating income r

Other revenues/(expenses)

Interest charges Change in net position Net position - beginning of year Net position - end of year 2023 1,931 (1,748) 183 136 (99) 220 2 367 2.587 2022 (restated)*

202 1 2,147 1,790 (2,065)

(1,450) 82 340 90 108

( I 0 1)

(109) 71 339 2 296 I 957 2,367 2,226

• See Note 3 of the financial statements for discussion on the restatement of the December 3 1, 2022 Statements of Revenues, Expenses and Changes in Net Position.

2023 Compared to 2022 OPERATING REVEN UES Total operating revenues were '$1,93 1 million for 2023, a decrease of $216 million or I 0.1 percent over 2022 operating revenues.

The residential megawatt hour (MWh) sales decreased r.8 percent and sales revenues decreased 0.9 percent coihpar'ed to 2022, primarily due to cooler weather for the first half of the year and a milder' summer in 2023. The commerci~I'& industrial MWh sales decreased 7.3 percent and sales revenues decreased 0.6 percent compared to 2022, primarily due to loss of a'large commercial customer in 2023.

The follow!ng charts show the MWh sales, and sales revenue for the past three years by surplus energy sales (Surplus),

commercial, industrial, and other (C&l), and residential (Res) customers:

MWh Sales 7,000 6,000 5,000 C

4,000

J:

Iii Res 0

E 3,000

.r.

~

i; 2,000 liil C&l Iii Surplus 1,000 0

2023 2022 2021

$900,000

$800,000

$700,000

$600,000 C

$500,000 0

$400,000 E

$300,000

$200,000

$100,000

$0 8

Sales Revenues 2023 2022 2021 Iii Res liil C&I Iii Surplus

Wholesale revenues are comprised of both surplus gas and energy sales which are part of the operational strategy in m,anaging fuel and energy costs. In 2023, energy sales were higher by $ 15 million as compared to 2022 due to higher MWh sold but at lower energy prices. Surplus gas sales were lower than 2022 by $118 million primarily due*the unplanned outage ofCosumnes Power Plant (CPP) and selling at higher gas prices in 2022. CPP came back on line in March 2023.

OPERATING EXPENSES Total operating expenses were $1,748 million for 2023, a decrease of $3 17 million or 15.4 percent over 2022.

Purchased power decreased by $422 million or 48.3 percent primarily due to the unplanned outage of CPP in 2022 that led to an increase in procurement power in 2022. In 2023, the increased hydro generation, lower energy market prices and decreased load led to dec;rease in procurement of power.

Production expense in<::reased by $22 million or 6.5 percent primarily due to unplanned CPP outage for majority of.2022.

General, administrative and customer increased by $54 million or 21.4 percent primarily due to large credit adjustments related to pension and OPEB actuarial results in the prior year.

Maintenance increased by $13 million or 7.5 percent primarily due to increased costs related to storm response in early 2023.

The following chart illustrates 2023 operating expenses by expe~se classification arid percentage of the total:

I 2023 Operating Expenses Purchase Power

• 25.8° Production 20.5%

Depreciation & Amort 17 6%

G&A and Customer 17 5%

Maintenance T&D Public Good 0.0%

5.0%

10.0%

15.0%

20.0%

25.0% l0.0%

9 Public Good lilT&D

• Maintenance II G&A and Customer Depreciation & Amort Ill Production Purchase Power

OTHER REVENUES Total other,revenues (net)..yyre $136 million for 2023, an increase of $46 million or 51.7 JJ.ercent over 2022. The increase is due to $33 million gain on sale of Solano land, $13 million receipt of insurance recovery payment on CPP repairs and $24 million higher interest earnings on investments. This is offset by a $39 million decrease in investment revenue related to gas swaps.

2022 Compared to 2021 RESULTS OF OPERATIONS Total operating revenues were $2, 147 million for 2022, an increase of $357 million or I 9.9'percent over"202 l operating revenues. The residential MWh sales increased 0.3 percent and sales revenues increased 3.6 percent compared to 202 1, although usage is flat, the increase,s re'lated to the shift in the customer load shape. The commercial & 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.

In 2022, energy sales were higher by $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 higher gas prices in 2022.

Total operating expenses were $2,065 million for 2022, an increase of $615 million or 42.4 percent over 2021.

0 0

0 0

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

Production expense decreased by $22 ~ illi~n or 6.1 pJrcent primarily due to unplanned CPP outage for majority of the year.

General, administrative ankl customer increased by $98 million or 63.9 percent primarily due to SMUD establishing regulatory accounting* in 2022 for pension and OPEB regulatory costs and/or credits to defer recog~ition of certain

• ,I,

• V.t,t*

r

/..,*

expenses related to the amortization of pension and OPEB deferraed.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 $30 million or 22.2 percent primarily due to increased costs related to tree trimming and JPA fherlnal plant maintenance.

Total other revenues (n; t) were $90 million for 2022, a decrease of$ I 8 million or 16.9 percent over 202 1. The decrease is due to receiving $41 million in grant revenues from CAPP funding in 2021, offset by the $20 million increa~e in investment revenue related'to gas swaps in 2022.

• ~*

I ~

, -.. ~

• rl t

.._r.. i:

~;.. _;,..-...... I CAPITAL PROGRAM SMUD's electric 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).

2023 2022 (restated}*

(

2021 Electric Utility Plant 7,890 7;583 7,232 Accumulated Depreciation and Amortization (3,645)

(3,555)

(3,34 1)

Electric Utility Plant - Net 4,245 4 Q28 3,821

• See Note 3 of the financial statements for discussion on the restatement of the December 31, 2022 Statements of Net Position.

The fo llowing chart shows the breakdown of2023 Electric Utility Plant - net by major plant category:

2023 ELECTRIC UTILITY PLANT Transmission 12%

Other ----:-.:i,:--

24%

Distribution 43%

Iii Distribution 1110ther *

• Generation

• Transmission The following chart shows the breakdown of 2023 Electric Utility Plant capitalized additions by major plant category:

2023 ELECTRIC UTILITY PLANT ADDITIONS Transmission 7%

Other 17% ----

Generation 34%

Distribution 42%

• Distribution

• Generation

• Other IIIITransmission 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 include_s investment in generation, transmission, distribution, buildings, vehicles, technology, and other assets critical to meeting the energy needs of our customers. Capital investments are financed with revenues from operati,ons, bond proceeds, inyestment income and cash on ~and.

The following table shows actual capital program expenditures for the last two years and budgeted capital expenditures for 2023 (in millions).

Budget Actual Actual 2024 2023 2022 Capital Program:

Transmission & Distribution 232 173 154 Generation 173 230 124 Other 148 81 70 Total 5-5..3.

8..3.

348 l I

In 2023 and 2022, SMUD actual expenditures included work for Substation G, Advanced Distribution Management System, Solano Phase IV, Energy Storage System Flow Battery, Country Acres solar project land purchase, distribution line work and continued work on Upper American River Project (UARP) relicensing projects.

Major capital expenditures planned in 2024 include the Station H substation and Elverta substation rebuild, continued work for the wind farm with Solano Phase IV, the Cou\\Jtry Acres solar project, and ongoing improvements in our UARP area as part of our hydro relicensing. Programmatic capital planned in 2024 includes cable and pole replacement programs, installing new meters, and new fleet purchases. Technology investments included in the 2024 Budget are to complete the Distributed Intel at the Grid Edge and the Outage Management System replacement.

LIQUIDITY AN D CAPITAL RESOURCES SMUD maintains a strong liquidity position by setting a minimum number of days cash on hand and managing a $400 mil lion 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. As of December 3 1, 2023 and 2022, the days cash on hand was 170 days and 2 14 days, respectively. The commercial paper program allows for short-term borrowing when needed in lieu of issuing long-term debt, similar to a credit card or line of credit. As of December 3 I, 2023 and 2022, SMUD had $ 150 million of commercial paper notes 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 times operating cash flow; however, SMUD aims for a minimum of 1.70 as a standard. On December 31, 2023, the fixed charge ratio was 2.32. This higher performance standard has proven valuable during financially challenging years of uncertainty stemming from the pandem ic and higher commodity costs incurred from the CPP unplanned outage, record heat wave in Septembe~ and higher commodity prices in 2022.

FINANCING ACTIVITIES In June 2023, SMUD issued four separate revenue and revenue refunding bonds totaling $493.1 million. The purpose of these transactions was to refund the fixed rate debt associated with 201 3 Series A anlB bonds, refund the fixed rate debt associated with 2019 Series A bonds and refund the outstanding commercial paper. Th is resulted in a $99 million in cash flow savings through 204 1.

DEBT SERVICE COVERAGE Debt service coverage for long-term debt w~~ 2.41 ti1nes and 1.87 times in 2023 and 2022, respectively. SMUD's bond resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios of at least 1.40 times, certain other financial ratios, stipulated minimum funding of revenue bond 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 RA TINGS SMUD proactively manages 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 3 1, 2023, 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. In February 2024, Moody's upgraded SMUD's rating to Aa2 from Aa3 changing SMUD's financial outlook from positive to stable.

12

COMPETITIVE RATES The Board has independent authority to set SMUD's rates and charges. Changes in rates requi~e a public hearing and formal action by the Board. SMUD has committed to our customers in keeping rates low while continuing to del_iver s~fe, :eliable, ~nd environmentally responsible power and the products and services they value.

In 2021, the Boi;trd approved the Solar and Storage Rate; which will reduce the cost shift fr9f\\1 Net Energy. Met~ring and will.,.

incentivize custqmers to iqvest in solar paired with storage, providing greater benefits to SMlJD and our custom~rs. In 20~_1,_ the Board approyed the 4022 and 2023 rate proposals ii:icluding rate increase~ of 1.5% in 2022 and 2% in 2023, which.is well beJow the estimatedrate.qf inflation.

!'1,

(

,I, In 2023, the ~oard approved the 2024 and.2025 rate proposals including fourrnte in~reases of2)5o/o, one.each _in January 2024, May 2024, January 2025 and May 202~, whiph will.apply to all custom.er classes. Even with thes~,iqc_reases, SMUD'trates continue to remain amongst the lowest in.the state. In 2023, the average system r~te wa:, 50 percent below the.;i.verage rate of the nearest investor-owned utility. This ensures the necessary revenu~ tq meet ~M{JD:S financial obligations, key financial metrics, and delivery ofSMUD's 2030 Zero Carbon Plan.

~

, I'"

l

• 1; ; r:t* '

SMUD has also devel9ped an integrated *Grant Strategy Framework, which will best positio~ SMUD to _secure sources, o:(, :.*,..

, funding to ~eliyer.on our 203 0 Zero Carbon Plan and keep our. rates low. In 2023, SMUD 11/iJ.S a_warded.five grfjnts)nc!u.ding a

$50 million from the-Department of Energy (DOE) Qrid Deployment's Grid Resiltence _and Innovative Partµerships program for

_SM.Up's Connected.Clean Po~e~City appUcatioi;i. TQ~p,rpject will begin. in.2024 and last.for fiY,e years_.

ENERGY RISK MANAGEMENT SMUD's commodity costs have prices locked in for most of our expected energy requirements to ensure cost and rate stability for cu;tbi-h'ers!1bniy* a sin all portioh of budgeted e*nbrg~ 'pur~h'asgs*are *e'x'pos~d ~o *shotiAertri'ma:rket pri'ce'fluctuatron~'- a **

beneficial practice, especially during the price ~olati1ity currently iefleded in Ca!ifdrni~ power ancl e'Iiergy prices.' '* * * ' '."

SMUD has mitigation measures in place for higher commodity costs due to reduced hy~lroelecttic produtti6n-tli~t wflf iehd t6" higher purchased.power. In April 2023,,.$6,5..4 _mi)lio,n was tran~Jerred tp the HRSF from,reyenue; a!; a ~esu\\t of high_..,,

precipitation, As oj' December ~ 1, ;'.?023, tl;ie HRSF, was $96.4 million and $54.4 111illi.on in the RSF*, net of Low C~r~qn F,ue,l Standard and-Cap and Trade :(unds, These reserve fun,ds help *~gsorb. highxr, energy :eosts when, hydroelectric, grQduqt\\9n,is gown and sef\\le as:a-buffer again.st unexpected financial deyel9pments.

,., l RESOURCE PLANNING AND GENERATION UPDATE In March 2021, the Board adopted the 2030Zero

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 update in June 2022 and filed this update with the California Energy Commission 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.

SMUD continued to identify new opportunities for renewable and energy storage projects, including solar, wind, geothermal and battery projects both within our service territory and throughout California. These resources contribute towards Renewables 13

Portfolio Standard (RPS) requirements and support our Zero Carbon Plan goals. SMUD is on track to' meet. tl\\i cu'rrent RPS cpmpliance per_iod 4 (2021 tp_2024).

DECOMMISSIONING SMUD has made significant progress toward completing the Decommissioning Plan for its Rancho Seco nuclear facility, which was shut down in 1989. The'plan consists of two phases that'allow SMUD to terminate its possession°only'license. Phase I of the decommissidning was completed at the end of 2008. Phase II consists of a storage period for the Class B and Class C radioactive waste overseen* by the existing facility staff, followed by shipment of the waste for'disposal, and th'en complete termination of the possession-only license. SMUD also established and funded an external decommissioning-trust fund as part of its assurance to the Nuclear Regulatory Commission (NRC) to pay for the 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 remaitling Phase II decciinmissioning activities required for termination*ofthe possession-only license commenced in 2015. In September 2017, SMUD formally requested the termination of the possession-only license and termination 6fthe possession-only license was completed in 2018.

As part of the Decommissioning Plan, the nuclear fuel and Greater Than Class C (GTCC) radioactive waste is being stored in a dry storage facility constn.ict~d-by SMUD and licensed* separately by the NRC. The DOE, under the Nuclear Waste Policy Act of 19&2, was *responsible for *permanent disposal of used micleai fuel' and *QTCC radioactive waste and SMUD contracted with the DOE for removal arid disposal of that ~aste. The DOE has yet to fulfill its contractuai obligation to prov'ide a permanent waste disposal site. SMUD has filed a seri'es*df 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 continue to pursue cost recovery claims until the DOE fulfills its obligation.

t

\\

.. -~

I rr

"~!

I J. '. \\

The total P,-..c~~u,ed pec,omip.issiq11ing_b~lanpe i_~.th~_ St~tements,_.<;>,f_Net P.o~if,ion, including_ Ra~ch,,o ~,ecp an~.o~~er-t,\\R..~>;'.~,.

amounted to $120:9 million,.and $95 19 rµll!iq~ as ofl;>ec:e~J:,er:31, 2023.anp ?,92_2,,-r,esp~c~ively.

..,;_.. _.,~,.:,.,, : 1,.,.

SIGNIFICANT ACCOUNTING POLICIES In accordanc*e*Witfi *oASB No.' 62,' the Board has taken regulatory actions for rateinaking that result in the deferral 'of expense and -revenue rec*ogniti'on.

• These actions result irt regulatory *assets arrd liabilities. SMUD has regulatory' assets that cover costs related *to deconiinissioning, derivative financial insttuments, debt issuance costs, pension costs; and OPEB costs: As of December 31, 2023 and 2022, total regulatory assets were $916,1 rriilliori-arid $813:6 million, respectively:* SMUD also has regulatory credits that cover costs related to contributions in aid of construction, the RSF and HRSF, Energy Assistance Program Rate reserves, SB-1, grant revenues, and Transmission Agency ofNorthtim Califorilia.opera'tions costs, As of'December 31, 2023 ijnd f022, total regulatory_ ~red its ~ere $758.3,million and, $620.4,.million, respectively.

. *,*1

l.

14

SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF NET POSITION December 31, 2023 2022 (restated)

ASSETS ELECTRIC UTILITY PLANT Plant in servic~.

Less accumulated depreciation and amortization Plant in service - net Construction work in progress Total electric utility plant - net RESTRICTED AND DESIGNATED ASSETS Revenue bond and debt service reserves Nuclear decommissioning trust fund Rate stabilization fund Other funds Less current portion Total restricted and designated assets CURRENT ASSETS Unrestricted cash and cash equivalents Unrestricted investments Restricted and designated cash and cash equivalents Restricted and designated investments Receivables - net:

Retail customers Wholesale and other Regulatory costs_ to be recovered within one year Investment de~ivative instruments maturing within one year Hedging deri~11ti\\1e instruments maturing withiii. orie year Inventories ***

Prepaid g11t to :be delivered.. ~ithiq one year Prepayments and other Total current assets NON CURRENT ASSETS Regulatory costs for future recovery Prepaid gas Prepaid power and capacity Investment derivative instruments Hedgiqg de_rivative in~truments Energy effici~ncy loans - net Credit support collateral deposits Due from affiliated entity Prepayments.and other Total noncurrent assets TOTAL ASSETS DEFERRED OU!fFLOWS OF RESOURCES Accumulated decrease in fair value of hedging derivative instruments Deferred pension outflows.

Deferred other postemployment benefits outflows Deferred-asset retirement obligations outflows Unamortized bond losses TOTAL DEFERRED OUTFLOWS OF RESOURCES TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES (thousands of dollars)

-7,299,480 (3,645,515) 3,653,965 590,659 4,244,624 115,679,

9,41.8 212,131 39,281 (137,853)

,, 238,656.

• 229,456

,, 341,159,,;-.,,

3?,775,,.,..

~8,078

'\\)<,.

178,414

!P:~

• .. 6~,4~5 I.~-,. 63,415,.

-0:.,;..

• 1u90* ;*

14<i,791 *

• 43 671 35,387

1,250,761' 852,709

• ,593;329 -0--

34,8j5 384 19,150 30,912.

55,353 1,586,682 7,320,7:23 85,380

• • 182,489.

62,705, (7'87 6,300 338,661 7,659,384 7,235,248 (3,554,512)

' 3,680,736 347,758 4,028,494 119,385 8,980 156,016 30,424 (131,852) 182,953

• ***268,653

)/. 359,211 30,583 101,269 181,606 102,305 49,312 5,870 151,349 113,120

_29,452 31,667

• ' 1,424,397 764,246 637,000 173 329 85,675 732 11,650

. 31,149 50,506 1,581,460 7,217,304 28,438 175,478 53,674 2,066 8,389 268,045 7,485,349 The accompanying notes are an integral part of these financial statements.

15

LIABILITIES LONG-TERM DEBT - net CURRENT LIABILITIES SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF,NET POSITION December 31, 2023 2022 (restated)

(thousands of dollars) 2,920,881 2,885,844 Commercial paper notes 150,000,,.1, 150,000 Accounts payable

. 127,5*3-9 *

• 159,463 Purchased power payable 38,522.

135,570 Credit support collateral obligation within one year

* '533 534 Long-term debt due within one year 137;740 138,195 Accrued decommissioning 7,140 7,549 Interest payable

• 49,936 * **

49,865 Accrued salaries and compensated absences 62,243 * '

60,209 Investment derivative instruments maturing within one year 1,160 3,103 Hedging derivative instruments maturing within one year

. 63,076 21,636 Customer deposits and other 63,668 83,285 Total current liabilities 701,557 809,409 j,.,>-------'------'-_;_;__.;; _________________

-,-___,_~ _

_;_..;;__:_ac:..:;_.;__ _____

NON CURRENT LIABILITIES Net pension liability Net other postempfoyment benefits liability Accrued decommissioning Investment derivative instruments Hedging derivative instruments Credit support collateral obligation Selfinsurance*-and other Total noncurrent liabilities

'\\ /.

TOT AL LIABILITIES DEFERRED INF~OWS OF RESOURCES Accumulated increase in fair value of hedging derivative instruments Regulatory credits Deferred pension inflows Deferred other _postemployment benefits inflows Deferred lease inflows Unamortized bond gains Unearned revenue TOT AL DEFERRED INFLOWS OF RESOURCES NET POSITION Net investment in capital assets Restricted:

Revenue bond and debt service Other funds Umestricted TOTAL NET POSITION I'.

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION $

259,010 25,334 113,736

~o- -

• :,

• 22;303 1,500 *

':*u.,. '108*,085*.,. ;,.. --.,.,

• • _, 529,968 * "* ""<'"'.-: :

1,-, **

235,451 6,753 88,385 1,424 6,802 108,522 447,337

,., ;.*, 4.,152,406,,

4,142,590 46,035

• 758,307 1,;

17,536 38,118 17,363

.39,050

,, 3,870 920,279 1,674,419 62,161 37,248 812,8'71 2,586,699 7,659,384 237,025 620,373 26,656 49,838 18,187 20,473 3,230 975,782 1,493,017 59,967 29,890 784,103 2,366,977 7,485,349 The accompanying notes are an integral part of these financial statements.

16

SAC~MENTO MUNICIPAL UHLITY DISTRICT STATEMENTS OF,-REjVENUES, EXPENSES A,.N_D ~RANGES IN NET POSITION Year Ended December 31, OPERATING REVENUES Residential Commercial and industrial Street lighting and other Wholesale Senate Bill - I revenue deferral AB-32 revenue *

• LCFS revenue Rate stabilization fund transfers Total operating revenues OPERATING EXPENSES Operations:

Purchased power Production Transmissfon* and distribution Administrative, general and customer Public good Maintenance Depreciation and ~mortization Regulatory amburits collected in rates Total operating expenses

'I ':

OPERATING INCOME

~ON-OPERA TING 'RE\\%NUES AND EXPENSES*

Othet*revenues and (expenses):

Interest income Investment income (expense) - net Other income - net Total other revenues and (expenses)

Interest charges: * /

Interest on debt Total interest charges Total non-operating revenues and (expenses)

CHANGE IN NET POSITION NET POSITION - BEGINNING OF YEAR NET POSITION - END OF YEAR i;

1:,

2023 2022 (restated)

(thousands of dollars) 789,196 808,906 806,225

• 814,584

. 55,646 52,122

,,302,538

• 406,171 877 40 26,422 22,760 5,875 9,775 (56,115) 32,976 1,930,664 2,147,334 451,896 873,436 3.57,773

• *' 335,866

' 82;341-89,534 305;968 252,105 62,679 t,.,i 53,921 179;840 * * *-

167,265

• 267,963 256,439

,:1* * :::: 39;90&

36,688

• *1,748;368' 2,065,254 182,296 82,080 t ;~ *,:1

. :~ : '

• 38,230 *.

• 14,265 (11,363,)

27,702 109,350 47,853 136,2,17, 89,820 98,791 101,184 98,7.91 101,184 37,426 (I 1,364)

, 21_9,722,,

70,716 2,366,977 2,296,261 2,586,699

• 2,366,977 The accompanying notes ar~ an integpl.part of these financial statements..

17

SACRAMENTO MUNICIPAL UTILITY DISTRICT

• STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from surplus power and gas sales Other receipts Payments to einployees - payroll and other Payments for wholesale power and gas purchases Payments to vendors/others Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Repayment of debt Receipts from federal and state grants Interest on debt Net cash used in noncapital financing activities

, CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Construction expenditures Proceeds from land. sales Contributions in aid.of construction Net proceeds from bond issues Repayments ancj r<tfundings of debt Issuance of cqmmercial paper Repayments.of comi;ie'.cfalpaper

• Otlier receipts Interest on debt * '*

Lease and other receipts/payments - net Net cash used in capital and related financing activities

'.*t Year Ended December 31, 2023 2022 (restated)

(thousands of dollars) 1,643~057,,

• 329,851

, 179,0J.7.

(395;334)

(743,372)

(526,649) 486,570 (25'.18?) (27,659)

(52,844)

(4,~6,198) 45,005 19,011 537,606

. (420,710)

. 200,090

.,(200,0Q0)

• 16,501 (116;247)' *. *,*.

(34,625)

(449,657) ,, *,

• 1,673,226 369,878 216,564 (379,423)

(1,021,810)

(451,720) 406,715 (20,550) 1,647 (28,568)

(47,471)

(336,307) 21,602 150,711 (269,385) 150,000 16,413

(:JP.0,222)

(31,746)

(418,934)

'CASH FLOWS FROM INVESTING ACTIVITIES Sales and maturities of securities Purchases of securities Interest and dividends received Investment revenue/expenses - net Net cash used in investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash and cash equivalents included*in:

Unrestricted cash and cash equivalents Restricted and designated cash and cash equivalents Restricted and designated assets (a component of the total of$238,656 and $182,953 at December 31, 2023 and 2022, respectively)

Cash and cash equivalents at the end of the year The accompanying notes aie an integral pal1 of these financial statements.

18 568,488.

• (673,554) 33,838, (11,455)

(82,683)

(98,,614) 389:838 29i,224 2291456 39,775 21,993 291,224 436,129 (812,821) 9,953 27,619 (339,120)

(398,810) 788,648 389,838 268,653 30,583 90,602 389,838

SACRAMENTO MUNICIPAL UTILITY DISTRICT

• SUPPLEMENTAL CASH FLOW INFORMATION A reconciliation of tlie sfat~ments of cash flows operating activities to op.erating'income as follows: __

I Operating incon;i_e Adjustments. to reconcile operating income to net cash provided by operating activit'ies: '

• 1 Depreciation Regulatory amortization Other amortizations..

Revenue deferred to (recognized from) regulatory <;redits - net Other (receipts) payments - net Changes in operating assets, deferred outflows, liabilities and deferred inflows:

Receivables - retail customers, wholesale and other Inventories, prepayments and other Net pension.and other postemployment benefits a~sets i;:>e.ferred. outflows of ri;:~qurces Payables and accruals Decommissioning Net pension liability Net other postemployment benefits liability Deferred inflows of resources Net cash provided by operating activities

k,*

I

~ *.

l *: *

')

, ; } I

• *;j; *, '. '*,! ', *,

I,

The su~pk;~e~tal dis.closurT. <?t:i:i~n~a~h financing ~nd:invest/n91~c~i~i,ti_1?~ is.as.(.;ollp.ws:.,

Year Ended December 31, 2023 2022 (restated)

(thousands of dollars)

,J82,296 267,963 39,908 26,488 55,238 29,385 44,472 (43,135)

'... (16,04.4)

,8i,o8o 256,439 36,688 2~,909 (33,016) 17,770 (25,719)

• (28;265)

.,85,270 (1_2277.06) 127,299 (115,722)

(5A8lf 23,559 18,581 (6;049)

(20,940), :.'.',. f 486,570 235,451 6753 (248,189) 406,715

'** *,,*:'YearEndedDecerrlber'Jl,

f ~ ; _. *' '

• Amqrtiz11tion of de):,t relatec;l ( e;wenses) and premiums - net_

Write-off~nam~rtized pre~i~m and loss

G~iri dri debt extinguishrrient and refundings

• • 'J * '

Unrealized holding gain (loss)

Change in valuation of derivative financial instruments Aµiortization of revenu~ for assets c_ontri,buted in aid of construction-Construction expenditures included in ac~ounts pay&pl_e Gain (Loss) on sale and retii'ement of assets - net Write-off capital 'projects and preliminary surveys

"'*2023 :. * * '

• 2022'(restated)

(thousands* of dollars) 23,090 18, 7i 1 116,837

• 5,502 (250,762) 19,201, 52,122 17'.637 (950)

• ' 34,145

• 7,576

• • 6,677 i * '(5;890) 163,871 19?226 55,787 (2,036)

• .,. (3,720)

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

19

Sacr;uile~to Municipal Utility ])istrict Notes to Financial Statements As of and for the Years Ended December 31, 2023 and 2022 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 ot services it furnishes, and to incur indebtedness and issue bonds or other obligations. As,a.coinmunity-ow*ned uti)ity, SMOb is not subject to regulation or-oversight by the California Public Utilities Commission.

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

SMUD is exempt from payment of federal and state income taxes and, under most circumstances, real and; personal property

• taxes. SMUD is not exempt from real and personal property taxes on assets it, holds outside of its service-territory. In

• • ~dd'ition, SMUD is responsjble for the payment of a portion of the property taxes associated with its real property in California that lies outside of its* service area.

~OJ'E _2. SUMM~RY OF SI.G~IFICANT ACCOUNTING POLICIES Method of Accounting. SMUD's accounting records are maintained in accordance with Generally Accepted Accounting Principles for proprietary funds as prescribed'by'the doverrimeritai Accoti'rltiiig Standards Bohrd (GASB)'. 'SMUb's',:;

accounting record~ g~?erally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Fed~rarEnergy 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 qfthe related' cash flows. Electric reve~ues and costs that are directly related to the acqili~ition,

• - 'J l ge_neration, transmission,. and distribution of electricity are reported as operating revenue.s and expe11ses. All qther revenues

• , and expenses are reported as non-operating revenues and expenses.

• 1

• use of Estimates. The preparation of financial statements in conformity with *accounting principles generally accepted in the United States of Americ~ (U.S.) requires management to make estirriates and assumption~ tbat affect the reported amounts of

• assets, deferred outflows of resources, liabilities, and deferred inflows ofresources and di~c;losure~ of contingent assets and I

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 of SMUD 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 Sacramento Municipal Utility District Financing Authority (SF A), the Northern California Gas Authority No. 1 (NCGA), and the Northern California Energy Authority (NCEA). The primary purpose of SF A is to own and operate electric utility plants that supply power to SMUD. The primary purpose ofNCGA is to prepay for natural gas to sell to SMUD. The primary purpose ofNCEA is to prepay for commodities in the form of natural gas and electricity to sell to SMUD. SMUD's Board comprises the Commissions that govern these entities (see Note 6).

20

Plant in Service. Capital -assets are generally defined by SMUD as tangible_ assets with an initial, individual cost 9f more-,tha11 five thousand.dollar,s and an estimated useful life in excess 9f two years. '.fhe cost of addition.s tq,P;lant, _in Service a.i:id.

replacemem property units is capitalized. Repair and maintenance, ~osts are. charged to expense when incurred. When ~MUD retires portions of.its Electric Utility Plant, retirements are rec9.rded against 1\\ccumulated Depreciati<;m and the retired portipn of Electric Utility Plant is removed fr.om Pl.ant in Service.. The costs ofr.emoval and the rel~ted salvage value, if any, are -

charged o.r _credited as appr9pri.ate to Accu1,11ulated Depreciation. SMTJD generally computes depreciation on Plant in Service on a straight-line, service-life basis. The average annual composite depreciation rates for 2023 and 2022 was 3.3 percent and 3.2 percent, respectively.. Deprec.iation,js calculated using the following esti1?ate_d lives:...

Generation Transmis~iop_ and Distribution Gas Pipeline,

General 8 to 80 years 7 tq, 50 years, 10 _to 90 years

..... 3,:to 60 years Investment in Joint Powers Authority (JP A). SMUD's investment in the Transmission Agency of Northern _California (TANC) is accounted for under the equity method of accounting and is reported as a component of Plant in Service. SMUD's shar.e of the TANC debt service costs and open_1tions and.. maintenam;e expen~e, ipclusive of di:preciation, is ir.-clµd(?d _in.. -

Transmission _and Distribution; expense in the Statement~ of Revenues, Expenses and Changes-in: Net,positiqn _.(sei, Note.?)-. ;,.

SMUD's investment-in the Balancing Authorit)'. ofNorthern_California (BANC)~ ~ccounted,for uqder ~he_.eqµity, method of-.

accounting.. SMUD's share of the BANG,operations and.maintenance expense is included dn ;Tr,ansipissio11 and pis~ribu~ion _.

expense in the Statements of Revenues, Expenses and Changes_.in,Net Positio.n (see Note 5)..,

Leases.., SMUJ). implemen~e.d.Stateme1,1,t of Gov_ernmen~a..l A.c~qunting Standa~~-s (SGAS) N;9. _8:7,.,'fLea_!fes" 1ip 2,oi2. I,,eases,are cqntragts tj1at-cJmvey control_ o;f the,right to use another entity's.nonfinancia! asset as specif:ie,d,:for. a.perio_d 9J ti!11e in an.

exchangi,* or.exchange7like transaction wjthout t_he _tran~fer: q~ o,wners\\lip __ ofthe asset,.'I;'he least, term: is the pei:iod ofti111e where there is a,no_rwa11cella.ble,rigbq9 il:ISe the.underlying asset (~.e.e.~ote.4)..

.,i 1, **:*..

For lessor contracts, lease receivables and deferred inflows ofresources are reported at present value using SMUD's incremental borrowing rate on the St~tements 9fl~et Po~ition, Th_e am9rti;zatiqn of.the djs_count for.lessor contracts is,.recor.ded a~.1/2ease receivable for,SMl,JD on the Statements. of Net Positi<m wj~h t~e -offset,to interest i11come in Interest and other incon;ie 011,the-Statements of Revenue, Expenses. and Change in*N~t.Position.(see Note,4)...,.

rr~,,

For lessee \\:Ontracts,Jease assets 11nd liabilities are repof!ed at_present value usi,1_1g SMUD,'sinci;emental borrowing rate o~ tpe Statements of Net Position. The lease assets are amortized over the shor,ter.ofthe lease term qr the useful life of the underlying asset. The amortization of the discount for lessee contracts is recorded as Interest payable on the Statements of Net Position with the offsetto Lease int~rest expense for Sl\\tlUD on the Statements of Revenue, Expeqses,anq.Change \\n Net Position,(see:Note 4).

'*'I.

Subscription Asset~. SMUD-implemented _SGAS No. 96 "Subscription-Based lnformation,Technology Arr(Jngements (SB/TA)" in 2023. SBITAs-provide governments wit_h access to vendors' inforqiatiqn technology (IT) soflw/:lre and associated tangible capital assets for subscription payments without granting governments perpetual license O( title.to then: software and associated tangible capital assets. The subscription term is the period of time where there is a noncancellable right to use the underlyjng IT a~sets (see Note 4).

For ~BITA contracts, subscription,ass~ts and lia~ilities are reported at present value using SMUD's incremental borrowing rate on the Statements of Net Position. The subscription assets are amortized over the shorter of the lease term or the useful life of the underlying IT assets. The amortization of the discount for SBIT A contracts is recorded as Interest payable on the Statements ofNet Position with the offse~ to SBITA interest expense for SMUD on the Statements ofRevenue,.Expenses and Cl_l;mge in Net Position (see-Note 4)..

21

Restricted and Designated Assets. Cash, cash equ1va1e*nts, and investments, whicll"are restricted by regulation *or under terms of certairi agreements*fot payments to third parties are Included as restricted assets:* Restricted assets include-Revenue bond and debt service reserves; Nuclear decommissioning*ttust 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-Other 'funds.* When SMUD restricts or designates funds for a specific purpose; arid restricted and designated and unresfricted*resources are available for use, it is SMUD°'s J)Olicy'to use*restricted'and:designat~d*resources first, then*unrestricte'd resources as theylare needed.

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

Nuclear Decommissioning Trust Fund. SMUD made annual contributions to its Nuclear Decommissioning Trilst Fund (Trust Fund) through 2008 to cover the cost of its primary decommissioning activities associated with the Rancho Seco facility. Primary decommissioning excludes activities associated with the spent fuel storage facility after 2008 and most non-radiological decommissioning tasks. Interest earnings on the Trust Fund assets are recorded as Interest' Income and are accumulated in the' Trust Fund.*

• (,

Asset Retirement Obligations (ARO). SMUD records asset retirement obligations (A.RO) for tangible capital assets when an obligation to decommission facilities* is legally"requiied. SMUD recognizes :AR Os 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 \\i>fthe ARO is recorded as current and ri'cincurreht Regulatory Costs for Future RecoVery (see'Note 8) in the Sfatemerits *ofNet'Positiori. OtherAROs are*focorded as Accrued Decommissioning and a1corresponding Deferred Asset Retirement Obligation Outflows in the:stateriients of Net Position:'**

.I! *;; '

SMUD has.identified potentia!'retitem'ent obligationir relatt!d to certain generation, distribution and tr11nsmissi61i facilities.'* *

• SMUD 1s n;oiJ...cperp'etuM leased' land rights *ge'netalif afo r~'rieweci cohtim.ioifsly* because' SMUb intenos to utilize these facilities indefiniteiy. GASB *No. 83, Assei Reiirem'eht Obligatibns" requires the *measurement of the ARO tb be Based 0ft*the* *, *

• probability weighting of potential outcomes. Due to the J'ow*probability:thafthese* leases wiH *be'terininated, a liability has not been recorded.

• .i' Cash and Cash Equivalents. Cash and*cash *equivalents include all debt instruments purchased w'ith *an original maturity of 90' days or less; deposits held*at financiaFinstifotions, all investinents in:the Local' Agency Investment Fund' (LAIF), and money market funds. LAIF has an equity interest in'the State ofCa:lifotnia (State)' Pooled Money lri.vestni.eil.t'Accmitit* * *.

(PMIA). PMIA funds are on deposit with the State's Centralized Treasury System and are managed in compliance with the California Government Ccide'according t6* *a statement of investtnent'policy which sets forth permitted investment1vehicle's;

.* liquidity par*arheters, and maximum 'matu*rity of invesfments!,

• Investm~nts. SMUD's investm~nts*'are reported at faid,aiue in accordance with SGAS No.*72, "Fair Value Measurement and Application" (see Note 12). Realized and unrealized gains and losses are included in Other income (expense) - net in the Statements ofReenues, Expenses and ChangelVin'Net*Positidri.' Premiums and discounts on *zero couport 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. Electric revenues are billed on the basis of monthly cycle bills and are recorded as revenue when the electricity is delivered. SMUD records an estimate for unbilled revenues earned from the dates its retail customers were last billed to the-eno of the month. At December 31, *2023,and 2022, unbilled tevenues were $81.5 million and $80.5 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 ofRevenuei;, Expenses and Changes in Net Position in the period the power is received. The 22

costs or credits associated wit\\1 energy swap agreements (g~ and electric) or other arra11gements,that affect the net cost pf:

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 ca11 for up-front payments. Such costs are generally recorded as an asset and amortized over the length of the contract in Operations -

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

Credit and Market Risk. SMUD enters into forward purchase and sales commitments for physical deliyery of gas and,

. electricity with utilities. ~nd power marketers. SMUD is exposed to credit risk related to nonperformance by its whqlesale_.,

. counterparties und_er the. terms of these contractual agreements. In order to limit the risk ofcounterparty_de:(ault, SMUD_has a wholesale counterparty risk policy which includes using the credit agency ratings of SMUD's counterparties and other credit services, credit enhancements for counterparties that do not meet an acceptable risk level, and the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty.. Sivll)D is also subject to similar requirements for many of its gas and power purchase agreements. SMUD uses a combination of cas.h a1_1_d securities to satisfy its collateral requirements to counterparties.

SMUD's component units, NCGA and NCEA, entered into guaranteed investment contracts and are exposed to credit risk related to nonperforman~by its.investment provider. For NQGA, the investrrl~J;J.t pf9.viger provid_es,collater~l iftheir,cq:dit ratings fall b.elow agreed upon -levels.. SMUD holds dep_e>sits lJy: counterpai;ties and an_jnvestment provider and:_re,cords1the, amounts,, c1s Credit Support Collateral Obligation in the Statem,ents o.f Net Posith;m.,

1., ;....,. '.,,,

's,-:**

• t.,,,,* t:

Accounts Receivable, Allowance for Doubtful Accounts and Energy Efficiency Loans. Accounts receivable is recorded at the:invaiced,am9,unt and dqes l}.ot,bear iI?,teres,t, e~cept for.ac~ounts related to.,en(!rgy efficiency Joans,.,,~M1-JP r~,cogni:?es,a11,,

estimate ofuncollectible accounts for its receivables related to electric service, energy efficiency loans, and other non-electric billings, basedup<:.m its historical experiern;:_e,with-col~ectjons,and current energy mark_<;tcp,nqition~. For large whoi<,:s11le.,

receivable,balance_s, SMUD dete~111ines_ its bad debt r1:,serv,1;:s based qn the-specific cn,dit issue~ for ea_c;h a.c~ount. In the. '.'

• Statemen,ts ofNet,Position, SMUD reports its res;eivables 1_1et_ofthe allowance for-µn,colle(?tibk,as current ass_ets, and.it~:..

energy efficiency loans net pf the allowance for uncollec;ti.ble_as nonc1,1p:ent assets. Due to COVID-,19,_SMYD S!-}Spended,-

disconnections for non-payment beginning in March 2020.and i:einstl\\lted discon11ec:tion,s.in J\\prjl 2022.. At D(!cemb~r 31; 2/)23 and 2022, SMUD estimated its uncollectible retail customer accounts at $26.1 million and $38.0 million, respectively, based on non-payment behaviors by _aging category.. SMUP i:ecords bad, debts for its estimat1:,d uncoHectible accounts related to**.

electric service as a reduction to the related operating r_evenues in th~ Statements ofRyv,enues, Expenses and Changes in Net Position. SMUD records bad debts for its estimated uncollectible accounts related to energy efficiency loans and other non-electric qillings in AdministriJ,tive, General.and Customer expensej11 tb,e Statements ofRevenu.es, Expenses and Changes in_

Net Position.

23

SMUD's receivables, *allowances for uncollectible and energy efficiency loans are presented below:*

I,, ;

December 31 2023

2022 (thousands of dollars)

Retail customers:

Receivables-1,, 204;466 219,606

• Less: Allowance for uncolleotible Receivables - net (26,052)

(38,000) 178,414 181.606 Wholesale and other:

• t -

Receivables

• -68,167 ;,

105,083 Less: Allowance for uncollectible,

Receivables - net (2,742)

(2,778) 65.425 102.305 Energy efficiency loans:

Receivables 507 869 Less: Allowance for uncollectible Energy efficiency loans - net (123)

(137) 384 732 Regulatory Deferr'als, 0 The Board has the authority to establish the level of rates charged for all SMUD services. As a regulated 'entity, SMUD's'firianciitl statements are prepared in accordance with SGAS Statement'No. 62, "Codification* of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1'989 Fitiani:ial Accounting Standards "

Board (FASB) and American Institute of Certified Public Accountants Pronouncements," which requires that the effects of the* ratemaking process*be recorcl'ed'iti the finahcial *stateinentsi-'Accdfdingly, certain *expenses and credits, ncirrlially reflected in Change in Net Position as incurred, are recognized when included in rates and recovered from or refunded to cu*stbm'ers.

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

Materials anti Supplies. Materials and*supplies are stated*a:t average-cost,'which approximate's*the first-in; first-out inethod.

Compensati:idt Absences. SMUb accfi'les' vacation leave and compensatbry time when employees earn the rights to the benefits. SMl'JD does not record* sick leave as a liability-until it is taken by'the 'employee, since'there are no cash payments made for sick ieave when emplb{ees terminate or retire.* Comperisated absences are recorded.as Accrued Salaries and Compensated Absences in the Statenients of Net Position.

• At December -31 ~ 2023 and 2022, the total estimated liability for vacation* and either compensated-absences was $44.2 inillion*and $43;7 millio*n, respectively.

Public Good.* Public Good expenses consist of non-capital expenditures for'energy efficiency programs, low*income subsidies, 'renewable energy r~sources*aiid technologies; and researcn*and'development. '

Gains/Losses on Bond Refundings. * ;Gains and losses resultirig from bond refundings*are included as a component-elf Deferred Inflows of Resources or Deferred Outflows of Resources in the Statements of Net Position and amortized as a component oflnterest on Debt in the Statements of Revenues, Expenses and Changes in Net Position over the shorter of the life of the refunded debt or the new debt using the effective interest method.

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

Deferred Outflows of Resources. A deferred outflow of resources represents a consumption of net position that applies to a future period and will not be recognized as an outflow ofresources (expense) until that future time.

24

Deferred lnflQyvs of J.lespurces. A deferred inflow of resources represents an acquisitton of net position that applies to-a future period and therefore will not be recognized and an inflow of resources, (rewenue) *until _that futm:e time,,..,

Derivative,Finam:ial Iµs_truments. SMUD records derivativ_e.. financial it1stri-1ments (intere~t rate swap and gas price.swap agreem<;:nts, certain wpolesale sales agreemen_ts, certain power p,urchase agreements and oP,tion agre1;:ments) at.fair value in its Statements. of Net Position. SMUD does not enter into agreements fo~ speculative pµrp_o§es.. Fair value is est~mated by comparing contract pr~ces to forwarq m11rket prices quoted by third party prnrket participants,and/or pr<>yide~ in reley1:1pt industry publicatjop.s: SMUD is exposed to risk ofn<:mperformance if the counterparties default or ifthe swap agreements are terminated. SM.UD reports derivative fin11ncial instruments with remaining maturities.of one year or less and the port.ion of..

long-t1;:rmcontract~ with schedu\\ed transactions oyer the next :twelve months as.current_ in th!'; Statements of.}.J.i)t P;qsition (see Note 9)..

Interest Rate Swap Agreements. SMUD enters into interest rate swap agreements to modify the effective interest rates on outstanding debt (see Not!!S 9 _and 10).

Gas and Electricity Price Swap and Option Agree°'e_nts. SMUD*µs~sJorwarp 1contracts to hedge theiJ:p.pact of market..

volatility on-gas commodity price_s for its.natural gas:-fueled po~er plants and for.energy_price~,on purchased power fo,r.. :*..,..

SMUD's retail load-(see Note 9).

1 Precipitation Hedge Agreements. SMUD enters into non-exchange traded precipitation hedge agreements to hedge the cost of replacement po,wer C!).Used _by low precipitati.on *ye,ars: (Preci_pitation Agreemep.ts). SMUP,i:ecqr,ds the intrjnsic \\-'.alµe,.of.th~

Precipita,tl<;m Agreements _as Ptepaymt:nt~ and. Other UIJder G,urrent.Asse,ts in the-,State,ments,of,Net-Position.

• Set_th:;JAent_of the Precipitation Agreements is not performed until the end of the period covered (water year ended September 30). The/in;trinsic value of a Precipitation Agreement is the difference between the expected results from a monthly allocation of the cumulative rainfall arngun~~, i9 an average,rainfall year, 11i;id th~ ~Ct\\Jal rainfaltc!uting the: sa::i;ty-pj;:,riod...,,h,. ":. i:.. ; :.,.. *.,,

Insurance Programs. SMUD records liabilities for unpaid claims at their present value when.they are,prpbable \\n_pccu_r.rence and the amount can be reasonably estimated. SMUD records a liability for unpaid claims associated with general, auto, workers' compensation, and short-term and l(mg-t~:nn:di_sability _based upon.e,stimate,s,derived)y_!:,MUD1s claims_,, -::

administrator or SMUD staff. The foibility.comprisys the wes.ent val~e-ofthe claims _outstand,iµg and in~ludes ap-amount for claim events incurr.ed but not reported based upon SMUD.'.~, experie1,1ce (s~e ~ote 16),.

Pollution Remediation. SGAS No. 49, "Accounting and Financial Reporting for Pollution Rem~di[!tion Qb(iga(ions,"

(GASB No. 49) requires that a l_iability be; re_cognized for expected _outlays for.remediating ~xi~ting pollution wpen certain triggering events occur. SMUD recorded a pollution remediation obligation for its North Cjfy substation, which,was built on a former landfill, for.the f,orm~r Commµnity Linen Rental Services.Property, and for obligation~ for several.land sitt?S, including a fewsite~.where it will ~e building a substation, At I;>ece.mber 31,.4023 and 2022,,th~_tp.tal pollu,tion remediation ljf1bility was $23.2 million and $24.3 million, respectively, and recorded as either Curr.ent Liabilities, Customi;:r Deposits and Other or Noncum;nt Liabilities, Self Insurance and Other in the Statements of Net P,osition. Costs were estimated u~ing the expected cash flow technique prescribed _under GASB No. 49, inc_Iuding only amounts th,at are reasonably_ estimabl_e.

Hydro License. SMUD owns and operates the Upper American River Hydroelectric Project (UARP). The original license to construct_and operate the UARP was issued i_n 1957 by.fERC. Effective July 1, 2014,. S~1UD received a 50,year_hydro license. As part of,the hydro. l_icensing process; SiylUD entered into four contract_s ~ith gov!!rnfllent agencies whereby SMl!D.

makes annual payments to them,for various services for the term of the license. At Deceµ1ber 31, 2023 and 2022, the liability for these contract payments ~as _$62.7 million and $58.5 million, respectively, _and recorded as either Current Liabilities,.

Customer Deposits and Other or Noncurrent Liabilities, _Self-Insurance and Other in the Statements of Net ~ositjon (see Note 17).

25

Assembly Bill'32: California Assembly Bill (AB) 32 was an effort by the State of California to* set a greenhouse gas (GHG) emissions reduction goal into law, and initially' was set through 2020., In 2015, the state established* a 2030 goal for GHG emissions at 40 percent below 1990 levels, and in July of2017 AB-398 was approved by the Governor. Central to these initiatives is the Cap and Trade program, which c*overs *major sources 6f GHG-einissions in the'State including power plants.

AB-398 extended Cap arid Ttadethrough 2030. The Cap*and Trade program includes an enforceable'erriissio"n's cap that will decline over time. The State distributes allowances, which are tradable permits, equal to the emissions allowed under the cap. Sdurces under the cap are required fo surrender allowances and offsets equal to their emissions at the'end of each compliance period.- SMUD is subject to AB-32 and has participated in California Air Resources Board (CARB) administered quarterly auctions in the past. rn*a normal water year, SMUD expects its free allocation of allowances from the CARB to cover its compliance costs associated with electricity delivered to its retail customers. SMUD expects to*-reco\\iet compliance costs associated with wholesale power sales costs through its wholesale power sales revenues. SMUD continues to monitor new legislation and proposed programs that could impact AB-32 and its subsequent extensions.

l..

In addition, the Low Carbon Fuel Standards (LCFS) was enacted through AB-32. CARB is responsible for the implementation ofLCFS and has established a program for LCFS credits. The LCFS program is designed to reduce greenhouse-gas emissions associated with the lifecycle of transportation fuels used in California.* SMUD participates in the program and receives LCFS credits*from CARB for the electricity used to power electric vehicles. The LCFS cr"edits are sold to parties (oil companies) that have a compliance obligation. CARB requires that electricity LCFS credit sales proceeds be**

spent in a way to benefit current or future Electric Vehicle drivers in California, for both commercial and residential vehicles.

Net Pension Asset (NP A) or Liability-(NPL). The NPA ot NPL is the difference between the actuarial presentvalue of

• projected pension* benMif payments attributable to employees' past service and the pension plan's*fiduciary riet position (see

• Note-14):- *

I, Net Other Postemployment Benefit (OPEB) Asset (NOA}or.Liability°{NOL). The NOA. or NOL is the differerice*between the actuarial present value of projected OPEB benefit payments attributable to employee's past service and the OPEB plan's fiduciary net position*( see Note 15). '

Net Position.* SMUD'classifies its'net positioh into three components as follows:

1 "

Net investment 'in capital *a~sets - This component of n*et pcisitioh consists ofcapital assets; net of accumulated depreciation, reduced by the outstanding debt balances, net *of unamortized debt expenses. Deferred inflows and outflows of resources that are attributable to the acquisition, construction or improvement of those assets or related

• *

• debt are alsb included. *

• Restricted - This component of riet position consists of assets with constraints placed on their use, either externaily or internally. Constraints include those imposed by debt indentures ( excluding ainounts considered in Net investment in

• capital assets; above), grants or-laws and regulations of other governments, or by law through constitutional provisions or enabling legislation or by the Board*. These restricted assets* are reduced by liabilities and deferred "inflows ofresources reiated*tci those assets:

Unfostricted-This component of net position consists of net amount of the assets, deferred outflows ofresciurces, liabilities, and deferred inflnws ofresburces that do*not'meet the definition of"Net investment'in capital assets" or "Restricted."

Contributions in Aid of Construction (ClAC). SMUD records CIAC from customer *contributions, primarily relating to expansions to SMUD's distribution facilities, as Other income (expense)- net in the Statements* of Revenues, Expenses and Changes in Net Position. Contributions *of capital are valued at acquisition value. For ratemakin*g purposes, the Board does not recognize such revenues when received; rather, CIAC is included in revenues as such costs are amortized-over the estimated useful lives of the related distribution facilities (see Note 8).

Revenues and Expenses. SMUD distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with 26

SMUD's principal ongoing operations. The principal operating revenµ.es.ofSMUD are charges to customers for sa_les and,.

services. Operating exp~nses include the cost of sales,and services, administrative expenses, and depreciation on capital..

assets. Alhevenues and expenses not meeting.this:def'inition are reported.as Non-Operating Revenues.and Expenses in the Statements ofRevem.1es, Expenses *and Changes in Net,Position.

' I-~

Grants. SMUD receives grant proceeds from federal and--state assiste.d programs for.its projects which incluqe, but are not limited to, advanced and renewable technologies, electric transportation, and energy efficiency.. SMUJ;) also _per_iodically.

. receives grantproceeds from federal or. state assistance programs as partial reimbursements,for costs.it has incurred as. a result of natural disasters, such as storm or fire.damages. When applicable, these programs may be subject to financial anq * **

compliance audits pursuant to regulatory requirements.

• SMUD records. grant-proc;eeds related to capital projects as a.

Regulatory Credit (see Note* 8).

• SMUD has taxable Build America Bonds in which it receives an interest subsidy frorp tp.e federalgovern111e°'t equal to 35 percent of the interest paid (see Note 10). SMUD received reduced subsidy payments in 2023 and 2022 due to budget sequestration by the federal government. SMUD recognized $9.3 million in revenues in 2023 a.nd 2022 for its-Build:A!llerica Bonds, as a component of Other income (expense)- net, in the Staten,1ents ofRevenues;_Expenses and Changes in Net -, *".,

Position.

• • _1.,

Customer Sales and Excise Taxes. SMUD is.require,d by various goy(ffnroentai,11uthoritie:;;; including states and,.,, 1-.

municipalities, to collect and remit taxes on certain customer sales. Such taxes are presented on a net basis and ex.eluded f~om revenues and expenses io.the.Statements-of Revenues, Expenses and_ Changes :in Net P.9sit,ioQ..

Subsequent Events. Subsequent events for SMUD have been evaluated through Feb.ruary 23, 2924{s~e Note 19).

Reclasi;ifil;ations..Cert.a.in amounts jn,the 2022 FinanciaHHate_ments_have,been reelassified iq,ord,er,.to.conforrn to the 202).

presentation. *;,.

Recent Acc_ounting PronQuncements, al,lopted; In,March2020, GA:$B issued SGAS No,. 93, ':'Replacemenf_of ln_(erb~!Jk..

Offered Rates" (GASB No. 93). The objective of this statement-is to addr-es~ ac:counting and financial repRr.ting inwlicati.9ns that result from the replacement ofan interbank offered rate (IBOR), most notably, the London Interbank Offered Rate (LIBOR),

which is expected to cease to exist in its current form at th.1,s end of 2Q2 l. This.statement provides exc_eptions for certain.hedging derivative instruments to the _hedge accountil).g terminatio11 *provisions when an J,BOR is_replaced as;thf\\ refert;i;i.ce r,ate of the,.

hedging derivative instrument's variable payment.. By removing_LIBQR ~s an appropriate,benchmark.interest rate for the.

qualitative evaluation of the effectiveness. of an intet:est rate swap, GAS~ :No. 9~. i_dentifies the Secured Overnight.Finapcjng..

Rate (SOFR) and the Effective Federal Funds Rate as appropriate benchmark interest rates to replace LIBOR. This_ statemep.t is effective for SMUP in 2023. GASB No. Q9 (see below).further _sta1es that.the l-,lBO~ is noJonger an appropriate 1?enyhm11rk interest r_ate for a derivative ins~r.ument that hedges the ipter,est rate _risk of taxable debt when_ LIBOR ceases to,be determined by the ICE Benchmark Administrat_ion. using the methodology in pla~e as of December 31, 2,04 l. SMUD, utilizes the 1 a month LIB QR for its interest rate swap agree)llents. Accorc:ling to,the ICE 13enchmark Administration, the.1-mont4 US dollar settings will be determined and published under the methodology ul).til the end of June 2023. $MUI?_ has fully_ implemented GASB, 93 in 2023. SMUD has one interest rate swap agreement that became effective on July 12, 2023 that uses the benchmark interest rate Fallback SOFR (see Note 10). NCGA, a blended component unit ofSMUD, modified its interest rate swap agreement to the benchmark interest rate Term SOFR effective October I, 2023 (see Note I 0).

In March 2020, GASB issued SGA~. No. 94, "Public-Private and Public-Public Partnerships_ and Availability Payment Arrangements" (GASB No. 9.4). The primary objec;tive of this Statement is to provide gu_idan1<e for accounting,~nd financial reporting related to pul:/lic-private and public-public partnership arrangements (PPPs), PPPs that meet the definition of a service concession arrangement (SCA), and availability payment arrangements (AP As). A PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongover~mental entity) to provide public.servic_es by com:eying control of the right to operate or use a nonfinancial asset, s1,1ch as infrastructme or oth~r capital asset (the underlying 27

PPP asset), for a period of time in an exchange or exchange.:Jike transaction.** An APA is an arrangement in which a government compensates*an operator for services thatmay*include designing, constructing; financing, maintaining; or operating-an undetlying norifinanciat-*a:sset for a period of.time in 'an exchange or exchange-like transaction. This statement is effective for SMUD in 2023. SMUD has reviewed its agreements and has determined it has not entered into any agreements which meet the definition of a PPP or SCA. SMUD has entered into agreements that can be considered AP As and will continue to account and financially report for them as outflows ofresources, which complies with this Statement Therefore, SMUD does not have any new reporting requirements related to GASB:94 at December 31, 2023:

In "April 2022, GASB issued SGAS No'. 99, "Omnibus 2022" (GASB No. 99).

• This statement addresses a variety of topics and is effective for SMUD in 2022, 2023, or-2024 depending on,the requirement. The only topic effective for SMUD in 2022 and 2023 is the :replacement of IBOR'discussed above under GASB No. 93. SMUD chose to early adopt:provisioris related to.leases and the implementation of GASB No. 87 "Leases" (GASB No. 87) that were effective in 2023. SMBD incorporated the*

clarifications related to leases contained in GASB No. 99 during its implementation of GASB No. 87. SMUD is currently assessing the financi'al impact et' adopting the remaining topics iri this statement that are effective in 2024.

..,. l Recent Accounting Proi10un*cements, not yet*adopted. In" June 2022, GASB issued SGAS No

100, "Accountinj{Changes and Error Corrections.:... an amendment of GASB Statement No. 62'.' (GASB No: 100), to enhance accounting and financial reporting requirements 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 iri notes td *financial stafements of information about accounting changes and error corrections.

Furthermore, for periods "that are ilatlier than those included "in the financial statements, information presented in required supplementary information and supplertieritary: *infortnatiori 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 statementimpactofadopting'this statement'.* --.. ;,<, *-:

• • • 1 In Juiie 2022, GASBissuedlSGJ\\S Nb. 'lOI', Compensated Absences', (G'ASB No. 101 )\\ to better-meet'tlie informaiiort'needs of financial statement users by updating the recognition and measurement guidance for compensated absences. The ui1ifietl recognition and measurement model in this Statement will result in a liability for compensated absences that more appropriately reflects When *a government incurs an obligation! 'This. statement is effective for SMUD in fiscal *year 2024. 1'SMUD-is currently assessing the financial sfatetnent impact o'f adopting this statement.*:, ' "*

• In.December 2023, GASB issued SGAS No.102 "Certain Risk Disclosures" (GASB No.* 102), to provide rtsers*ofgovernment financial statements with essential information abouf-ri'sks related to a government's vulnerabilities due tb

• certain concentrations ot constraints: A coiicentratioli is.defined as a lack of diversity related to an aspect of. a-significant inflow-of resources or' outflow o:fresburces. A constraint is a limitation imposed on a government by an external party or by formal action of-the government's highest level of decision~making authority. This Statement requires a,government to assess whether a concentration or constraint could-cause a substantial impact*ifthe event occurred dr has hegun to occur prior to the issu*ance of

• financial statements. Ifa government determines thatthe*criteria for disclosure have been met, it should disclose information in notes to financial statements in sufficient detail to enable financial statements* users' to understand the nature of the circurnstances and the government's vulnerability to the risk ofa substantial impact. This Statement is *effective for SMUD in fiscal year 2025.

SMUD is currently assessing the disclosure iinpact of addpting this statement.

NOTE 3. ACCOUNTING CHANGE In May 2020, GASH issued SGAS No. 96, "Subscription-Based Information Technology-Arrangements" (GASB No>96), to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBIT As) for'governments.'The statement defines a SBIT A 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. It establishes that a SBIT A results' in a right-to-use subscription asset and a corresponding subscription liability. *It provides the capitalization criteria for outlays other than subscription' payments, including 28

implementation costs of a SBITA and requires note disclosures regarding a SBIT A. To the extent relevant, this standard is based on SGAS No. 87, "Leases", as amended. SMUD implemented GASB No. 96 in fiscal year 2023, retroactive to the beginning of fiscal year 2022. SMUD has assessed whether its software subscriptions met the requirements of GASB No. 96. The implementation impacted the Statements of Net Position when the SBIT A assets, accumulated amortization, liabilities, and accrued interest were recorded. The implementation also impacted the Statements of Revenues*; :Expenses and Changes in Net Position as SBITA amortization expense and interest expense were also recorded. Net position was increased by $0.17 ~illion for 2022 due to tht:; restatt:ment.

SMUD has restated amounts of the affected balances within the financial statements for the period-ended December 31; 2022, as follows:

Assets Electric Utility Plant Plant in service Less accumulated depreciation and depletion Current Assets Prepayments and other Current Liabilities Interest payable Customer deposits and other Noncurrent Liabilities Self insurance and other Net Position Net investment in capital assets Restricted revenue bond and debt service Unrestricted STATEMENTS OF NET POSITION

• *r, December 31 2022'(Res~ted) 2022 1 '.

7,235,248 (3,55(512) * **

49,865 83,285 108,522 1,493,017 59,967 784,103 7,201,276 (3.,~4~,995)

-,i 32,881 49,784 75,911 89,910 1,491,548 60,048 785,317 STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET POSITION Operating Expenses Production Transmission and distribution Administrative, general and customer Public good Maintenance Depreciation and amortization Non-operating revenues (expenses)

Other income - net Change in Net Position Net Position - End of Year 29 December 31 2022 (Restated) 2022 335,866 89,534 252,105 53,921 167,265 256,439 47,853 70,716 2,366,977 336,406 90,242 256,288 54,170 168,500 249,922 48,077 70,542 2,366,803

STATEMENTS OF CASH FLOWS Cash flows from operating activ,i;\\\\eS,

Receipts from customers r,

Payments to vendors/others Cash flows*from capital and related financing activities Construction expenditures Lease and other receipts/payments - net*

Cash flows from inv~sting activities Interest and dividends received Reconciliation of operating income to net cash provided by operating activities:

Operating income Adjustmef\\ts to r~concile opentting income to net cash provided

' by operating activities:

• Depreciation Other (receipts) payments -net Changes in operating assets, deferred outflows, liabilities, and deferred inflows:

Inventories, prepayments and other

'I 30

\\.

December 31

..2022 (Restated) 2022 1,673,226 1,673,495

'(45i,720)

(458,111)

-'i'".

(336,307)

.(336,576)

(31,746)

(25,407) 9,953 10,005 82,080 81,682 256,439 249,922 17,770 19,777 (28,265)

(29,479)

• • • *;11.

NOTE 4. ELECTRIC UTILITY PLANT The summarized activity ofSMUD's Electric Utility Plant during 2023 is presented below:

Nondepreciable Electric Utility Plant:

Land and land rights

• CWIP Total nondepreciable electric utility plant Depreciable Electric Utility Plant:

Generation Transmission

• Distribution Investment in JP As lntang_ibles General Le3;se.(\\ssets:

, La)ld Generation General Subscription Assets Less: accumulated depreciation and amortization Less: accumulated amortization on JPAs Total depreciable plant Total Electric Utility Plant - net Balance 1

January l, 2023 170,616 $

347 758 518374 1,766,397 634;725

. 2,785,575

. 40,708 571,317

, 1,147,814 6,946,536 Transfers and Additions Disposals Balance December 31, 2023 (thousands of dollars) 51,699 $

507 246 558 945 44,303 20,062 109,830 6,088 21,613 19 269 221,165 (31,503) $

19Q,,812

, (264345) ~-----5~90=65~9 (295,848) --~7-=-81=4_,_,7-"-1 (47,017) 1,763,683 (5,278)

..,6;1-9,509 (19,642)

.2,,875,7,63, *'

• • 4q,796

{3,399)

, 589,531 (27,965) -~1=,1~3~9,~11=8 (103,301) 7,064,400

..**,* 1,764 (76,804) ;-.;,,.,,* 1,764 76,804

, 5 556 ------0"-- -------=0- ----"5-=5=5=6 84,124 (76,804) 7,320 33,972 2,976 36,948

{3,546,607)

{270,105) 179,,.4.16

--~f7=,9~05_) ___

~f3~1~4) ____

~ __

~<8~,=21~9)

(3,554,512) 3,510,120 4,028,494 $

31 (270,419) 179,416 (3,645,515)

(46,278) ~--~<6~8-9).

• 3,463,153 512,667 $

(296,537) $

4,244,624 q

The summarized activity ofSMUD's Electric Utility Plant during 2022 is presented'below:

1' Balance Balance Transfers December 31, January 1, Additions and 2022 2022 (Restated}

Disgosals (Restated}

'}

(thousands of dollars)

Nondepreciable Electric Utility Plant:

Land and land rights 169,544 $

1,072 $

.o- $

170,616

'CWIP 367 297 353 439 (372,978)

• J" '

347 758 Total ridndepreciable eiectric utility plant 536,841 354 511 (372,978) 518374 Depreciable Electric Utility Plant:

Generation 1,751,920 21,801 (7,324) 1,766,397 Transmission 522,765 112,301 (341) 634,725 Distribution I

2,651,039 147,235 (12,699) 2,785,575 lnv~~tment in JP As* *

'34,761 5,947 40,708

' Intlingibles 526,923 44,394 571,317 General 1,125,541 45 634 (23,361) 1147 814

• 6,612,949 377,312 (43,725) 6,946,536

,l-, '*

Lease Assets:

Land 1,764 1,764 Generation 76,804 ;76,804

• General

',1 ~

,*

• 2 979 2 577 15* 556 81,547 2,577 ":i:84,124 1;

Subscription Assets 33,972 33,972 Less: accumulated depreciation and amortization (3,333,205)

(255,189) 41,787

' (3,546,607)

Less: accumulated amortization on JP As (7,592)

(313) sO~.

-.. (7,905)

(3,340,797)

(255,502) 41,787 (3,554,512) 1,1.

Total depreciable plant 3,353,699 158 359 (1,938) 3,510,120 Total Electric Utility Plant - net 3,890,540 $

512,870 $

(374,216) $

4,028;424 Leases. SMUD engages in lease contracts for land, communication sites, buildings, and a power plant. SMUD leases land to SFA, a component unit, and as described in Note 2, all of the activities and balances of the component units are blended into and reported as part ofSMUD because of the extent of their operational and financial relationships with SMUD.

Lessor. Lease agreements include land, communication sites, and a building. Lease terms range from 19 to 35 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 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 corresponds to the lease term, plus an additional credit 32

spread to account for a different credit rating and other factors. At December 31, 2023 and 2022, lease receivables included in current assets were $0.6 million and $0.8 million, *respectively, artd lease:receivables included in n0J;1.current asset~ were $17.4 million and $17.8 million, respectively. As of December 31, 2023 and 2022, deferred lease inflows were $17.4 million and

$18.2 million, respectively. SMUD recognized lease revenue of$0.8 million and $0.7 million in 2023 and 2022, respectively, which is reported in Street lighting and Other on the Statements of Revenues, Expenses and Changes in Net Position. SMUD recognized interest income of$0.03 million in 2023 and 2022. There were no variable lease payments received in 2023 or 2022.

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 9e*exercised has been e_val_uated and it has been determined that the lease ag~eements will be renewed with reasonable certainty:. Jhe agreements allow for periodic increases to the lease, payments. The interest rates range between 0.1 percent to 4.2 percent based on the AAA 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, 2023 and 2022, assets recorded under leases were

$7.3 million and $84.1 million, respectively, and accumulated amortization associated with lease assets was $1.2.million and *

$52.0 million, respectively. SMUD recognized amortization expense of$26.l million in 2023 and $26.0 million in 2022 which is reported as Depreciation and amortization on the Statements ofRevenues,-Exp,enses and Change!? in Net Position. As,of,.

December 31, 2023 and 2022, lease obligations included in current. liabilities;Customer deposits and,otµer, were $0.4milliQn; and $26.8 million; respectively, and lease obligations inclµded-;in noncurrent liabilities1.Self insurance. al).d other, were.$$,9: **

million and $6.3.million, respectively. There were no lease impai_rments-in _2023* or 2022. There were no payments Tecorded in the current period,that were-not included in. the.measurement of the lease-,liability._, There is _ope le~se commiµnent.for.which the lease term beginstn 2024* and it will be-recorded as-a leas.e,asset and lease liability upon commence_mentofthe lea1?e term,

• The following table summarizes the future annual lease principal and interest payments as of December 31, 2023:

) *

:,_;*. C

,2024 r

2025,.

2026 2027 2028 2029-2033 (combined),

2034-2038 (combined) 2039-2043 (combined) 2044-2048 (combined)

Total

• ,, J.

"* *.. *...,,Principal";

'n.,,._..

• Interest.

I:,.,$_

,.,,:*:1 l

. 40.2,.

• 142i**

~ ;. ',*

41~

136 429 438 446_

1,540_

',983

• 932 751 6,340

'):

--132,,

127 121

'522.

395 240,.

64

1;879 Total 5*44 555

• ,.561 565 567 2,062 1,3_78

l,;172 815

-8.219 I

Subscription Assets. SMUD :hll$ noncanc.ellable subscription-based information tec.hnology.arr_angements {SBn As) for the

• right to use,information technology hardw<1-re and software. SBIT f,.,subscription terms range from 2 to 8 years inc,luding options to extend the subscription term after completion of the initial contracted term: The agreements allow for per,iodjc-increases to the subscription payments. The interest rates range between 0.25 percent to 2.65 percent based on the AAA Muni Curve with the number of years to maturity that corresponds to the subscription term, plus an additional credit spread to account for a different credit rating and other factors. As of December 31, 2023 and 2022, subscription assets recorded were $36.9 million and $33.9 million, respectively, and accumulated amortization associated with subscription assets was $13.9 million and $6.5 million, respectively. SMUD recognized SBITA amortization expense of$7.4 million in 2023 and $6.5 million in 2022 which is reported as Depreciation and amortization on the Statements of Revenues, Expenses and Changes in Net Position. As of December 31, 2023 and 2022, subscription obligations included in current liabilities, Customer deposits and other, were $5.9 million and $7.4 million, respectively, and subscription obligations included in noncurrent liabilities, Self-insurance and other, were $15.0 million and $18.6 million, respectively. There were no subscription asset impairments in 2023 or 2022. There were no payments recorded in the current period that were not included in the measurement of the lease liability.

33

The; following, table summarizes the future annual SBIT A principal,and interest payments as of December 31 ;'2023, Principal

, Interest

Total

'2024' 2'025 2026

':' 2027

• 202s*

5,905,

.,, 20s**.

6,113

'5,740 140 5,880 4,314 80 4,394 2,943 37 2,980 1,928'

,10

• 1,938

• 91 I*... >-:..,1, ;~ :

92 2029-2033 (combined}

• • .Total*

20.921 476 21.397 NOTE s: INVESTMENT*IN JOINT POWERS AUTHORITY TANC~ SMUD and fourteen *other California municipal utilities are members of TANC, a JP A. T ANC, along with the other California municipal. utilities,* own :and operate the.California-Oregoni.Transmission* P.roject ( COTP), a 500-kilovolt transmission line between central California and* southern Oregon:* SMUD is obligated to pay approximately 39 percent of TANG'-S*COTP debt service and' operatfons costs in exchange for entitlement to approximately 536 megawatts (MW) of TANC's**l,390-MWtransfer capability>Additi6nally, SMUD has a 48MW share ofT.ANC's 300 MW firm; bi-directional transmission. over Pacific Gas and*Electric*C6mpany's (PG&E) system betwe'en PG&E-'s Tesla and Midway substations (SOT). The total entitlement shares for the COTP and SOT described above include the long-term agreements listed below.

In 2009, SMUD entered into a 15-year long-term layoff agreement with TANC and certain members, expiring January 31, 2024. Tliis agreement providesfot.theassignment.ofallirighfs and obligations of the City of Palo Alto and the City of Roseville related to their COTP and SOT entitlements. This agreement increased SMUD's COTP entitlement by 36 MW and SOT entitlement by 2 MW. On July 1, 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.

-Effective July 1, 2014, SMUD entered into a 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 cif Santa Clara related to their COTP entitlements. This agreement increased SMUD's COTP entitlements by 130 MW.

The long-term:debt ofTANC, which totals $165.5.million (unaudited) at December 31, 2023, is collateralized by a pledge and assignment of net revenues ofTANC supported by take or pay commitments ofSMUD and other members. Should other members default on-their obligations to'TANC, *SMUD would be required to make additional-payments to cover a portion of such defaulted payments,' up to 25 percent of its current obligation. *SMUD recorded transmission-expenses related-to TANC

• of$17.5 million and $16.9 million in 2023 and 2022, respectively.:

ll 1,

34

Summary financial information for T ANC is presented below:

Total Assets Total Deferred Outtlows of Resources Total Assets and Deferred Outtlows of Resources Total Liabilities Total Deferred Inflows of Resources Total Net Position Total Liabilities and Net Position Changes in Net Position for the Six Months Ended December 3 I December 3 1 2023 2022 (Unaudited)

(Unaudited)

(thousands of dollars) 402,458 389,258 13 106 402 47) 389*364 307,217

. 309,291 939 995 94 315 79 078 402.471 389.364 14.

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

BANC. SMUD, City of Redding, City of Roseville, Modesto Irrigation District ()'v11D), City of Shasta Lake, and Trinity Public Utilities District are members of BANC, a JPA formed in 2009. In 2011, operational control of Balancing Authority Area (BAA) operations was transferred from SMUD to BANC. BANC performs FERC approved BAA reliability functions that are managed by North American Electric Reliability Corporation (NERC), natiQ)Jally, and by. Western Electricity Coordinating Council functions in the west. SMUD recorded expenses related to aANC_ of $4.3 million and $-3.9 mjllien in 2023 and 2 022, respectively.

Summary financial information for BANC is presented below:

Total Assets Total Liabilities Total Net Position Total Liabilities and Net Position Changes in Net Position for the Year Ended December 3 I December 3 1 2023 2022 (Audited)

(Audited)

(thousands of dollars) 8 093

)5 028 8,093 15,028 8,093 15 028 $ Copies of the BANC annual financial reports may be obtained from SMUD at P.O. Box 15830, Sacramento, California 95852.

NOTE 6. COMPONENT UNITS 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 which began commercial operations in 2006. 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 I, 2021, SF A entered into Assignment and Assumption Agreements which transferred the assets and obligations, including ownership of the Carson Power Plant (Carson), Procter and Gamble Power Plant (Procter and Gamble),

Campbell Power Plant (Campbell) and McClellan Power Plant (McClellan). Carson began commercial operations in 1995 and 35

is comprised ofa 68 MW natural gas-fired combined cycle cogener-ation facility.and a 42 MW natural gas-fired simple cycle peaking plant. Procter and Gamble began commercial operations in 1997 and is comprised ofa 145 MW natural gas-fired combined cycle plant and a 50 MW natural gas-fired simple cycle peaking plant which was subsequently added and began commercial operations in 2001. Campbell began commercial operations in 1997 and is a 183 MW natural gas-fired combined-cycle cogeneration plant consisting of a combustion turbine generator and a steam turbine generator. McClellan is a 72 MW simple cycle combustion turbine and has been operating since 1986.

- NCGA. NCGA is*aJPA formed by SMUD and the SFA. NCGA has a prepaid gas contract with Morgan Stanley Capital Group (MSCG) expiring in 2027, which is financed primarily by NCGA revenue bonds. SMUD has contracted with NCGA to purchase all the gas "delivered by MSCG to NCGA, based on market prices. SMUD requested to have its entire daily contract quantity remarketed for each gas day of each month from November I, 2023 until May 31, 2027. *MSCG, pursuant to the Gas remarketing provisions shall purchase all of the remarketed gas for its own account. NCGA is obligated to pay the principal and interest on the bdnds. Neither SMUD nor SF A is obligated to make debt service payments ori the bonds. 'NCGAcan terminate the prepaid gas contract under certain circumstances, including a failure by MSCG to meet its gas delivery

' obligation to NCGA or a drop in MSCG's credit rating below a specified level.* *lfthis*occurs, MSCG wilf be required to make a termination payment to NCGA based on the unamortized prepayment proceeds received by MSCG.

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

SMUD has contracted 'with NCEA to'pilrchase all the commodity delivered by J.:Aron to*NCEA,, based on market prices.

NCEA fs obligated to payrthe principal and interest on the bcindS.'* Neither SMUD*nor SPA is obligated to make debt service.'

payments*ori the* bonds.* NCEA~can terminate the prepaid*commo'dity contract under cert-ain 'circumstances; including a failure by J. Aron to*-meet its corrimodity delive,yobligation to NOE:A." If this o¢curs, :J. Ardn will be required'to make-a termination payment to NCEA based on the1unamortized prepayment proceeds-received by.J,; Aron.*

The summarized activity of SMUD's component units for 2023 is presented below:

Assets

. Electric Utility Plant : net Current Assets 1'/oncurrent Assets Total Assets Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources Liabilities Long-Term Debt - net Current Liabilities Noncurrent-Liabilities Total Liabilities-Net Position Total Liabilities and Net Position

~

CONDENSED STATEMENTS OF NET POSITION December 31, 2023 (thousands of dollars)

SFA NCGA 291,172

$ 131,260 45,409 588 84 273 430,020 129,682 2 698 -,.

425.718 12?,682 80.,582 94,540 64,060 27,315 15 337

,-07 159,979 121,8~5

- 265,739 7 827 425,718, 129.682 36 NCEA

$ 43,765 509,358 553,123 $

553.123

. 525,193 27,630 248 553,07l

52.

553.123

CONDENSED STATEMENTS OF IIBVEl'{UES, EXrENSE~ AND CHANGES IN NET.POSITION December 31, 2023 (thousands of dollars),

.SFA NCGA NCEA Operating Revenues 258,162 29,999 26,303 Operating Expenses 248,786 25,361 4 366 Operating Income 9,376 4,638 21,937 Non-Operating Revenues and Expenses Other Rev~nues 16,848 615 552 Interest Charges and Other (2,942)

(5,819)

(16,831)

Change in Net Position Before Distributions and Contributions 23,282 (566)

.5,658 Distribution to Member (25,000)

(659)

(1,103)..

Member Contributions 63 107 Change in Net Position (1,718)

(1,162) 4,662 Net Position - Beginning of Year 267,457 8 989

' (4,?}_0)

Net Position - End of Year 265.739 7.827 52 CONDENSED STATEMENTS OF CASH FLOWS

',;,)\\'

December 31, 2023

--~ (th:ousands of dollars)

SFA NCGA NCEA Net Cash Provided by'

• . 1

• .:. I

• ~ fl

~

l l

Operating Activities

• '$!*** * ~0,501 30,037 24,980 Net Cash Used in

\\,,,;

Noncapital Fin,anci_ng Activities (25,000)

(29,430)

(25,176)

Net Cash Used i9 Capita!Fina1'cing Activities (30,919) Net Cash Provjcled by Investing Activities 1 128 613 1 453 Net Increase in Cash and Cash

~ ".

Equivalents 5,710 1,220 1,257, Cash and Cash Equivalents at the

• I, Beginning of the Year 40 961

• 12 7i'6

£559 Cash and Cash Equivalents at the,,

1 End of the Year 46,671 13.936 3,816 37

The summarized activ,ity of SMUD's component units for 2022 is presented below:

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

• ,.,l ~

SFA NCGA NCEA' Assets Electric Utility Plant - net 309,606

,. Current Assets 109,011 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 * '*~o-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 267,457 8 989 (4,610)

Total Liabilities and Net Position

.i.*.

422,557 153,463 560,697 CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET.~Q~IJION,.; :, *

.pecem,ber 31, 2022

~ '

'. *;.1*

(thousands of dollars)

,,: ;,1' I. :t, '

SFA NCGA

• NCEA Operating Revenues 115,247 28,472 22,955 Operating Expenses 94 435 22,520 3 845 Operating Income 20,812 5,952 19,110 Non-Operating Revenues and Exp~nses Other Revenues 1,155 326

.. 466 Interest Charges and Other (3,126)

(6,610)

(16,820)

Change in Net Position Before Distributions 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 267,457 8,282 (4,610) 38

CONDENSED STATEMENTS OF CASH FLOWS Dec'1mber 3 1, 2022 (thousands of dollars)

SFA NCGA NCEA Net Cash Provided by Operating Activities 47,786 25,3 fa 22,955 Net Cash 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, I 07)

(8,3 18)

Cash and Cash Equivalents at the Beginning of the Year 69 630 14 823 10 877 Cash and Cash Equivalents at the End of the Year

~Q,261 1211§ 2 552 As described in Note 2, all of the activities and balances of the component units are blended into anti reported *as part of' SMUD because of the extent of their operational and financial relationships with SMUD. Copies of SFA 's, NCGA ' sand NCEA 's annual financial reports may be obtained from their Executive Office at P.O.1 Box 15830, Sacrimento, California 95852 or online at www.smud.org.

1 NOTE 7. CASH, CASH EQUIVALENTS, AND INVESTMENTS Cash Equivalents and Investments.. SMUD's investment policy is governed by the California St11te and Municipal Codes and its Indenture, which allow SMUD's investments to include: 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 agreements; 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 investment wi ll not fulfill its obligation to the holder of the investment. To mitigate this risk, SMUD limits investments to those rated, at a minimum, "A-I" or equivalent for short-term investments and "A" or equivalent for medium-term corporate notes by a nationally recognized rating agency, with the exception of the Guaranteed Investment Contracts (GICs) held by NCEA. NCEA 's GI Cs are rated at the credit rating of the commodity supplier, or, if not rated, the guarantor of the commodity supplier which is currently Goldman Sachs rated as "BBB+."

Custodial Credit Risk. This is the risk that, in the event of the failure of a depository financial institution or counterparty to a transaction, SMUD's deposits and investments may not be returned or SMUD will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of another party. SMUD does not have a deposit or investment policy for custodial credit risk.

As of December 3 1, 2023 and 2022, $7.2 mill ion and $9. 7 million in deposits were uninsured, respectively. The bank balance is also, per a depository pledge agreement between SMUD and SMUD's bank, collateralized at 136 percent and 128 percent of the collective funds on deposit (increased by the amount of accrued but uncredited interest, reduced by deposits covered by 39

Federal Deposit Insurance Corporation) at December 31, 2023 and 2022, respectively.* SMUD had money market funds of

$90.2 million and $185.7 million which were uninsured at December 31, 2023 and 2022, respectively. SMUD's investments

*' /{ ;

and money market funds are held in SMUD's name.

Concentration of Credit Risk. Thi~ is the risk of loss attributed to the magnitude ofan entity's investment in a single issuer.

SMUD places no limit on the amounts invested in any one issuer for repurchase agreements, US Treasu~lfs; fede;~I ~gency, and state and municipal securities.

, I I' The followi~g are the concentrations of risk greate~ than five percent in either year:

Investment Type:

Federal Hqme Loan Banks,

Freddie Mac Commercial Paper - Microsoft Corporation Municipal B*ond - State of Florida Federal F:,irm Credit B,ank,.

Corporate Note:..:. Toyota Motor Credit Corp Corporate Note -Apple Inc Guar_antee_d Jnve~fment ~ontracts,,,

December 31 2023 37%

14%

7%

NIA 8%

7%

6%

5%

-' *;i,. '11 i'. !

t Inter,-~st R~te Rj_sk This is,the risk,of l~ss dge t9 the fair, :v?J.I.ue of an investment declining d_ue to inti::r~~tJ~f~s r,\\sing.

2022 68%

NIA NIA 5%

6%

5%

NIA 4%

Though SMUD has restrictions as to the maturities of some of the investments, it does not have. aJqrn;iaJ pol,icy thP,.t. lil'!lits investment maturities as a means of managing its exposure 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 indicate the credit and interest rate risk at December 31, 2023 and 2022. The credit ratings listed are from Stitndard & 'ro'or's (S&P) or'Mo~dy's. (N/Ais defined as riot applicabletotlie rating disclosure requirements.)

• {... "

• I l*

l, 40

At December 31, 2023,.SMUD 's cash, cash equivalents, and investments -consist of the following:.*..-*

... Descr,iption, Cash and Cash Equivalents:

Cash LAIF Money Market Funds' Coliaterals and Escrows Commercial Paper*

Total cash and cash equivalents Investments:

Federal Home Loan Bank

. Freddie Mac Federal Farm Credit Bank U.S. Treasury Obligations Corporate Notes Municipal Bonds Guaranteed Investment Contracts Total.investments 1 1 Credit Rating NIA Not Rated

AAAm, NIA AAA/A-I AA+

AA+

AA+

Aaa AAA/AA+/AA/ A+

AA+/ANAA-BBB+

Remaining Maturities (in years)

Less Than 1 35,263 40,027

. 90,188

, 87,6~8.

38,088 291,224 87,460 19,970 29,672 185,993 14,434 18 489 356,018 More Total Fair 1-5 Than5 Value

• (tl;lousanµs q:f doll.;1rs)

' -0.-.

35,263 40,027

-0,..

90,188

'.* -0:

87,658

',,38,088.

• 291,224 46,337.

133,797 29,034

,,.. 49,004

..,. ;,O-

~o~.:!

29,672 149,030 335,023 63,987 63,987

• .ll,494.:,:,

7Q>

2S,928 18,489

,, 299,882,.,...,-

655,900

. Totl\\l *cash,.cash equivahmts, &nd investments,*..

i; ;,

.*$*,**.. 64:Z.,242

$

• 222 882 :r $

• i

,Q-

$ - 947,124

', : ~ l I l :_'

..,J1 ~-, *'.

'*':1 "i::*

'

• I;-,_,-~

At December 31, 2022, SMUD's cash,,cash equivalents; and,:investments consist of the follqwing,:...

Remaining M.atu_ritj~s. (i.n year~)

, *,Cr~dit,

Less.,

More.-,

.,'.J'otiil-_Fair DesGription

. Rating* *.,Than 1

,..,,

• 1-5

. Than 5

.-Value Cash and Cash Equivalents:

Cash*

LAIF Money Market Funds Collaterals and Escrows Commercial Paper Total cash and cash equivalents;,

Investments:.

Federal Home Loan Bank Federal Farm Credit Bank U.S. Treasury Obligations Corporate Notes Municipal Bonds Guaranteed Investment Contracts Total investments NIA-.

NotRate.d.

AAAm

,NIA A-1 AA+

.* AA+

_Aaa AAA/AA+/A-/A+/A AAA/AA+/AA-

• BBB+

Total cash, cash equivalents, and investments 41

., (thousands of.do,Uar_s). :

43,708 ',$, - $

4~,708 85,502

.-i ;; 85,502 i'* 185,709 *

'. l8S,709 i: 62,34i-,.. **;"I.,

' -0,,.

..,62,342 12 577 12 577 J89,838

-Q- '

,-389,838 218,532 123,332 341,864 29,377 j; 29,377 39,569.. :

,24,272

,*.. 63,841 48,490

-Os 48,490 24,582 25,327 49,909 19 350, -19 350 282,683 270,148

-Or..

552,831 672,521

$ 270,148

-Q- $

242,662

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

i December 3 I Cash, Cash Equivalents, artd*lhvestments:

Revenue bond reserve and debt service funds:

Revenue bond reserve fund Debt service fund Component unit bona reserve and debt service funds Total revenue bond reserve and debt service funds Nuclear decommissioning trust fund Rate stabilization fund :

Component unit other restricted funds Escrow fund Other restricted funds * :

,; *.- ' Unrestricted funds Total cash, cash equivalents, and investments NOTE 8. REGULATORY DEFERRALS' 2023 2022 (thousands-of dollars) 1,027 71,371 43 281 115,679 9,418 212;13 l 10,097 1,110 28,074' 570 615 947;>124 2,004 81,263 36 118 Ir9,385 8,980 156,016 3,015 12,484 14,925 627 864 942,669

_ '. The Board has taken variou'sregulatory actions that result in differ*ences between the recognition ofrevenues and expenses for

• ratemaking purposes and their'treatnient *underigenera:Jly accepted accounting principlesfor-non-regulated entities:(s'ee Note 2). These actions result in regulatory assets and deferred inflow ofresources, which are summarized in the tables below.

Changes to these balances, and'their inclusion in rates, occur only at the 1direction ofthe*Board: ;.

Regulatory'Assets (Costs)

• A' ', *-

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

Derivative Financial Instruments. SMDD's regulat01y costs and/or credits relating to investment derivative instruments are intended to defer the net difference between the fair value of derivative instruments and their cost basis, if any. Investment derivative instruments are reflected in rates at contract cost and as such, the balance is charged or credited into rates as the related asset or deferred inflow ofresour'ce is utilized (see Note 9).

Debt Issuance Costs. SMUD established a regulatory asset for costs incurred in connection with the issuance of debt obligations for the component units, principally underwriter fees and legal costs. The regulatory asset is amortized over the life of the bonds for the component units' debt issuance costs. Debt issuance costs after December 31, 2013 are expensed.

Pension. SMUD established a* regulatory asset for pension costs related to the implementation ofGASB No. 68 which.

requires SMUD to record a net pension asset or a net pension.liability. The regulatory asset is being amortized over a period of25 years starting in 2018:.

OPEB. SMUD established a'regulatory asset for OPEB 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.

42

Pension/OPEB.*In 2022, SMUD established regulatory accounting for pension and OPEB regulatory costs and/or credits to defer recognition ofcertain expenses related to the,amortization-ofthe pension and OPEB deferred outflows _and deferred inflows of resources to mato9 such costs in the appropriate accounting *period for rate-making purposes.

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

Regulatory Costs:

Decommissioning Derivative financial instruments,*

Debt issuance costs Pension - implementation costs :

Pension - deferred outflows OPEB - implementation costs OPEB - deferred outflows Total r.egulatory costs Less: regulatory costs to be recovered within one year ;

Total regulatory costs for. futu.re recovery - net

-*December 31 2023 2022-(tho,usands of dolhirs) 107,977 83,882

_:, 1,160 1,095

• . 1,045

-1,255 323,51_7 340,544 174,576 86,574

.. 268,237.

281,010

• 39 612.

, 19198 91.6,124: '*

., 813,558 (63,415}:*

(49,312) 852. 709

, '""'$=====' =*

• ='=76"=4="'.2"=4.,,,6 Regulatory Credits CIAC. In 2023 *and 2022;.SMUDadded*CIAC totaling $22.0 mill_ion*and $23,.9. million, respectively,,to-Regulatory Credits.in the Statements of Net Position and recorded $15.3 million and $14.8 million of amortization, respectively, to Other income (expense) *a-net in the State!}1ents of Revenues, Expenses and Changes>in Net'Position.. SMJ,JD' s:regulatory credit relating to.

CIAO.is' intended.to,offset. the: revenue and.expense *associated. with this acc,01,1nt_ip.g treatment1 Thu_s,.thi~. r~gulatqry credit is_-

being0arhortized into' rates over,the depreciable liv.es of. the related assets,in order to,offset the earni11gs effect,of tbest, non~

exchange transactions (see Note 2).,...,.

• Rate Stabilization.* SMUD's.regulatory credit-relating to Rate Stabilization,is intended to:defer the need for future irate increases when costs exceed existing rates. At the direction of the Board, amounts may be either deferred into thisfund...

(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 2023, $1.3 million was*deferred from revenue to the RSF as a result of higher than budgeted energy deliveries from the Western Area Power Administration. In 2022, $30.0 million was recognized as revenue from the RSF as a result of lower than budgeted energy deliveries from the Western Area Power Administration.

SMUD participates in the carbon allowance auctions under AB-32, the Global Warming Solµtions 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 int,o-.future years. In 2023, the Board authorized transferring the difference out of the RSF and $1.5 million was recognized from the RSF to.

revenue. In 2022, the Board authorized deferring the difference into the RSF and $23.0 million was deferred from revenue to the RSF.

SMUD sells LCFS credits under AB-32, the Global Warming Solutions Act (see Note 2). In 2019, the Board authorized deferral ofLCFS credit sales to match the revenue recognition with the related expenses. The difference betwe.en-the LCFS credit sales and the funds spent on LCFS programs are deferred into future years. In 2023, the Board authorized transferring the difference out of the RSF and $2.0 million was recognized from the RSF to revenue. In 2022, the Board authorized deferring the difference and $0.7 million was deferred from revenue to the RSF.

43

In 2022 and 2021, the Board,liuthorized SMUD to-defer $35.0 million each year from operating'tevenue to!the RSFto offset future one-time specific expenses *which may 'have a significant financial impact on SMUD.. Also in 2022, the Board authorized the use of $41.0 million of deferred operating revenue to offset future Community Impact Plan expenditures from 2022 through 2025. In 2023 and 2022, $7.1 million and $1.5 million was recognized from the RSF to revenue, respectively.

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 formula based on precipitatfon 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 2023, $65.4 million was transferred from revenue to the HRSF as a result of high precipitation. In 2022, $25. I million, *was recognized from the HRSF to revenue as a result of low precipitation.

Senate Bill 1. SMVD:implemented a per kilowatt hour solar surcharge, effective January I, 2008 in order to fund investments

• in solar required by.s*enate Bill I (SB-I). The difference between the surcharge revenues received and the funds spent on

• .-'solar initiatives wHl be'recognized or deferred into future years. SMUD has spent less than it collected in SB-1 revenues and

.. has recorded a regulatory* credit. Collection of the solar surcharge ended in December 2017 when total c0llections reached

$130.0 million. In 2023 and 2022, $0.9 million and $0.04 million was spent for SB-} programs, respectively.

Sustainable Communities. In 2023, the Board authorized a $5 million restricted donation to be deferred to offset future expenses for *sustainable communities.- As of December 3'1;,2023, *none of the $5 million had *been recognized.

., ;,, I'*:. (.,_'

'J

~

• I_* I I*,

Grant *Revenue's/ In" 2009; SMUD was awarded *several *large! grants under the Americaff Recovery. and Reinvestment Act, which provided significant reimbursemerits:fcir*capital expenditures\\,In,2010, the Board,authorized;the deferral0fall-grant revenue for capital expenditures as regulatory liabi1ities*. "This 'regulatory credit is' deferred to'match the depre'ciabldives of the related capital assets in order to offset the earnings effect of these non-exchange transactions,(see Note,2).: *;,.,

TANCOperatiolis Costs: *sMUD's cash payments to TANC exceeded*TANC'-s-accrual-based costs and SMUID'hasrecorded a reguiatory cr*edit. : "* '

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

Regulatory Credits:

CIAC Derivative Financial Instruments Rate stabilization Hydro rate stabilization Senate Bill 1*

Sustainable 'Corriinun"lties Pension...,. deferred inflows OPEB - deferred inflows Grant revenues TANC operations costs Total regulatory credits 44

,*.it

• • ** *.,*' r December 31 2023 2022 (thousands of dollars) 304,723

115,752 96,379 2,553 5,000 124,797 54,084

'24,106 30 912 758:307"

,/

298,026

. '2,767 125,032 30,984 3,430 68,082 32,983 27,920 31 149 "620.373

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 pdce purchase contracts for electricity and mitural gas. These fixed price contracts and swap agreements are intended to hedge.the exposure due to highly voJatqe 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 SGA~)'fo. 513,, * -

"Accounting and Financial Reporting for Derivative Instruments," (GASB No. 53) to determine whether they Q1eet the definition of derivative instruments, and if so, whether they effectively hedge the expected cashJlo:,¥s associ~ted with interest rate and commodity price risk exposures.

SMUD applies hedge accounting for derivative instruments that are deemed effective hedges. Under hedge acc.ounting, 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 instruments that do not meet the effectiveness tests are deferred.

for ratemaking purposes as regulatory assets on the Statements of Net Positi9n {see No!e 8).

SMUD executed numerous new gas-and power related purchase agreements;*s9me of which are recorded.as hedgi_ng:or,*:..

investment derivative instruments and are therefore included in the following table. All hedging or investment derivative instruments are recorded at fair value in the Statements of Net Position (see Note 12).

,1,,: *.*:'.*. :,.

I :.: *,

I:_

45 f'

The following is a summary of the fair value, changes in fair value'and notional amounts* of derivative instrume*nts, grouped by trading strategy, outstanding at December 31, 2023 (amounts in thousands; gains shown as positive amounts, losses as negative):

' 't, Cash Flow Hedges:

(thousands of dollars)*

(thousands ofDekathernis (Dth))..

2023*Changes in

• Fair Value Current N0ncurrent Amount Amount Asset: Investment Derivative Instruments Gas - Commodity - :'

• Electric - Commodity Gas - Storage Gas - Transportation Total Investment (31110) * $ '

cO.i (87)

(2,673)

'(329)

-o~

'... Fair Value'at *

• December 3 l,'2023.

Current '

Amount *Non current

• Amount I Derivative Instruments (5,870)' $

(329)

$ 'l Asset: Hedging Derivative Instruments Gas - Commodity (91,277)

(42,333)

Electric - Commodity 1,091 Gas-Storage 1,441 Gas - Transportation (52,363)

Interest Rate Total Hedging 949 Derivative Instruments (140,159)

Liability: Investment Derivative Instruments Gas-Commodity 916 Electric - Commodity Gas - Storage Gas - Transportation Interest Rate Total Investment Derivative Instruments Liability: Hedging Derivative Instruments 90 937 1,943 Gas - Commodity (37,376)

Electric - Commodity (3,749)

Gas - Storage Gas - Transportation Interest Rate Total Hedging Derivative Instruments 8,255 (8,570) (41,440)

$ (8,497)

(50,830) 70

$ 1 354 1,424 (15,501)

$ (15,501)

• 46 4,109 1,091 1,943 661 3 386 11,190 1,160

$ 1,160 50,235 3,749 9,092 63,076 9,696 25 149 34,845 22,303 22,303

,

• Notional 34,055 Dth 236 Dth 910 Dth 450 0th

$151,590 2,615 0th

$0 82,778 Dth 253 Dth 8,183 Dth

$0

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 negative):

2022 Changes in Fair Value Current Amount Noncurrent Amount Cash Flow Hedges:

(thousands of dollars)

(thousands ofDekatherms (Dth))

Asset: Investment Derivative Instruments Gas'"'- Commodity Gas - Storage Gas -'Transportation Total Investment Derivative Instruments Asset: Hedging Derivative Irtstriirrients 1,936 87

. 2 493 4,516 Gas'---- Commodity

.64,093

$.1

• Gas - Storage 11 49,472 (474) *

-o-*

' (474)

,*. -~

/11

• .. 19,348-

• • . -0~: Gas - Transportation Interest Rate*. t '" I,

• Totaf.Hedging*,,,.,. **

j,

,28,574:

• 1153" '"'-**~: -~=

Derivative Instruments**

• \\,$,,

• 114,729 41.,922,,.,$.

(',

Liability: Investment Derivative Instruments Fair Value at December 31, 2022 Current Amount 3,110 87 2 673 5,870 Noncurrent Amount 329 aO-329 Notional 688 Dth i

77Dth 155 Dth

• .~,; ~..;

It.'

95,386 52,029*,,. '"*. 57,997-Dth

502

.,

,f.

":'*:: 303 Dth 53,024 10,102 Dth

., *2 43.7 *. *,;,:: *,,.

33,646.,;

, $245,865

.J*,;.,; -'.'! *.,

,151,349.* <$'

• ,;-.85,675. * *,1.

Gas-'-'Commodity (2\\011) 169

. $ I *

, 2;07i6*

70. *.. *.*.927,Dth

. *.78Dth Gas - Storage..,.;

(90)**

Gas - Transportation Interest Rate Total Investment 1 815

• . 3 193 Derivative Instruments (346).. $

, 3,362, Liability: Hedging Derivative Instruments Gas - Commodity

.2,493 Gas ~,Storage (7,637),

Gas -Transportation 1,040.

Interest Rate 700 Total Hedging

$,,, *, (fi,314), $ 2,880 Derivative Instruments (3,404)

(2,434)

• .*,,,, * ', *,90!. 937,;

3,103.

I

,:12,859,

• 8,255

.522

. 21,636

$ 1 354 *,:

$68,450 1,424.'

• 6,802,, 6,802.

,: *I *. 3Q,655 Dth

-. 302,Dth 4,188 Dth

$0 Objectives and Terms* of Hedging Derivative Instruments. The.objectives :and terms of SMUD' s hedging derivative instruments that were outstanding at December 31, 2023 are summarized in the 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.

47

Notional Beginning Ending*

' Minimum

• Maximum AmountDth Date Date Price/Dth Price/Dth Gas - Commodity 119,448 01/01/24 12/31/26 1.32 $

6.70 Electric - Commodity 489 01/01/24

• 09/30/24 38.75 161.00 Gas - Storage 910 01/01/.24 02/29/24 3.70 5.65 Gas - Transportation 8,633 01/01/24 09/30/24

(.30) 4.20 The objectives and terms ofSMUD's hedging derivative instruments that were outstanding at December 31, 2022 are.

summarized in the table below. The table is aggregated by the trading strategy.

Notional Beginning Ending.*

Minimum Maximum AmountDth Date Date Price/Dth Price/0th Gas - Commodity 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 SMUD hedges its interest rate exposure with swaps. As of December 31, 2023, SMUD had two interest rate swaps outstanding. One swap is used to convert some of the interest expense associated with the 1997 Series.K fixed rate bonds to a variable rate interest expense (see note,10). The other swap is to convert the interest expense associated with the 2023 Series C variable rate bonds to a fixed interest expense (see note 10).

SMUD hedges its power and_p~tural-gas "<;:QtltS so_ that it can.o_ffer 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 al1ising from its power and natural" gas market activities., Under the program, authorized SMUD employees assemble. a portfolio of swaps, futures, and forward contracts over time with the goal of making SMUD's purchased power and fuel budget more predictable.

,**. !, !.*j_l.

I/

, 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 I>esignated as Hedging Derivative Instruments*

• Gas and Electric Contracts. SMUD utilizes certain gas swap and electrlc swap agreements under GASB No. 53 not designated as hedging derivative instruments to mitigate exposure to changes in the market price of natural gas and electricity.

The fair value of each agreement, excluding the actual settlements to be paid or received as of the end of the period, is recorded in the Statements of Net Position in either Current or Noncurrent Assets, Investment Derivative Instru1T1.ents if in an

• asset position or* Current or Non current 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 11.nd Other in the Statements ofNet Position. The payments and receipts of the actual settlement are recorded as Investment Expense in the Statements of Revenues, Expenses and

• Changes in Net Position.

Interest Rate Contracts. SMUD utilized 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 ofthe end ?fthe 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 ofNet Position. The interest receivable is recorded in Receivables - net: Wholesale and Other in the Statements of Net Position and the accrued 48

interest is recorded in Interest Payable in,the.Stateme11ts of Net Position., The payments, or recfipt~ of the actual.~etth1ment are recorded as Investment Expense in the Statements of Revenues, Expenses and Changes in Net Position. At Decemper 31 2023, SMUD.<Joes not possess ai:iy outstanding ineffective interest rate swaps.

The Board has deferred recognition of the effects ofreporting the fair value oflnvestment Derivative Instruments,.for ratemaking purposes and maintains regulatory accounts to defer the accounting impact of these accounting adjustmen!s (see Note 8). Fair values may have changed significantly since December 31, 2023.

Basis Risk. This is the i:isk that arises when a hedged item and a derivative instrument that is attempting ~o hedge thf1t item are based on different indices. SMUD is exposed to basis risk when it hedges its natural ga~ purchases with NYMEXfotures contracts, which settle based on the price at Henry Hub, Louisiana. SMUD enters into basis swaps to hedge agajn~t thi~ risk, which converts the Henry* Hub price to the various locations where SMUD purchases natural gas. SMUD is also exposc;:d.to basis risk with the Barclays interest rate swap which is based on 1 month SOFR whereas.the 2023 Series C bonds are a.tax;-

exempt variable-rate demand note with a daily rate reset.

Termination Risk. This is the risk that a derivative instrument will terminate prior to its schedule,d maturity due to a.

,*.~

contractual event. Contractual events include bankruptcy, illegality, default, credit events upon merger, and other events. One aspect of termination risk is that SMUD would lose the hedging benefit of a derivative instrument that _becom~~ su9.1ject to.a.

termination event. Another aspect of termination risk is that, ifat the time of termination, the mark to marl<et va!t1,e qfthe derivative instrument was a liability to SMUD, SMUD could be required to pay that amount.to the.coHn_t~rparty. J;e\\"IT}ination risk is associated with all qf SMUD's derivative instruments up to the fair value amounts.

Counterparty Credit Risk. This is the risk ofloss resulting when the counterparty is unable or unwilling to fulfill its present and future financial obligations. SMUD can be exposed to significant counterparty credit ris~:0!1-a,11 <:!_erivative ~nstrumen_ts..

SMUD seeks to minimize credit risk by transacting with creditworthy counterparties. SMUD has established and maintained strict counterparty credit guidelines. SMUD continuously monitors counterparty.creditrisk~nd utiJ.izes,numeroi.ls:.,,.

counterpar-ties,to,diy1;1rsify the ex;posure to potential defaults. Under certain conditions as outlined in SMUD's credit risk mahagem.e.111 policy, SMUD may require additional credit support under its trading agreements.

Some of SMUD's"derivative instrument master agreements contain credit contingent,provisions that enab}e.SMUD to mainta\\n unsecured credit as a result of positive investment quality credit ratings from each of the major*credit-rating agencies. Jf 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. IfSMUD's credit rating was to decrease b.el9w investment.grade, SMUI:>'s unsecured credit thresholds would be.. reducedto.zero, and counterparties to the dedvative ipstrurnents,would*den:iand ongoing full collatetalization on derivative instruments in net out of the money positions (see Note 2).

49

T!fo' cotinterparties' credit 'ratings at December 31, 2023 and 2022 are shown irnhe table below., The credifratings* listed are from S&P br Moody's.

• Counterparty Gas Contracts:

Bank of Mor\\.treal *'

Barclays Bank PLC Citigroup Inc.

EDF Tr~ding Group J.P: Morgan Ventures Energy Corp:,

Merrill Lynch' Mitsui Bussan Morgan Stanley Capital Group, Inc:'

Nextera Royal Bank of Canada Shell Trading Market Risk Interest Rate Contracts:

Bai:tlays Bank-PLC "Gcildinai1 Sachs Capital Markets, L:P.-(J. Aron)

Morgan Stanley Capital Services, Inc: * * * * * \\':*

• ;i1, ; ) *.

NOTE'lO.' LONC-TERlVl-DEBT SMUD's total long-term debt is.presented below:

,.* '.} ***,'

Jr:;

l H

.it!,1,_.;r Electric revenue bonds, 2..J3%-6.32%, 2024-2053 Subordinated electric Fevenue bonds, 0.7%-5.0%, 2024-2049 Total electric revenue bonds :

• t....

Componertt unit1projeet revenue bonds, 5,0%,

02024-2030 I..

Gas1ahd Commodity supply revenue bonds,* index rates and 4.0%-5.0%,.2024~2049 Total long-term debt outstanding.*

Bond premiums - net Total long-term debt Less: amounts due within one year Total long-term debt - net 50

')

• . December 31' 2023 2022

., A+:

A+

BBB+

Baa3

. A-

• Al A

A-A-

AA-A

,I/ f."'

I

• ' 1;' i

(,i,

,*.}.i':

I.,.

A+

A BBB+

Baa2 A-A2 A

BBB+

A-AA-A

• ',A, BBB+

A+*

'."'t,,:,.,I

,1., _; December 3,1 *,

2023 *

• _,;,*,,.. 2022 (thousands of dollars) 1,783,965:*... $.,

l,84J,715 332,020 200,000 2,115,985 2,041,715 87,890 89,735 657 365

• 682,550 2;861,240 2,814,000 197381 210,039 3,058,621 3,024,039 (137,740)

(138,195) 2 920.881 2 885.844

The summarized activity ofSMUD's long-term debt during 2023 is presented below:

Defeasance Amounts January.I,.,,*

Payments pr,.*. December31, Due Within 2023 Additions Amortization 2023 One Year (thousands of dollars)

Electric revenue bonds.,

1,841,715 $ 261,115 (318,865) $

1,783,965 $

84,590 Subordinate electric revenue bonds 200,000 232,020 (100,000) 332,020 Component unit project revenue bonds 89,735 (1,845) 87,890 13,115 Gas and Commodity supply revenue bonds 682 550 (25,185) 657 365 40,035 Total 2,814,000 493,135 (445,895) 2,861,240 $

137,740 Unamortized premium's - net 210 039 44 471 (57,129}

197 381 Total long-term debt 3,024,032 $ 537 606 (503;024) $

3,058.621,,

The summarized activity ofSMUD's long-term debt during:2022 is presented below:

January 1, _

2022 Defeasance.

Amounts Payments or

-December 31,., Du.e. Within Additions Amortization*

2022

• One Y,ear (thousands of dollars).,.

Electric revenue bonds

• 1,966,925! $ 132,725 (257,935) $,.

• 1,841,715 $*

1 l 1,L65 Subordinate electric revenue bonds 200,000 200,000 Component unit project revenue bonds 101,185.. (1.1,450),.*,,.,, _, 89,7}5,L,'

.\\,845 Gas and Commodjty supply revenue bonds ---~7'-'0=3~1'--"0=0* (20,550),,

,. 682,550,

. 25,185 Total 2,971,210 132,725 (289,9El5),,*.:*::.:::. 2,8'14,000 $ -* 138 *.195 Unamortized premiums -:net 242 647 ' * *.17,986 (50,594) 210,039

• Total long-term debt 3,213.857 $ 150.711 (340,522) $

3,024.032 At December 31, 2023 scheduled annual principal maturities-and interest are as follows:

Principal **

Interest (thousands of dollars) 2024

. $' '.. 137,740 140,688 2025 14~,910

.13:1,242 2026*

156,3~5

. 124,164,,

2027, 164,930

116,697 2028 137,525.

109,244.:

2029 - 2033 ( combined) 495,365 456,201.

• 2034-2038 (combined) 572,765 306,318 2039 - 2043 ( combined) 433,490 197,452 2044 - 2048 ( combined) 430,735

• 104,819 2049 - 2051 ( combined) 182,455 18 079 Total requirements.

2.861,,240.,

1,704.905

• .;1.

-~T~o_ta_l _. ~-,,.,

i?S,428.

. 281,J_52

,280,489 281,627..

446,769 95-1,566

• ,879,083 630,942 535,554

,200,534, 4,566,145 Interest in the preceding table includes interest requirements for fixed rate debt attheir stated rates, variable rate debt covered by interest rate swaps at their fix,ed rate, and variable rate debt not covered by interest rate swaps using the debt interest rate of 70.0 percent of 1 month SOFR plus a fixed fee. The SOFR rate is based on the rate in effect at Decemb,er 31, 202} for. the issues. The 2019 Series B-and.2023 Series D Put Bonds assum.e a 3.0 percent fixed rate coupon after mandatory remarketing.

51

The 2018 NCEA Put Bonds assume a 4.0 percent fixed rate coupon-after mandatory remarketing:* Principal:inthe preceding table includes known principal payments and the amortization schedule for mandatory remarketing bonds.

The following bonds have been issued and are outstanding at December 31, 2023:

Final Interest Original Outstanding

'Date Issue Maturi!Y Rate Amount Amount

.. (thousands of dollars)

Electric Reven'ue Bonds 06/15/1997 1997 Series K Bonds 07/01/2024 5.25% $.l

.* 131,030*"$ *

• 19,570 05/15/2009 2009 Series V Bonds 05/15/2036 6.322%

200,000

.200,000 07/29/2010

' 2010 Series W Borids 05/15/2036 6.156%

250,000 250,000 07/14/2016 2016 Series D Bonds 08/15/2028 2.125%- 5.0%

149,890,

84,680 12/14/2017 2017 Series E Bonds 08/15/2028 5.0%

202,500 89,415 07/12/2018 2018 Series F Bonds 08/15/2028 5.0% *

-165,515 76,580 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 91,525

': 06/23/2022

.. 2022 Series J Bonds

.,. 08/15/2033 5.0%

132,725 119,205 06/22/2023 2023 Series K* Bonds 08/15/2053 5.0%

200,000 200,000 06/22/2023 ' *

• 2023 Series I.; Bonds 08/15/2033

, \\.

,.- 5.0%

61,115

• 61,115

~ *\\ i i: \\,\\!.

\\

\\'

,.),_j*

/

'Subordinated'*El'ectric Revenue Borids

,),

I ***JI

• *07/25/2019 i'.* '. 2019.Series BBonds 08/15/2049 -.:.

5.0%' '**** J

• i.JQ0,000:-:1,,,* '*,.,100,000 06/23/2023

' *" 20:i3 Series C:J3'6nds-.

08/15/2041,:,_\\',

0.7%

132,020

! : 132,020 06/22/2023 * * ' * *2b23 Series D Bonds 08/15/2048 5.0%

• • l00;000T

.,** *:,,100,000

.\\::*

J' '~ *,

.,j **, ii.. :

JP A Revenue Bonds 06/03/2015 2015 SFA Bonds

• .i

,1,;

07/01/2030 5.0%-

';193,335 87,890 05/31/2007 2007B NCGA#I Bonds 07/01/2027 Index Rate 668,470 120,070 12/19/2018 2018 NCEA Bonds 07/01/2049-

.4.0%- 5.0%

539,615 537,295 2023 Bond Issuances. In June 2023, SMUD issued $61.1 million of 2023 Series L Revenue Refunding Bonds. The purpose of this transaction was to refund the fixed rate debt associated with 20H3'Series B bonds. Proceeds from the 2023 Series L bonds combined with swap termination receipt tlefeased all the outstanding Series 2013 Series B bonds. A total of$75.7 million of bonds were defeased through a legal d'efeasance, and accordingly, the-liability for the defeased bonds has been removed from Long0Term.Debt-net in the Statements ofNet Position. The refunding resulted in the recognition ofa deferred accounting gain of$5.5 million, which is being am6rtized over the life of the refunding issue. The 2023 Series L Refunding bonds reduced future aggregate debt service payments by $18.1 million and resulted in a total economic gain of$14.3 'million;-which is the difference between the present value of the old and new debt service payments.

In June 2023, SMUD issued $132.0 million of2023 Series C Subordinate Electric Revenue Refunding Bonds. The purp*ose of this transaction was to refund the fixed rate debt associated with 2013 Series A bonds. Proceeds.fronrthe 2023 Series C bonds defeased all the outstanding Series2013 Series A bonds. A totalof$132.0 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 Statements ofNet Position. The refundingtesulted in tHe recognition ofa deferred accounting gain of$9,9 million, which is being amortized over the life of the refunding issue. As part of the issuance of2023 Series C bonds, SMUD executed a Standby Bond Purchase Agreement-for $132.0 million with TD Bank. The 2023 Series C Refunding bonds are projected to reduce future aggregate debt service payments by $79.9 million and resulted in a projected total economic gain of$55.5 million, which is the difference between the present value of the old and new debt service payments.

52

In June 2023, SMUD issued$l00 million of2023 Series D Subordinate Electric Revenue Refunding Bonds. The purpose of this transaction was, to refund-the fixed rate debt associated _with 2019, Series A bonds and reiQ'!burse_ SMUD for capital project_s in 2022. Proceeds. from the 2023 Series D defeased all the* outstanding Series ;rn 19 *Series A.bonds..,A total of $100 million of bonds were defeased througb,alegal-*defeasance, and accordingly, the liability for the:defeased bond~ has been removed from Long-Term De~t - net-in the Statements of Net Position. The 2023 Series D Subordinate Bonds have a mandatory put date of October 15, 2030. The refunding result_ed in the recognition ofa deferr,ed accounting gain of$0.6 million, whic)l is being amortized over the life of the refunding issue.

In June 2023,.SMUD issued $200*million of2023,Series K Revenue Bonds. The 2023 Series K Bonds have a fixed coupon rate 5.0 percent and amortize from 2037 to 2053. Proceeds from 2023. Series K Bonds were used to refund $200 ipillion 9{

outstanding commercial paper.

2022 Bond Issuances. -In June 2022, SMUD issued $132.7 milliQn of2022 Ser~es-J Revenue Refunding Bonds. The pµrpose of this transaction was to refund the fixed rate debt associated with 201:2 Series Y bonds.. Proceed~ from the,202.4 Series J_!:>ond~

combined with swap termination receipt-defeasedall the outstanding Series 2012 Series Y bond~.. A total of$l5J.8 milliqn,of bonds were defeased through a legal defeasance, an~! a9cordingly; tl;le liability for the defeased bonds lias bee_n removed from Long-Term Debt - net in the Statements of Net-Position. The refunding resulted i1.1 the recognition of a_clef'erred a~counting.gain of$6.7 million, which i:; being amortJzed over-the life of the refunding issue. The 2022 refunding,red,u,<;:ed future aggregate debt service payments by,$30.9 million and resulted,i_n.a;total e~onomic gain of.$28.6 Jn;i\\\\ion, which ~s,the difference between the.

present value of the old and new debt service payments.

I

\\ *'

Terms of Debt Indentures. Debt indentures contain,rnroyisjqn that in,an -~vent of d~fault, the.holders of the. majority of the debt Ol!tstanding are entitled to declare the outstanding amounts due immediately.

Interest.Rate Swap Agreemeqts., A summary of SMl)D' s two interest rate SW!lP agreements_ as of December ;31, 2023 are as follows:_ The credit ratings liste,d are from S&P.

Notional Counterparty

.-. -*Amount SMUD

,Fixed "* '

Floating

. '.f'.ermination

., :Creclit (thousands)

Paxs Rate

• Rate Date

• Rating 19,570 Variable 5.17%

SIFMA 07/01/24 BBB+

132,020 Fixed 0.7179%

70% of lM SOFR 08/15/41 i'A A summary ofSMUD's four interest rate swap agreements as of December 3-1, 2022 are as follows:

Notional Counterparty Amount

,SMUD.

.Fixed

,Floating Termination Credit (thousands)

Paxs Rate Rate Date Rating*..

38,165 Variable.

5.166%

SIFMA

. 07/91/24 BBB+

68,450 Fix;ed 2.894%

63% of 1 M LIBOR 0~/15/28 A+

132,Q20

_Fixed 0.7179%

70% of lM LIBOR

,08/15(41 A

75,680.

Fixed 0.5543%

70% of lM LIBOR 08/15/33 A

• I At December 31, 2023 and 2022, SMUD had a fixed-to-variable interest rate swap agreement wjth_ a notional amount,of $19.6 million and $3 8.2 million, respectively, which is equivalent to the principal amount of SMUD' s 1997 Series K Electric Revenue Bonds. Under this swap agreement, SMUD pays a variable rate equivalent to the Securities Industry and Financial 53

Markets Association (SIFMA) Index (3.87 percent and 3.66 percent at December 31, 2023 and 2022, respectively) and receives fixed rate payments of:5.1 ?'percent as of December:31, 2023 and 5.166 percent as'of December 31; 2022: 'In connection with the swap agreeinenf, SMUD has a put option agreement, also with a notional atnotint of$19.6 million and

$38.2 million1as*ofDecember 31"; 2023 and 2022, respectively, which gives the coi.mteiparty the,r-ightto,sell to SMUD, at par, either the'l997 Series K Bonds, 6r a*j:,ortfolio of securities sufficient to defease the 1997 Series-K:Bonds. -SMUD receives fixed rate payrrienti:i"of 0.01 percent as *of December; 31; Q023 and December 31; 2022, in connection with -the put*option agreement. Tlie'exercise of the option terminates the swap at no cost tb*SMUD. The term ofbbth tlie swap and the put is equal to the maturity of the 1997 Series K Bonds.

In September 2023; SMUD terminated the variable-to-fixed interest rate swap agreement with Morgan Stanley*Capital Services atrfafr value: The termination of the swap resulted in SMUD receiving a one-time payment for $0:05 million. **

In June 2020, SMUD executed a variable-to-fixed interest rate swap agreement with Barclays Bank PLC with a notional amount of$132.0 million for the purpose of fixing the effective interest rate associated with the potential refunding of the 201-3,Series'A Bonds.'The Barclays 2013Series A swap became effective in July* 2023. Also, in June 2020, SMUD executed a*varfable0to-fixed1nterest rate swap agreement*with Barclays Bank PLC with a notional amount of$75.7 million for the purpo~e of fixing the* effective interest* rate associated with the potential refunding* of the 2013 Series B Bonds. The Barclays 2013

• Series B swap was terminated as part of the 2023 Series L bond refunding. The notional values of the one remaining

swa1fis amortized ovetthe life of their respective' swap agre*ements. SMUD cail -terminate the swap agreement at any time, with payment or receipt-'ofthe fair market value of the swaps* as of the date of termination. The obligations of SMUD under the swap agreements are:not secured by a: pledge 6f'revenues of SMUIYs electric'system or any other property of SMUD.

• Component Unit Interest Rate Swap Agreements. NCGA had one interest rate swap agreement as of December 31, 2023, which is sumrriatized as follows> The *credit ratings Hsted-are*froin S&P., 1 1

• *, ** :, *~

1. ':, " *,

Notional Amount (thousands) 120,070

,{'

NCGA-*

Pays Fixed

• Fixed Rate 4.304%

• *. Floating Termination, Rate

,*,,, <Date 67% of3M SOFR +.895%

07/01/27

Credit.Support Provider

.., Credit

• Rating A+

NCOA had one interestrate swap agreement as of December 31, 2022, which is summarized as follows. The credit ratings listed are from S&P.

Notional Amount NCGA Fixed (thousands)

Pays Rate 142,935 Fixed *i*.. 4.304%

Floating Rate

'67% ofLIBOR + :72%

Termination Date 07/01/27 Credit Support Provider Credit Rating A+

At December 31, 2023 and 2022, NCGA had a variable-to~fixed interest rate swap agreement with a counterparty for the purpose

. of.fixing the effective interest rate associated with the 2007 Series B Bonds. Due to LIBOR phaseout, NCGA amended the swap agreement from LIBOR to SOFR beginning October 1, 2023. NCGA pays the counterparty a fixed rate on the notional amount and receives a floating rate equal'to 67 percent of the three-month SOFR (5.35 percent at December 31, 2023 and LIBOR rate of 0.10 percent at December 31, 2022) plus an interest rate spread;**as specified in the swap agreement. The total notional amount of the swap at December 31, 2023 and 2022 was $120.1 million and $142.9 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 ho value to either party.

54

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 Uriif Bonds: The comporient units of SMUD have each issued bonds to finance their respective prbjects. The 1

revenue sttearri to pay SF A bonds' debt service is provided by a "take-or-pay" power-purchase agreement and is therefore not dependent on the successful operation of the project.- SMUD guarantees to make payments sufficient to pay principal and

• interest and all other payinents required to be made under SF A's indenture of trust.-* :SF A is not required to repay SMUD.for any amounts paid 'under this guarantee. The 'revenue stream to pay NCGA and NCEA bonds' debt service is,provided by; ' *.

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

Callable Bonds. SMUD has $620.8 million of Electric Revenue Bonds that are currently callable, $450.0 million of which are fixed rate Build America Bonds debt, $132.0 million of the 2023 Series C bonds, and $38.8 million of 2016 Series D Bonds. SMUD also no bonds that become;callable from 2024 through 2028. SMUD also has a four-month call period on the 2019 Series 8 Bonds and 2023 Series Din-advance of their mandatory remarketing purchase date in 2025 and 2030; *.

respectively.

Collateral The principal and interest on SMUD's bonds are payable exclusiv~ly from, and are (iO\\later<!lized by, a pledge o(

the net revenues of SMUD's electric system. Neither the credit nor the taxing po'we~ of SMUD is pledged to 'the paymeilt of*.

the bonds and the.general fund of SMUD is. not liable for the payment tqereof.

'I

'. \\ '..:

• ! * ::

• l

. \\

J 'l, '

• l

. :' -, l~:

';','!,~.*,; 1

',j}

• ,* l,

~

!~.:

• 1*

,;,.*,(*

• i:,. ',

i

.!~1..

1,.::*:*.,,.'

1"!,'.' *

• \\

Coven~n~s., SMl.)D's gond ~~soh1t1on_s_, contam va~1ous coye_ri_~nts that. mclude reqmrements to maintai~ mm1mum. debt service

"'*' o1Li

!.I'

~

• , 1

• • r..,.* **-* :-. J-;

I

. l'

.r *. '.~

fl*

I coverage ratios, certain other financial ratios, stipulated minimum funding of revenue bond reserve*s, and various* other requirements including a rate covenant to raise rates to maintain minimum debt service cover~,i~*_'

j' I

• \\

t*

• I' :

• t., /*I: '*

1 *

• ' * ~ '.

\\;

,o,

~

\\

• ' I.

i SMUD has pledged futµre net electric r.evenues, component unit net project revenues, and net gas supply prepayment revenues

{

i 1

~

• l l *

\\

l 1

l to repay, in elec;tric_revenue, component unit project revenue, an_d gas supply prepayment revenue bonds issued fro"m 1997 1

1*

through 2023. Proceeds from the bonds provided financing for various capital improvem.'ent projects, corriponent 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 re~enues generated by SMUD,.s el~ctric~l sale~'.'c;omponent u'nit p~~}ect revenui:s;*imd gas supply I*

prepayment revenues.and are payable through 2053 at becember' 31, 2023.. *

-~

i.*

t*....

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

December 31 2022 (thousands of dollars)

Pledged future revenues

• it*

2,861.24cr

$

• 2 814.ooo Principal and interest paym_ents for the year ended 589.801 438.725 Total net revenues for the.year ended 847.657 574.300 Total remaining principal and interest to be paid Annual principal *and interest* paym~nts as a ~ercent of net revenues

• 4,566.145

• 4,383.545 I

for the year e_nded 70%

76%

55

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 P~cember 31; 2023 and 2022, respectively, there w:ere.$150,0,million-Note~ outstanding.

SMUD' s commercial. paper program is backed by $407.4 million *in letter of credit agreements (L,OCs) an_d a revoJving credit agreement with three separate.banks; The LOGs.are calculated as the sum of the maximum_principal amount-of the Notes plus interest thereon at-a maximum rate often*percentper annum for a period, of90 days,calculat\\:d on the basis ofa year of365 days and the actual number of days elapsed. Ther,e have not been any :term advances under the LOCs 9r the reyolving; er.edit agreement The LOO; and revolving credit agreement contain a provision.that in an event of default., Jhe outstand,ing amounts may become immediately due.

The summarized. activity of SMUD's Notes during 2.023 and 2022 is presented below:

• • • I,*

Balance at Beginning of Year

• . Additions Reductions Balance at End of Year December,31, 2023 December 31, 2022 150,000 $ $

(thousands 9f dollars),.

• 200,000 $

• 2QO,OOO 150,000 $ $

150,000 150,000

'.ri 1*,

l GASB No. 72 defines fair value as the price that would btfreceived to sell an asset or paid 'to t'ransfer*a Iiab11ity in 'an orderly transaction between market participants at. the measuremei;i_t date (an exit price). SMUD utilizes market data or,assumptions that

,,*. ::,i.: ',,. :?,i

• '- / I,

,,j:.,

• '.1:,,I, 1

-*~

_'='

,.- y' 1 ;,

• • ,f.1 * *, -.** *h; ~

i *

.* 1.,

':;*it" market participanJs would use in pdcing the*asset or liability, including a_ssumptions about risk _and the risks inherenf'in the inputstoth~val~ation'techniqu.~:*_*_,..

/' **

• • -: -,~ -****

I

\\,;

• j\\J * *

• ,~, * ~-',*::

If GASB No. 72 establishes a fair value hierarchy that prioritizes the inputs used to measure fair. value. The hierarchy gives the highest priority to unidjU:sted quot~d p;ices in active marl&!$ f~~ identical a~~ets :()~ li~bii,t'i~s (LeteI 1') 'and the I'owest' piiority to unobs~rvabi~ iii puts '(Level 3). The th~~e' ievel~ of the fair vaiue hiera~chy defi~eci by GA.SB. No. 72 are ks ;follows:

• f:.

I

*) '

f

~ * '

.~ '* I

~

I *

*.I.

I

.

• Level 1 inputs are quoted prices (unadjusted) in active markets ~or i!ientical assets or liabifities.

• '

• Level 2 irip~ts are inputs othe; th~n 'qi.cited prices included in Level' I, t.h~t ~re obseryabie for an asset~~ liabiiity, either directly or indirectly.

• L~vel 3 inputs are unobservabl~ inputs that reflect SMUD's own assumptions about factors that market participants would u~~ in pricing the a~set ~di~bility.

~ *.

• J

~ l

.,.' I The valuatfon methods of the fair value measurements are as follows:

~ LAIF - uses the fair value of the pool's share price multiplied by the number of shares held. Thi~ pool can include a variety of investments such as U.S. government securities, federal agency securities, negotiable certificates of deposit, bankers' ac~eptances, commercial paper, corporate bonds, bank notes; and other investfi'.i°ent{ 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 ~hich: co~side~s yi~ld, pric~ of comparable securities, coupon rate, maturity, credit quality and dealer-provided prices.

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

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

56

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

• Hedging ~rid I~testment Derivative Instruments:

o Interest rate s~ap agreemerits' - ~ses the present value technique. The fair value of the interest rate swap agreements are

'J ':'

,,1.,_ *.*

calculated by discounting the expected cash flows. The cash flows and.discount r~tes are,.e~timated ba~e~ on a 1-.l!lonth SOFR forward curve from Bloomberg and assuming SIFMA is equal to 70.0 percent of I-month SOFR.

o Gas related agreements - uses the market approach based on monthly quoted pr.ices *from an independent-external pricing service. The fair values for natural gas and electricity derivative financial instruments are calculated based on prevailing market quotes in active markets (i.e., Henry Hub and So Cal) where identical contracts ar~* a~aihibie: When externai° quoted market prices are not available, SMUD uses an internally deyeloped v;:iluation model utiiiii~g s/10rt-term-ob~ervable inputs.* *

• The following tables identify the level within the fair value hierarchy that SMUD's financial assets an<l'lfabilities were accounted for on a recurring basis as of December 31, 2023 and 2022, respectively. As required by GASB No. 72, financiai' assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurell?,y,nt SMUD's assessment of the significance of a particular input to the fair value measurement requires judgment*imd rpay affect the valuation of the fair value of liabilities and.their placement within the fair value hierarchy levels.

Recurring Fair Value Measures Investments, i11cluding cash and pash equivalents:

LAIF U.S. Government Agency Obligations y.s. Tr~_asu_ry Obligations Corporate N;9tes Muriicir,al ~smds Total Investments, induding*cash and cash equivalents Investment Derivative Instrument Assets:

Gas related agreements Total Investipent Derivative Instrument Assets Hedging Derivative Instrument Assets:

Gas related agreements Electric related agreements Interest rate swap a_greemeqts.

. i Total Hedging Derivative Instrument Assets Investment Derivative Instrument Liabilities:

Gas related agreements Interest rate swap agreements..,

• Total Investlll_ent Derivative Instrument Liabilities Hedging Derivative Instrum~~t L*iabilities:

Gas related agreements.*

Electric related agreements Interest rate*swap agreements Total Hedging Derivative Instrument Liabilities 57 At fair value as of December 31, 2023 Level 1

• ' Level 12 *

' Totai" (t~oµs~nds <?f doll~rs) ** * $

40,0f?

• .. *. -Oi;

, ~~2,~7_;3.,._,

335,023 -

40,027

,212,473 335,023

• 63,987

-0.-,. " ' *, '. 63°,98'7 '

-~-~---~6-

• 25,928 25,928

• • 677,438

~$ ="""33""5"".0""'2""'3 " $.., 342.415, $

16,409, $,

J-;091 $

17,500.

, l 6;409

-0~ *

.1,091 28,535 28,535

'28,535

=$='===46-,0=3==5 1;160 1,160 c.0- $

I 160

~$===-..,,0-

--~$;=.===I.,.,1.,.6""0 81,630 81,630

'* 3,749 3,749

---

~~

• ~

~

. 85 379 * ~$===-..,,0-

~$===""85""'.3,,,,7==9

Recurring Fair Value Measures Investments, includirig cash ahd cash equivalents:

LAIF

'1 U.S. Government Agency Obligations*

U.S., Tr~J'!.sury Obligations Corpor.~te N ot,~s Municipal Bonds Total l~vestrrients, includ'ing cash and cash equivalent's Investment Derivative Instrument Assets:

Gas re!ated ;:tgre~ments

• Total Investment D.erivativ~ Iristr'imi.ent Assets i'

.1*

Hedging Derivative' Instrument Assets:

• Gas-related agteements Interest rate swap agreements Total Hedging Derivative Instrument Assets

• lnvestm~nt berivati~~ Insti-uinerit Liabilities:

Gas* related agr~ements Interest rafe 'sw~p :agreerrients: '

Total Investment Derivative Instrument Liabilities

~, r'. -

1 *

• • Hedging Deriative t~strument'Liabilities:

Gas related a:g~eements Interest rate swap agreements 1

-: Total -!{edg;i~g*D~rivative IAstruip:ent Liabilities NOTE 13. ACCRUED DECOMMISSIONING LIABILITY At fair value as of December 31, 2022 Level° 1 Levef'2

• Total

• • (i~ousands of dollars)

(

~. ' :.

85,502 85,502 371,241 371,241 63,~41 63,841 48,490 48,490 49 909 49 909 63.841 555.142 618,983 6,199 6,199 6.199 6.199

• 200,941 200;941 36,083 36,083 200 941 36.083 237.024 2,236 2,236 1 2 291 2 291

• 2,236*

2,22*1 4.527 I',,.,' *l..,

.'\\'.(** ~,.'

28,438

~$'**.; ~J

• L -tJ'lF' $. * :

28,438.**. ~d~- :* *1,.-*.,:,.,. 28.438

, *.io-28.438

_-.***.!)"

,;;..-;. ~,- ~* !

• /"

j 1 '

r*. I!*

• , !-l*

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

. CVFA power plant facility. GASB No. 83 requires measurement of the ARO be based qn the best estimate of the cµrrent value "of outlays expected to be incurred. The best estimate should be determined using all available evidence.and requires probability

• weighting of potential outcomes when sufficient evidence is available. This statement also requires the 'current-value be adjusted

• for *the effects ~fthe general inflation or deflation and an evaluation of relevant factors that may significantly change the

• * * ~stimated asset retirement outl~y~ at least a~nually.

~ *.. ' l I

• I '

Rancho Seco Nuclear Power Plant. With-the completion of nuclear decommissioning of the former 9l} MW, p.uc)ear p,ower~

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 1.'

of safely removing nuclear facilities from service and reducing residual radioactivity to a level thafpermit~ t~rmination of the NRC licenses and release of the property for unrestricted use. Final decommissioning of the ISFSI _will 9ccur after the spent nuclear fuel (SNF) and Greater Than Class C ( GTCC) radioactive waste is 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

• 58

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 high-level waste repository. The DOE also announced in January 2010 the creation of a Blue-Ribbon Commission to study alternatives-for'developing-a repository for'the tiation's*used nuclear fuel. The Commission provided a final report on alternatives in January' 2012> The DOE evaluated the recommendations and published the report "Strategy for the' Management a:nd Disposal of Used Nuclear*Fuel and High-Level Radioactive Waste" in January 2013.

The next phase of the process will be for Congress and the President of the.United States to:consider the*recommendations*and enact legislation to implement the recommendations. At this time, 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 GTCC waste on an interim bas'is.One of these applications has been approved (and a*Iicerise'issued) and one application is currently i.mder**

• review oy the NRC. Sho'uid the*NR.C.license one or both facilitie*s, Congress will have to modify the NWPA to allow for its use. In May 2018, the U.S. Hciu~e of Representatives passed H.R. 3053 -the'Nuclear Waste Policy Amendments Act, which was co-sponsored by Representative Doris Matsui and 109 other members of*Congress. This bill includes a provision to all'ow

• 11Consolidated Interim Storage Facility to store fuel from permanently shut dowri sites like Rancho Seco. 'The U.S. Senate did not act on the bilt Until le'gislation is passed *which lncludes a significant step towards removal of the used nuclear fuel at rn*e Rancho Seco facility, SMUD is*committed to the safe arid secure storage ofifs'SNF and GTCC waste under its Pait*72 lidense until DOE fulfills its obligation to dispose ofthis material in acfordance*with NWPA. In support of-this corriinitnient, SMUD submitted its ISFSI license renewal application to the NRC in March of 2018. The NRC issued Renewed Licensee No. SNM-2510 on March 9, 2020: This renewed* license authorizes the*continued storage ofSMUD's' SNF arid* GTCC:uriti\\:June 30, '

2060.

J, The Rancho Seco\\!ecommissioning liability is based on an internal study of the remaining decommissioning costs, which'*

• consist' of: 1) annual sp~_~t fuel management costs, 2) transportation of the canisters in the ISFSI and 3) termination of the Part

(

• ',l, 72 license'. The largest}iart'orthe decommissioning estimate is the annual spent fuel management costs; next year's annual.

budg~t'is 'i'.ised for the estim~te'. ;The other costs were estimated based on prior experience and studies and prep~red by management representatives of the nuclear power plant facility. The costs in the estimate were in 2019 dollars. An employ:m'e~t\\:ost i~dex was *used' to'i1dj~st tlie'othei: costs portion of the obligatioh for inflation.- i1'1 °2023. Prcibability\\veighting 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 froin'i:he site by 2035.* SMUD uses its Trust Fund (see Note 2) to demonstrate financial assurance to the NRC that' there 'are enough funds t~ c~mplete the termination of the Part 72 license; the balance of the Trust Fund at December 31, 2023 is $9.4 million.

SFA's Carson Power Plant (Carson). SF A's ground lease agreement with the Sacramento ~egional County'-Sanitation District

• for Carson requires SF A to restore the premises to its original condition upon termination of the contract. A ne~ study 'tb :

determine the current value of the asset retirement obligation was conducted by an external contractor who specializes in j

decommissioning studies: The*expected costs and scope of work were based 6n the mosttecent cost estimate and assumes a

.,contractor ~ill be'responsible for the w~i:k and that decommissionin~ would fake place tietween 2025 and 2027. The estimated costs \\Ver~ in: 2018 dollars.' The reiult' ~f this study was used to determine the new balance of the ARO *and the deferred outflows at January I,' 2018, in order to account for the 2018 activity..,The animal All Urban Consu11ner Phce Index was used to adjust this obligatiori'for inflation in 202'.f' The remaining useful life of Car~on's aSi;'ets is 2 years at December 31, 2023:

r

~

I The current portion of the Acdrued Decommissioning liability represents SMUD's estimate of actual expendittires for R'ancho Seco in the next year, as*s~t forth in the annual budget.

\\:

At December 31, 2023 and 2022; SMUD's Accrued Decommissioning balance in the Statements of Net Position was $120.9 million and $95.9 million, respettively.

59

NOTE '14. PENSION PLANS Summary of.Significant Accounting.Policies. For purposes of measuring net pension liability,, deferred ou~flows of resources and deferred inflows oftesources related to pensions, and pension expense, information about-the fiduciary-net position of the pension plans and additions to/deductions from the fiduciary net position have been determined on the s~me basis as they.are reported by the California Public Employees' Retirement System (PERS) Financial Office. For this purpose, benefit payments

.(including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair-value.:,

(.'

Plan Desc,:iption,apd Be1teflts ~rov,ided. SMUD participates i,n PERS, an agent multiple-en;1,ployer publiq:qiployee 9efi~ed benefit pension plan (PERS Pliin).' PERS provides.r~tirement and disability benefits, annual cost-of-living adjustments, and death.bem;fits to p!an members !incl beneficiaries.. PERS 11cts.as a common investment and administrativ.e.agent for particip~ting public el)tities,.withi_n,the Stat~_. Ben<::fit provi~ions and. all other requirements are established by State statute and

_SMUD policies.: The Pl!nsion pla_n provides retirem_ent benefits, survivor benefits, and death and disability be1,1efits based upon employee's years of credited seryice, age, and final compensation. A full description of the pension plan regarding number of

~mplqyees covered" bene_fit provision,.assumptipns ( for fl.)nding, but not ac<;ounting purposes),.and m~mbership informati9n are*included in.t\\l.e m:mual actuarii:tl valuation reports.as.of lune 30, 2022 and June 30, 2,021._

GASB: No. 68-require_s th~t (he rep,orted,results must pertain, tc;, liability and asset inform11tiol).,"}'ithin C'-'<rtain defined timeframes.

The following timeframes are used for the year ended:

PERS Pla_n December 31,

~ ~ ' ' l. *

• I

• 2022

,~,

• I* JI

• i Valuation date

,t;'

• ,........,.......c__.;:.20=2c=;3~~

:,)u~f 3,0,.10?2....,June 3Q; 2021 I

\\,.',

I I

Measurement date.

1,*:

/,:, 1 1.'

June ~9,?~2};., : )11~e}0, 2022

• t, JI I

1

~/.:\\ ~-::.*** * 'i.:*

l

. Em_p~oy~es <:;oyered b~, Be~~1!t Jer,ms.. The follo~ing, employees were c:overed by the ?enyfI~ terms f C!r _t.he j~ar end~d:

,'i *"

-1 *,

PE~Plan..

• ;11 December 31 2023 2022 Inactive employees or beneficiaries currently receiving benefit payments Inactive employees entitled to but not yet receiving benefit payments Active. ~ipployees.,

r*.

To,al employees covered by benefit terms.

I i

3,172 1,033 2 174, 6,379 3,116 987 2 168 6 271 Contributions. Section 20814(c) qf,the California Public Employees' Retirement Law re,quires that the employer contribution

~

1 1

rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following

~,

I

' ! =

l

.; I notice of a change; in the rate. The total plan contributions are qetermined through PERS' annual acµiariaJ valuation process.

The actuarially determined rate is the estimated amount nycessary to finance the costs of benefits.earned by e_mployees during l

1

• .f

• the year, with ar.i additional _aITI9unt to. finapce any,l}nfunded accrued liability. The ~mployer isc1:equi~ed to_ contri,bute the.

1 difference between the actuarially determined rate and the contribution rate of employees. For the PERS fiscal years ended June 30, 2023 and 2022, the average active employee contribution rate is 6.8 percent ofannual,pay. f'.orthe PERS fiscal year

,(

I ended June 30, 2023, the employer's contribution rate is 8.9 percent of annual payroll plus $21.4,million for the unfunded accrued liability contribution. 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. Employer c?n~ribution rates may change if plan contracts are amended. For the fiscal years ended June 30, 2023 and 2022, SMUD m~de contributions recognized by the PERS Plan in the amount of$92.5 million and $114.5 million, respectively.

'60

Net Pension Asset (NPA) or Liability (NPL). SMUD's NPA orNPL at December 31, 2023 and 2022 was measured at June 3 0, 2023 and 2022, respectively. The total pension liability used to calculate the NP A or NPL was determined by actuarial valuations as of June 30, 2022 :and 2021 rolled forward.using generally accepted actuarial procedures to the_

June 30, 2023 and 2022 measurement dates for the PERS Plan.

Actuarial Methods ~ndiAssumptions. The actua,rial methods _and assumptions used for the December 31, 2023 and December 31, 2022 total pension liabilities are as follows for the PERS Plan:

December 31, 2023:

• Actuarial Cost Method Discount Rate Inflation Salary Increases Mortality Rate Table,

Entry age actuarial cost method 6.90%

2.3%

Varies by entry age and service The mortality table used was developed based on PERS' specific data. The probabilities,.

of mortality are based on the 2021 Ca/PERS Experience Study and Review of Actua,;ia,l :'

Assumptions. Mortality rates incorporate full generational mortality improvement 4~jng-.

80% of scale MP-2020 published by the Society of Actuaries.

Post Retirement Benefit Increase For 2023 and 2022, the lesser of contract COLA or 2.30% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.30% thereafter.

December 31, 2022, * ),

.'i.*

Actuarial Cost Method r*

Discount Rate Inflation Salary Increases Mortality Rate Tablex,,

Entry age actuarial cost method 6.90%

2.30%

I'

• • 1':, ::**,*; *,.

Varies by*entry age and service The mortality table used was developed based on PERS' specific data.. The probapilities __

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

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

Discount Rates. For the PERS Plan, the discount rate used to measure the total pension liability for the years ended December 31, 2023 and 2022 was 6.90 percent. For the year ended December 31, 2023, 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's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

The long-term 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 of return was then adjusted to account for assumed administrative expenses of 10 Basis points.

61

The expected'real rates ofreturrt by,asset class used for December 31, 2023 are as follows:

Current Target Asset Class Assumed Asset Allocation Global Equity - Cap-weighted 30.0%

Global Equity - Non-Cap-weighted 12.0%

Private Equity 13.0%

Treasury 5.0%

Mortgage-backed Securities 5.0%

Investment Grade Corporates 10.0%

High Yield 5.0%

Emerging Market Debt 5.0%

Private Debt 5.0%

Real*Estate 15.0%

Leverage (5.0)%

The expected real rates of return by asset class used for December 31, 2022 are as follows:

Asset Class Global Equity - Cap-weighted Global Equity - Non-Cap-weighted Private Equity Treasury Mortgage-backed Securities Investment Grade Corporates High Yield Emerging 'Market Debt Private Debt Real Estate Leverage Current Target Assumed Asset Allocation 30.0%

12.0%

13.0%

5.0%

5.0%

{,

10.0%

5:0% 1 :

_1,*,,

'5.0%*,

5.0%

15.0%

-,, (5.0)%

62

),;*.

• Real Return 4:54%

3.84%

7.28%.

0.27%

0.50%

1.56%

2.27%

2.48%

3.57%

3.21%

{0.59)%

Real Return 4.54%

3.84o/O :*. **_

1 7.28%

0.27%*,::l 1:,

0.50%

1.56%

2.27%

2.48%

3.57%

3.21%

(0.59)%

Changes in the NP.A or; NPL. The following-table shows the changes in NPA or NPL re.cognized over the year endecl.

Decemb.er3J,. 2023:-.

Balances at January 'l, 2023 Changes recognized for the measurement period:.

Service cost Interest Changes in benefit terms Changes in assumptions Differences between,expected and.actual experience Contributions - employer Contributions - employee Net investment,income, Benefit payments Administrative expense

,.,.Net changes*,\\

Balances at December 31, 2023 I~ '* f *

' : -~

Total Pension Liability (a)

Increase (Decrease)

Plan Fiduciary Net Position (b)

(thousands of dollars)

Net Pension (Asset) Liability

.(a)-,{b) 2,553,780 2;318,329

, 235,451 42,959 179,370 1,890 53,600. ';0-(149,331) 125488,.

2,679,268

$ 92?504 19,921 140,54P (14~;33_1)., '*: *

(1,705) 42,959 176,370 1,890

'.*, 53,600 (92,~04)

(19,921)

. (140,540)

,* 1 705 101-,929.

23 559

• • .2.420,258.,. -~$=.=====*~2~59""'.0"".J=O Changes, in tlJe NP.A or NPL. The following table shows the changes in NP A or NPL recognized over the year ended December 31, 2022:

Increase (Decreas_e ), :*,

Net Pension Total Pension Plan Fiduciary Net (Asset) Liability Liability (a).

. ;,,".

• Position (b).

(a)-(b)

. (th,ousands,of dolla,rs)

,~.. 1.

Balances at January 1, 2022 r.. $.

2,486,667 2;514,:1:05.

(27,738}

Changes recognized for the..

measurement period:

Service cost 41,885 41,885 Interest 167,926

,16.7,926 Changes in assumptions 26,275

-0,-.

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 67113 (196,076) 263 189 Balances at December 31, 2022 2.553,780 2,318,329 235,451 63

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

1% Decrease Current Discount 1% Increase PERS Plan (5.90%}

Rate (6.90%}

(7.90%}

(thousands of dollars)

Plan's NPL (NPA), December 31, 2023 599,774 259,010 (24,014) 1% Decrease Current Discount 1% Increase (5.90%}

Rate (6.90%}

(7.90%}

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

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

Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. For the years ended December 31, 2023 and 2022, SMUD recognized pension expense of $44.8 million and $20.5 million, respectively.

At December 31, 2023 artd 2022, SMUD reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred outflows of resources:

Changes* of assumptions

• 1 Differences between expected and actual experience Differences between projected and actual earnings on pension plan investments Employer's contributions to the Plan subsequent to the measurement of total pension liability Total deferred outflows of resources Deferred inflows of resources:

Changes of assumptions Differences between expected and actual experience Differences between projected and actual earnings on pension plan investments Total deferred inflows ofresources 64 December 31 2023 2022 (thousands of dollars) 13,457 40,200 I 15,364 13 468 182,482 * $ $

17,536 175 36 19,866 2,495 121,257 31 860 175 478 26,656 26.656

Amounts reported as deferred outflows.ofresources and deferred...inflows ofresout*ces related to pensions will be subject:to regulatory accounting as follows (see Note 8):

Year en<led'Qecember 31:

2024 202*5 2026 2027 2028 Thereafter 32,532 25,969 89,390.

3,594 *~0-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 flans.~. The Plans are contributory plans in which SMUD's employees contribute the funds. Each of SMUD's.eligible full-time or permanent part-time employees may participate in either or both Plans, and amounts contributed are vested immediately. Such funds are held by a Trustee in trust for the employees upon retirement from.SMUD service and; acc01:dingly,,are not*subject to the.. *. **

general claims of SMUD' s creditors, SMUD is responsible for ensuring compliance with IRC requirements cqncerning the*

Plans and has the fiduciary duty ofreasonable 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 Incoine:.Security:Actof 19.74.r SM.UD.

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...,: : -.:.. *1.,.,,

r,.

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 40J(k1 Plan of$6.9 million in 2023 and $7,0 million in 2022. SMUD does not match,e'111ploy.ee contributions,-,nor.mak,e contributions on; behalf of its employees-to the 457 Plan..,

Participating.employees,made contributions into both iPJans totaling $34.3,million.in,-2023 and $32.4 million in 2022.-, "

,.*. I '.

NOTE 15. OTHER POSTEMPLOYMENT BENEFITS

,;',J Summary _of Significant Accounting Policies. For purposes of measuring the net OPE~ asset or liability, deferred outflows of resources and deferre<l inflows o.f resources related to OPEB, aq.d Q,PEB expepse, infm:mation about the fiduciary net position of the OPEB plan and additions to/deductions from the OPEB plan's fiduciary net position have been determined on the same basis as th,ey are.reported by the.C::aljfornia Employers' Retiree l3eneW Tr4st (CERBT). For this-purpose, SMPI? rec9_gnizes ben,efit paymeQ.ts when. due and payabJe in, accordanc~, with the benefit, terms.. Investments are repprte~ at fair vaJue.

Plan Description and. ],Jenefits_Provided. SMUD is a member,of CERB,T. The CERBT Fund is an IRC Section p5 Trust set up,f9r the purpose ofreceiying employer contributions to prefund OPEB for retirees and their ~eneficiaries. CE).lB,T is an agent multiple-employer define<\\ benefit OPEB plan (OPEB Plan) administered by PERS. _The OPEB P_lan provides medical, der:tal and long-term disability bene_fits fqr,retirees and their benefo;~iaries,. in accor_dance with Sl',1UP policy and,negotiaJed agree,nents with,employee representation. groups. The benefit, benefit levels, r~firee contributions and employer cpptrib4tions. are governed by SMUD and can be amended by SMUD through its perso.nnel m_anual and union contracts. Any changes t? these,benefits.

would be approved by SMUD's Board and unions.

65

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

December 31 2023 -*

2022 Inactive employees or beneficiaries currently receiving benefit payments Inactive employee's entitled to but not yet receiving benefit payments Active employees Total employees covered by benefit terms 2,367 44*

2,202 4 613 2,349 46 2 144 4.539 Contributions. OPEB contributions are elective and not required. In December 2018, SMUD split its CERBT assets across two asset strategies to better align trust assets with liabilities (Strategy 1 for active employees and retirements after June 30, 2018 and Strategy 3 for retirements before July 1, 2018). SMUD contributes the normal cost to the CERBT, and annually receives reimbursement for cash benefit payment's 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, 2023 and.2022, SMUD made contributions recognized by the OPEB Plan in the amounts of$9.lmillion and $0.9 million; respectively:

Net OPEB Asset(NOA)*or Liability(NOL). SMUD's NOL at December 31, 2023 and 2022 were measured as of June 30, 2023 and 1022, respectively, and the*total OPEB liabiiity,used to calculate the NOL was determined-by actuarial valuations as of those dates.

,:: l:

Actuarial* Methods* and Assumptions; The actuarial methods imd assumptions used-for the Deceinber 31, 2023' and December-31,'2022totalOPEB'liabilities*areasfollows: * *:

11 _.. -** ;_..

11 Discount Rate General Inflation * * *, -*.,

l 6.02% (2023). Blended discount rate based on projected benefit streams expected ~o be paid from each Strategy. 5.88% (2022) 2,.so% (2023*andi2022)

Mortality, Retirement, Disability,,. -*

1

• ,i. u-i *,,

Termination

.,., :-, CalPERS 2000-2019 Experience Study:(2023.and 2022).

Mortality Improvement

'*,,1 Mortality projected fully generational with Scale M~*2021 (2023 and,2022),

Salary Increases Aggregate-'-.; 2.75%; Merit - CalPERS* 2000-2019 Experience Study (~023 and 2022)

Healthcare Cost Trend Rates Non-Medicare: 8.50% for 2025, decreasing to an ultimate rate of 3.45% in 2076 (2023),

6.25% for 2024, decreasing to an ultimate rate of3.75% in 2076 (2022)

Medicare: 7.50% for 2025, decreasing to an ultimate rate of3.45% in 2076 (2023), 5.45%

for 2024, decreasing to an ultimate rate of 3.75% in 2076 (2022)

Kaiser Medicare: 6.25% for 2025,:decreasing t<:>'an ultimate'rate of3.45% in 2076 (2023),

4:45% for 2024, decreasing to ah ultimate rate of3.75%*in 2076 (2022)

Discount.Rates. For the OPEB 'Plah, the discount rate used to measure the total OPEB liability was 6.02 percent and 5.88 percent for the years ended Decem\\Jer 31, 2023 and 2022, respectively. This rate is a:*blended discount rate based on projected benefit streams expected to be paid from Strategies 1 and 3. The projection of cash flows used to determine the discount rate assumed that SMUD contributes the full normal cost td the trust and *only takes reimbtirserrieht from the trust of the cash

• benefit' payments. Because the implied subsidy*benefit payments have a larger present value than the payments toward the unfunded accrued liability, there should be sufficient plan assets to pay all benefits from the trust. Based on those assumptfo'ns, the OPEB Plan's fiduciary net p~sition was projected to be available to make all *projected OPEB payments for current active ancl'inactive employees*. The*long~term expected*rnte*ofreturn of6.25 percent for Strategy 1 and 5.25 percent for Strategy' 3 was applied to all periods of projected benefit payments to determine the total OPEBli'ability for'the years ended December 31, 2023 and 2022, respectively.

66

The expected*rea!-rates ofreturn-by asset class used and presented as geometric means for December 31, 2023 are as follows:

Asset Class Global Equity.

Fixed Income TIPS Commodities REITS Asset Class Global Equity Fixed Income TIPS Commodities REITS Target Allocation CERBT Strategy 1 49.0%

23.0%

5.0%

3.0%.

20.0%

Target Allocation CERBT Strategy 3 23.0%,

51.0%. *

• 9.0%-

Expected Real Rate of Return 4.56%

1.56%

(0.08%)

1.22%

4.06%

Expected Real Rate of Return 4.56%

1.56%

(0.08%)

3.0%

14.0%

1.22%

. 1,*..

'4.06%

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

Asset Class Global Equity Long US.Treasuries....,* *:,* *, *: * *: * ***

Mortgage;;Backed Securities* 1.;,1 : n,;1*:

Investm\\mt Grade C_orpotates*

High Yield Soven,igns TIPS Commodities REITS Asset Class Global Equity Long US Treasuries Mortgage-Backed Securities Investment Grade Cot-po.rates_

High Yiel\\i Sovereigns TIPS Commodities REITS

. r 67

.* : ; I I

J.. *..

Target Allocation Expected Real

,::CERBTStrategy.1'

,J,** RateofReturn 49.0%

4.56%

5.1%

5.1%

3.9%

3.9%

5: I/Yo

.5.0%

3.0%

20.0%

Target Allocation CERBT Strategy 3 23-.0%,

11.2%

11.2%

8.7%

8.7%

11.2%

9.0%

3.0%

14.0%

0.29%

0.49%

1.56%

3.00%

2.76%

,(0.08%)

.. *1.22%

. 4.06%

.,. Expected Real Rate,of Return 4.56%

• 0.29%

0.49%

1.56%

3.00%

2.76%

(0.08%)

1.22%

4.06%

Changes.in the NOA or NOL. The following table shows the changes in NOA or NOL*recognized over the year ended December 31, 2023:

Increase (Decrease)

NetOPEB Total OPEB Plan Fiduciary Net (Asset) Liability Liability (a)

Position (b)

(a) - (b)

(thousands of dollars)

• Balances at January 1, 2023.

380 464 373,711

.* 6,753

• Changes recognized for the measurement period:

• Serviqe cost 8,303 8,303 Intere_st

.. '{,'

22,126. 22,126 Changes in assumptions (5,263) (5,263)

Differences between expected and actual experience 17,036 17,036

'Contributions - employer 9,096 9,096

• Net investment income 14,632 14,632 Benefit payments (24,967)

(24,967) Administrative expense (107)

(107)

• Net changes

.* I; 17 235

-.(1,346) 18 581 Balances at Decem her 3 I, 2023 321622 372,365 25,334 J'.he following table shows the.changes in NOA or NOL recognized over the year ended December 31, 2022:

Balances at January 1, 2022 Changes recognized fof the

measurement period: ;

Service cost Interest

';_ * ' Changes in assumptions :

• Differences between expected ~nd actual experience Contributions - employer Net investment income Benefit payments,

Administrative expense Net changes Balances at December 31, 2022 Total OPEB Liability (a) 392,519 8,744 22,728 (7,127)

(12,231) (24,169) (12,055) 380,464 68

• 1* *: !

Increase (Decrease)* i !;

• __,.Net.OPEB Plan Fiduciary: Net,,: :, :/(Asset). Liability Position.(b)- 1.-_

q,.

• 1(a).1-c:(b)

(thousands of dollars) 450,051

(.57,532) :8,744 22,728 (7,127) * (12,231) 860 (860)

(52,917) *

,52,917

, ~24,169). :.,:.. (l-14) 114 (76,340) 64 285 373,711 6,753

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 bl! if it were calculated using a discount rate that is I percentage-point lower or I percentage-point higher than the current discount rate:

1% Decrease Current Discount 1% Increase (5.02%)

Rate (6.02%)

(7.02%)

(thousands of dollars)

NOL/(NOA), December 31, 2023 73,469 25,334

( 14,929) 1% Decrease Current Discount 1% Increase (4.88%)

Rate (5.88%)

(6.88%)

(thousands of dollars)

NOL/(NOA), December 3 I, 2022 52,612 6,753 (3 1,557)

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 c4rrent 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 I percentage-point higher than the current healthcare trend rate (see assumptions above for healthcare trend rate):

(NOA)/ NOL, December 31, 2023 (NOA)/ NOL, December 3 I, 2022 1% Decrease

( 19,159)

(35,780)

Current Healthcare Trend Rate (thousands of dollars) 25,334 6,753 I% Increase 79,674 J $

58,812 OPEB Plan Fiduciary Net Position. Detailed information about the OPEB Plan's fiduciary net position is available in the separately issued Ol?-EB 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, 2023 and 2022, SMUD recognized OPEB expense of $9.1 million and $31.6 million, respectively.

69

• AtDecember 31, 2023-and12022, SMUD reported deferred outflows:'ofresources and deferred inflows ofresoiirces related 'to

- OPEB from the'followirig sources:

I '

i Deferr°ed outflows of refources*:

Changes of assumptions Differences between *projected and actual earnings on OPEB plan investments Employer's contributions to the OPEB Plan subsequent to the measurement of total OPEB liability

Total deferred outflows ofresources Deferred inflows of resmfrces:

Changes of assumptions Differences betweeri,,exp*ected*and abtual experience*

-Differences between projected and actual earnings on OPEB plan investments Total deferred inflows of resources

' *

• December 31 *, **

2023 2022 (thousands of dollars) 19,382 31;335 11 988 62.705 8,919 32,477 12 278 53.674 8,224 11,428 29,894 38,410 38.118

==$==*=4==9=8=3==8 Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be subject to regulatory accounting as follows'(see Note 8):

Year 'ended Dedember 3 l:

'2024'

• 2025 2026

• • • '2027

• 2028 Thereafter NOTE 16. INSURANCE PROGRAMS AND CLAIMS

,f;.

' *(1;526)" *

.,/'

• ::,_;:.! ' {2;150)": * *), 'i *

• 13,660

,;1<<:',,;:*,.

l '* *65Jh' j *;:,f< :*t

( *:,*.,

.,< 1;~62' *.*>II,'

,, \\'

SMUD is exposed to various risks of loss related to torts, theft of and destruction to assets, errors and omissions, cyber activities, natural disasters, 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 limits are $140.0 million, excess of a $5.0 million self-insured retention. As of December 31, 2023, wildfire liability limits are $275.0 million ($212.5 million commercial insurance plus $62.5 million self-insured retention). SMUD's property insurance coverage is based on the replacement value of the asset. There have been no significant reductions in insurance coverage. In 2023, 2022, and 2021, the insurance policies in effect have adequately covered all settlements of the claims against SMUD. No claims have exceeded the limits ofprqperty or liability insurance in any of the past three years. In 2022, SMUD filed a property claim for both equipment damage and business interruption insurance for the Cosumnes Power Plant outage. SMUD received $13.6 million for the equipment damage claim in 2023 and a $50.0 million advance on the business interruption portion of that claim in 2022. The equipment damage portion of the claim has been settled, and business interruption was partially settled and is anticipated to be fully settled in 2024.

The claims liability is included as a component of Self Insurance and Other in the Statements ofN et Position.

70

SMUD's total claims liability, comprising claims received and claims incurred but not reported, at December 31, 2023, 2022 and 2021 is presented below:

Workers' compensation claims' General and auto 'claims Short and long-term disability claims Claims liability 2023 6,926 3,474 68 10 468 2022 2021 (thousands of dollars) 7,554

'8,666 3,178 3,596 58 47 10,790 12,309 Changes in SMUDs total claims liability during 2023, 2022'and 2021 are presente'd'below:*

Claims liability, beginning of year Add: provision *for claims, current year *

(Decrease) increase in pfovisiortfoh::laims in prio'ryears Less: payments on claims attributable to

• current and prior years Claims'liability; end ofyear -,i NOTE117.:COMMITMENTS *1 10,790 2,635 1,752 (4,709)

• 2022 (thousands ofdollai:sJ

• 12;309 - * $

1,556 1,826 '

... 2021, 13,024 1,450

• (122)

(4,901)

(2,043)

• 10;468'* -*,$'

i.<(*l0,790L,

!'!=$'=**;=: =*=='*l.,.1"",3="0'69

.. *":1 Electric Power and Gas Supply Purchase Agreements. SMUD has numerous power purchase agreements with other po"1~r producers to purchase capacity, transmission, and associated energy to supply a portion of its load requirements. SMUD has minimum take-or-pay c9~m}trnf:rits,for c::neygy on,so~e contraqts.. SMU,D µas numen;m~)ong-term,m;tural gas supply,,gas'.:

transportation and gas storage agi:,y~ments:_with Can.adian and U,S. compt1nies to ~upply..a portion of the ?onsµmptio1,1 nl'!eds.Clf SMUD's natural gas-;fired power, plants,, :; *:

H I.

• ~

At December 31, 2023, the approximate minimum obligations for the "take-or-pay" contracts over the next five years are as follows:.

2024 2025 2026 2027 2028 71 Electric Gas (thousa,nds of dollars) 40,409:

9,985 32,283 9,610 38,409 8,191 104,479 7,731 10,4,~26

..7,839

At December 31, 2023, the approximate minimum obligations for the remaining contracts, assumin_g the ep.ergy 9r gas.is delivered over the next five years, are as follows:

2024 2025 2026 2027 2028 Electric Gas (thousands of dollars) 2~4!06_4, 118,258 292,563.

95,330

.. 2,97,241 98,606 221,482

. 95,014 222,918 91,503 Contractual Commitments beyond 20,28 - Electricity. Several of SMUD's purchasy power an,q transmission contracts extend beyond the five-year summary presented above. These contracts expire between 2029 and 2057 and provide for power under various terms and conditions. SMUD estimates its annual minimum commitments under the take-or-pay contracts ranges between $105.8 million in 2029 and $2.8 million in 2057. SMUD estimates its annual minimum commitments under the remaining contfac~, assuming th!') energy is delivered, ranges between $223.7 million in 2029 and $8.3 million in 2053.

, _:The Base Resource,con~act enables SMUD to receive a percentage of the amount of energy made available by_We~tern,,after

• m~eting Central Valley Project use requirements, in any given year at a percent share of~h~ir.r~venue requir~mei;it; and SMUD has contracted for additional base resource power with no commitment until ~all,e~*upon.,.,SMUD'~ largest purch!}Se power source (in vol11me) is the Country Acres contract, where SMUD has contracted ownership of344MW's.ofSolar J?V generation and 172 MW's battery energy storage capacity. The Country Acres contract ~xpires on December 31, 2057.

• . Contractual Commitments_ beyond,2028,..

  :,Gas'.. Several.ofSMUD's natural gas supply, gas transportatipn _and gas,stor~ge contracts extend beyond the five-year summary presented above. These contracts expire between 2029 and 2049 and provide for transportation and storage under various terms and conditions. SMUD estimates its annual minimum commitments under the take-or-pay contracts ranges between $7.9 million in 2029 and $1.1 million in 2049. SMBD estiriiates,itsannualminimum commitments under the remaining contracts, assuming the gas is delivered, ranges between $89.7 million in 2029 and $10.1

'inillioniii-'2049.,.

,.. _--y, Electric r*ower Price Swap Agre~ments. SMUD has entered into multiple variable to* fixed i-ate* swap with a notional amount totaling 242,950 megawatt hours (MWli) for the purpose of fixing the rate on SMUD's ele'ctric:power purchases. This electric power price swap agreement results in SMUD paying fixed rates ranging from $38.75 to $16Fper MWh. The swap agreements expire between January and October 2024.

Gas Price Swap Agreements. SMUD has entered into numerous variable to fixed rate swaps with notional amounts totaling 123;527,500 Dths for the p'urpose of fixing the rate on SMUD's natural gas purchases for its gas-fueled power plants and gas indexed' electric ceihtracts. These gas price swap agreements result in SMUD paying fixed rates ranging from $2.210 to $6.431 per Dth. The sw~p-agreements ~xpire periodically from January 2024 through December 2026.

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

companies to transport' natural gas to SMUD's natural gas-fired power plants from the supply basins in the North to the C~lifornia-Oregon border and from supply basins in the southwest and Rocky Mountains to the Southern California border.

These gas transport capacity agreements provide for the delivery of gas _into SMUD-owned pipeline capacity within California.

The gas transport capacity agreements provide SMUD with 48,199 Dth per day (Dth/d) of natural gas pipeline capacity from the North and 39,710 Dth/d from the Southwest or Rocky Mountain Basins through at least 2028.

Gas Storage Agreements. SMUD also has an agreement for the storage ofup to 2.0 million Dth of natural gas at regional facilities through March 2029.

Hydro License Agreements. SMUD has a hydro license for a term of50 years effective July 1, 2014 (see Note 2). SMUD entered into four contracts with government agencies whereby SMUD makes annual payments to them for various services for 72

the term of the license. Each contract is adjusted annually by an inflation index. The present value of the sum *bf the annua.I' payments is $62:7 million at Decem?er 31, ~023.

. : ' > *~~:*

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, 2023, the not-to-exceed price for these contracts totaled $235.8 million. The remaining contract obligations for these contracts as of December 31, 2023 was $48.9 million.

NOTE 18. CLAUMS AND CONTINGENCIES FERC Administrative Proceedings. SMUD is involved in a number ofFERC administrative proceedings related to the operation of wholesale energy markets, transmission matters, 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 (CAJSO) (or other market participants) to adopt/modify the CAI SO Tariff and/or establish market design and behavior rules; (ii) filings initiated by existing transmission owners (i.e.,

PG&E and the other Investor Owned Utilities) to pass through costs to their existing wholesale transmission customers; (iii) filings initiated by FERC on market participants to establish market design and behavior rules or to complain 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 and interconnection agreements; (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.

CPUC Administrative Proceedings. SMUD monitors a number ofCPUC proceedings. These proceedings generally fall into the following categories: (i) filings initiated by PG&E to adopt/modify its tariffs and/or rules; (ii) rulemakings initiated by the CPUC to establish market design and behavior rules or program rules affecting SMUD customers; and (iii) rulemakings initiated by the CPUC to establish electric and/or gas system safety design and maintenance rules. SMUD believes that determinations of these CPUC proceedings will n9t 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.

Proposition 26 Lawsuit. In October 2019, two SMUD customers filed a complaint alleging SMUD's immediately prior rate increase was unconstitutional. In January 2024, the lawsuit was dismissed with prejudice due to their failure to diligently prosecute the case, though they have since filed another, similar complaint, which challenges SMUD's rate increases for 2024 and 2025. SMUD considers the lawsuit to be wholly without merit.

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 ofoperations.

73

NOTE 19. SUBSEQUENT EVl!;NTS

. I.

SMUD evaluated subsequent events through February 23, 2024, the date that the financial statements were available to be issued, for even{s requiring re9ording or discl9sure in the financial.statements.

)

. /(

l*.*

,1 t" *I, I_

• /*

I 74

Required Supplementary Information;:- Unaudited For the Years Ended December 31, 2023!and 2022 75

Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period-PERS Plan December 31, 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 (thousands of dollars)

Total pension liability:

Service cost 42,960 41,885 38,900 38,901 38,061 36,029 35,040 29,044 27,991 28,170 Interest 176,370 167,926 168,984 164,044 157,976 151,354 150,119 147,497 142,468 137,546 Changes of assumptions 1,890 26;1:75 (61,585) 123,043

• • (34,228) Differences between expected and actual experience 53,599 (31,370)

{5,875) 9,981 18,877 1,293 f29,276)

(8,357)

(10,613) Benefit payments, including refunds of employee contnbutions (149,331)

!J37,603)

(130,376)

(125,581)

(117,5481 (lll,763) 904,4281 (99,15~

(94,636)

(90,17~

Net change in total pension liability 125,488 67,113 71,633 87,345 97,366 15,328 174,498 69,029 30,982 75,541 Total pension liability, beginning of year 2,553,780 2,486,667 2,415,034 2,327,689 2,230~23 2,214,995 2,040,497 1,971,468 1,940,486 1,864,945 Total pension liability, end of year (a)

$ 2,679,268

$ 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:

Contnbutions - employer 92,504 Il4,476 229,440 98,344 69,ll9 90,141 32,389 27,645 22,499 21,511 Contnbutions - employee 19,921 18,096 17,552 18,095 17,4ll 16,832 15,845 15,271 14,503 15,346 Net investment income 140,540 (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 (149,331)

(137,603)

(130,376)

(125,581)

(117,548)

(111,763)

,,(104,428)

(99,155)

(94,636)

(90,175)

....J Administrative expense (1,705)

(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 101,929 (196,076) 569,191 80,764 83,583 126,471 113,127 (48,858)

(23,657) 190,313 Plan fiduciary net position, beginning of year

~318,329 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 Plan fiduciary net po~ition, end of year (b)

$ 2,420,258

$ 2,318,329

$ 2,514,405

$ 1,945,214

$ 1,864,450

$ 1,780,867

$ 1,654,396

$ 1,541,269

$ 1,590,127

$ 1,613,784 Net pension liability/(asset), ending (a)- (b) 259,010 235,451 (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 90.3%

90.8%

IOI.I%

80.5%

80.1%

79.8%

74.7%

75.5%

80.7%

83.2%

liability Covered payroll 265,184 256,965 257,613 254,756 247,759

$* 235,902 223,685 207,119 197,481 191,439 Net pension liability/(asset) as a percentage of covered payroll 97.7%

91.6%

-10.8%

184.4%

187.0%

190.5%

250.6%

241.0%

193.1%

170.7%

Notes to Schedule:

Changes of Benefit Tenns: The figures above generally include any liability impact that may have resulted from voluntary benefit changes that occurred on or before the Measurement Date. However, offers ofTwo Years Additional Service Q-edit (a.k.a. Golden Handshakes) that occurred after the Valuation Date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary.

In 2022, SB 1168 increased the standard retiree lump sum death benefit from $500 to $2,000 for any death occurring on or after July 1, 2023. The impact, if any, is included in the changes of benefit tenns.

Changes in Assumptions: There were no assumption changes in 2023. Effective with the June 30, 2021 valuation date (June 30, 2022 measurement date), the accounting discount rate was reduced from 7.15% to 6.90%. In detennining the Jong-term expected rate ofretum, CalPERS took into account long-term market return expectations as well as the expected pension fund cash flows. In addition, demographic assumptions and the price.inflation assumption were changed in accordance with the 2021 CalPERS F.xperience Study and Review of Actuarial Assumptions. The accounting discount rate was 7.15% for measurement dates June 30, 2017 through June 30, 2021, 7.65% for measurement dates June 30, 2015 through June 30, 2016, and 7.50% for measurement date June 30, 2014.

Schedule of Pl~n Contributions for Pensio~ - PERS Pla1/

.),:..*

December 31.

2023

~

2021 2020 2019 2018 21117 2016

~

20_14_

(t~ou!~~ds or~~lln~) _

Actuarially dCLfnnincd conlribution.-

45.171 44.599

~4:Jl5c, $

52.276*

$ - 49;119 * $

4Qi42

$, 3z.jg9 27.645

$,,.'22.499-'

21.511 Contnbulions in relation to lhc actu11rially dctcmtincd contribution (92.504) ~

(229.440)

(98344)

(69.119)

(90542)'

(32,389) * * ' 1 iz?.645) ~,

l (21.511)

Contnbution c11&css s

147333).J....m ~

s 146.1168) ~

~

_s ____

,1-..!..........;! ~

_s __

._o.

Covered payroll 265.184 256.965 257,613 254.756' 247.759 235.902 223.(.85 207.119 197.481 191,439 Contributions ns n percentage ofco,*cred payroU 34.9%*

44.5%

89.1%

38.6%

27.~Y.

38.2%

14.5%

13.4%

11.4%

11.2%

Notes to Schedule....-

The actuarial methods and*ass'~mptions used to set the actuarially determined contributions for the year,en4ed D~ceinber. 31, 2023 was derived from the Ju~e 30, 2020fonding valuation r_eport

• Actuarial cost method Amortization methb\\lfperiod Asset valuation method

, *i' Inflation*

Salary increases Payroll, grow~,h Investment rate of return

':~( :,.

Retirement age' Mortality Entry age Actuarial Cost Method For details, see June 30, 2020 Funding Valuation Report*,

Fair value of assets. For details, see June 30, 2020 Funding-Valuation

.,,.' Report

... i'i**, '

• 2.50%

.. Varies by* entry age and service

'2.75%

':,* t *.-

7.00% Ne::~ of pension plan, fnye~,troe~~ and !l4~inistrafiye e_xpenses;.

includes inflation The probabilities of retirement are based on the 2017 Ca!PERS

• ' Experience Study for the period from 1997.to 2015,,.,

• 1 The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and post-retirement mortality rates include 15 years of projected mortality' improvement using 90% ofSe_ijle MP-2016 publislied.by the Society,.of Actuaries.

In 2021, the investment rate of return was changed from 7.25% to 7.00%.- In 2020, -the investment rate of return was 7.25%.

• Prior to 2020, the probabilities ofa:nortality. are based on the 2014 PERS Experience Sttidy for the.period from 1997 to*2011.. ;

Pre-retirement and post-retirement mortality rates include 20,yeats of projected mortality improvement using Scale BB*_

published by the Society of.Actuaries, Prior*to 2017.,--the retirement age and mortality assumptions were based on. the 20 IO*

PERS Experience Stu;dy 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.

77

Schedule of Changes in Net OPEB Asset or Liability and_~~lated Ratios

• ouring 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 IO years data which will then be updated each year going forward.

December 31, 2023 2022 2021 2020 2019 2018 2017 (thousands of dollars)

Total OPEB liability:

Service cost 8,303 8,744 8,426 8,903 8,946 9,263 8,993 Interest on total OPEB liability 22,126 22,728 25,008 26,653 26,766 29.656 28,676 Changes of assumptions 17,036 (7,127) 5,895 (11,453) 15,332 3,105 Differences between expected and actual experience (5,263)

(12,231)

(18,938)

(23,529)

(6,885) ; *

(59,921)

.Q.

Ben~fit payments (24,962)

(24,169)

(24,081)

(23,848)

(24,521)

(24,672)

(22,192)

Net change 01 iota! OPEB liability * *

• 17,235-(12,055)

(3,690)

(23;274) :,

19,638 (42,569) 15,477 Total OPEB liability, beginning of year 380,464, 392,519

,,396,209 419,483.

399,845

• 442,414 426,937 Total OPEB liability, end of year (a) 397,699 380,464 392,519 396,209 419,483 399,845 442,414 Plan fiduciary net position:

Contributions

• employ~r,_

9,096

. 860 818 13,299 13,~63_

34,243 114,573 Net investment income 14,632 (52,917) 76,479 20,447 20,132 27,295

• 24,104 Benefit payments.

(24.967)

,(24,169)

(24,081)

(23,848)

(24,52J)

(24,672)

(22,192)

Administrative expense (102)

. (114)

(144)

(191)

(81)

(635)

(123)

Net change in plan fiduciary net position (1,346)

(76,340) 53,072 9,707 9,493 36,231 116,362 Plan fiduciary net position, beginning of year 373,711

• 450,051 396,979 387,272 3n,119 341.548 225,186 Plan fiduciary net position, end ofyear(b) i).:

372,365 37$,711 450,051 396,979 387,272 377,779

.341,548 Net OPEB (asset) or liability, ending (a)- (b) 25,334

'$.', '. 6,753 (57,532)

(770) 32,211

• 22,066' 100,866 Plan fiduciary n~t -p~~iiion ~. -~ ;Ji:rc~~t.,ie Ji,h~ ;~,;.i 6PEB lliib~ 1 *

• 98.2%

92.3%

J *'.

93.6%

114.7%

100.2%

94.5%

77.2%

! ' '1; ~ : ~ :. '

Covered payroll '

$, 345,500,

~,301,746 289,014 287,001 282,993

$,. 26~,753 252,211 Net OPEB (asset) or liability as a pen:ei>.fage of covered payroll 7.3%

"' 22%

-19.9%

-0.3%

11.4%

8.2%

40.0%

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

• Changes in Assumptions: In 2023, the healthcare trends were updated. In 2022, the long-term rate ofreturn for Strategy 3 was updated,based on *~ewer target asset allocation; the discount rate was updated based on crossover test, the demographic assumptions were updated to Ca!PERS 2000~:2019 Experience Study, and the*mortalityimprovement scale was updated to Scale MP-2021. In 2021; the discount rate was updated due to weighting of Strategy 1 and Strategy,3 and updated capital market assumptions;=the mortality improvement scale was updated to Scale MP-2020, the inflation rate was changed-to 2.'5% and the implied* subsidy was removed for Medicare Advantage Plans. fa 2020, the discount-rate reflected the,split of assets between Strategy 1 and Strategy 3, the mortality improvement-scale was updated to Scale MPs2019, and the* Kaiser Medicare trend rates were updated.

78

Schedule of Plan Contributions for OPEB OPEB Plan. The schedule ofOPEB contributions is presented below for the years for which SMUD has available data. SMUD will add to this schedule each year and when it reaches 10 years it will contain the last 10 years data which will then be updated each year going forward.

December 31, 2023 2022 2021 2020 2019 2018 2017 (thousands of dollars)

Actuarially determined contribution 8,566 5,425 8,661 12,201 10,710 15,366 16,472 Contributions in relation to the actuarially determined contribution (8,806)

(1,157)

(853)

(13,233)

(13,155)

(35,128)

(I 16,181)

Contribution deficiency (excess)

(240) 4,268 7,808 (1,032)

F.445)

(19,762)

~99,709)

Covered payroll 342,236 318,094 285,425 289,552 286,835 277,193 260,210 Contributions as a percentage of covered payroll 2.6%

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, 2023 were derived from the June 30, 2023 funding valuation report.

Actuarial cost method Amortization method Amortization period Asset valuation method Discount rate Inflation Medical trend Mortality Mortality improvement Entry age normal Level percent of pay 23-year fixed period for 2023 Market value of assets 6.25% for all actives and retirements after 6/30/2018, 5.25% for all retirements before 6/30/2018 2.50%

Non-Medicare: 6.5% for 2024, decreasing to an ultimate rate of3.75% in 2076 Medicare (Non-Kaiser): 5.45% for 2024, decreasing to an ultimate rate of 3.75% in 2076 Medicare (Kaiser): 4.45% for 2024, decreasing to an ultimate rate of 3.75% in 2076 CalPERS 2000-2019 experience study Post-retirement mortality projected fully generational with Scale MP-21 In 2023, the amortization period was for a 23-year fixed pe_riod. Mortality assumption used PERS 2000-2019 experience study.

The mortality improvement projected fully generational with Scale MP-21. 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.

79