20220118City Council Supplemental Agenda ReportCity Council Agenda Item Report
Submitted by: Jessica Alcaraz
Submitting Department: Finance/Treasury
Meeting Date: January 18, 2022
SUBJECT
Fiscal Year 2020-2021 Electric Fund Audited Financial Results - SUPPLEMENTAL
Recommendation:
A. Receive presentation on audited Electric Fund financial results for Fiscal Year 2020-2021;
and
B. Receive and file Fiscal Year 2020-2021 Electric Fund Annual Financial Report.
Background:
Attached is the City of Vernon Electric Fund Financial Statements and Supplementary
information - Year Ended June 30, 2021.
Fiscal Impact:
There is no fiscal impact associated with this report.
Attachments:
1. Electric Fund Financial Statements FY 2021
CITY OF VERNON
ELECTRIC FUND
(AN ENTERPRISE FUND OF THE
CITY OF VERNON)
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2021
CITY OF VERNON
ELECTRIC FUND
TABLE OF CONTENTS
YEAR ENDED JUNE 30, 2021
INTRODUCTORY SECTION
A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC
UTILITIES i
FY 2020-2021 VERNON PUBLIC UTILITIES AT A GLANCE ii
MAJOR INITIATIVES AND ACCOMPLISHMENTS ii
FINANCIAL SECTION
INDEPENDENT AUDITORS’ REPORT 1
MANAGEMENTS’ DISCUSSION AND ANALYSIS (Required Supplementary
Information – Unaudited) 4
BASIC FINANCIAL STATEMENTS
STATEMENT OF NET POSITION 11
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET
POSITION 13
STATEMENT OF CASH FLOWS 14
NOTES TO FINANCIAL STATEMENTS 16
REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION
LIABILITY – CITY’S MISCELLANEOUS AND SAFETY COST SHARING
PLAN 49
SCHEDULE OF PLAN CONTRIBUTIONS – CITY’S MISCELLANEOUS AND
SAFETY COST SHARING PLAN 50
SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY 51
SCHEDULE OF OPEB CONTRIBUTIONS 52
INTRODUCTORY SECTION
(i)
VPU Electric Division
Introduction
A message from Abraham Alemu, General Manager of Vernon Public Utilities
While the past couple of years have presented historic challenges on a global scale, the City of Vernon and
Vernon Public Utilities (VPU) have exhibited strength and resilience by continuing to provide safe, reliable and
affordable services during the challenges caused by the COVID-19 pandemic. VPU seamlessly provided the
electric, water, gas and fiber utilities to its residents and business community who are vital in manufacturing and
distributing goods throughout the region. Recently, VPU established an impressive goal of providing the lowest
electric rates in the State of California by 2030 in order to support customer competitiveness and enable
community businesses to thrive as the economic engine in Southeast Los Angeles.
In the past year, VPU has continued to complete major infrastructure upgrade projects to meet the increasing
needs of its business and industrial community – many of whom manufacture essential goods and products
throughout the United States, such as cold storage, food packaging and steel production. These necessary
enhancements to the VPU infrastructure foster improvement projects, which increased reliability and help the
utility to meet system adequacy requirements, including substation equipment upgrades, automated metering,
voltage upgrades, and proactive utility pole replacement and financing initiatives. In addition, the electric
infrastructure upgrades support the utility’s Water Division Capital Improvement Projects (CIPs) aimed at
creating sustainable water affordability and independence for Vernon residential and business customers. During
the past year, the Department was able to drastically reduce its need to purchase water from imported sources and
is serving water from the City’s groundwater sources, which results in significant cost savings for the utility and
to its customers.
As VPU enters its third year of a 4-year voter-approved electric rate increase, the utility will continue to use this
funding to promote programs and projects that will support increased reliability, resilience, and low rates. VPU
will also consider and analyze new technologies in an evolving energy landscape to bring renewable,
environmentally conscious programs to businesses and residents. Moving forward, VPU has wide-scale
transportation electrification plans to help advance customer adoption and play a role in the utility’s long-term
energy resources planning and deployment of green offerings.
VPU is well-positioned to maintain a strong financial performance into the long-term future and has made notable
strides towards achieving and exceeding its Renewable Portfolio Standard (RPS) and greenhouse gas (GHG)
reduction goals. VPU is actively considering a Solar plus Energy Storage Purchase Power Agreement (PPA),
which will be the largest PPA in its portfolio. Additionally, the City recently re-acquired the Malburg Generating
Station, a 134-megawatt natural gas-fired, combined-cycle facility. With this resource back within the utility’s
ownership and operation, VPU now has the control and capability to reduce ongoing operating costs and address
the City’s long-term needs for local power generation. Both projects play a critical role in achieving the long-term
goals established in Integrated Resource Plan (IRP).
As part of the repurchase, the utility’s electric financial ratings were reassessed by Moody’s and S&P. VPU
received an upgraded credit rating from Moody’s and both agencies gave VPU a stable/positive outlook. This
rating upgrade is a testament, among other factors, to the utility’s commitment to foster strong management
fundamentals and maintain fiscal strength.
(ii)
FY 2020‐2021 Vernon Public Utilities At‐A‐Glance
ELECTRIC
Service area 5 square miles
Service meters 2,011 meters
Number of poles 4,144
Number of substations 8
Peak load 191.37 MW (August 2020)
Major Initiatives and Accomplishments
Department Wide
Earned the American Public Power Association (APPA) RP3 Diamond Level Recognition of Operational
Excellence in the key areas of Reliability, Safety, Workforce Development, System Improvement
Served as an elected Board Member on the California Utilities Emergency Association Board of Directors
Annual benchmarking study ranks VPU electric reliability top 10% nationwide
Secured Electric System Revenue Bonds at low rates to fund Capital Improvement Projects and to refund
existing outstanding bonds
Successful implementation of a Utility Operations Trainee program, which ensures robust cross-training
and a strong succession plan.
Electric Division
Completed replacement of the 7kV Leonis Substation Number 3 Bank, which has been in service from
1957, to 16kV Substation Distribution Transformer.
Completed replacement of the Leonis Substation Number 4 Bank transformer, which in service since the
1960’s.
Completed replacement of Vernon Substation #1 Bank 6.9kV circuit breaker and #7 aux bank 480v
circuit breaker.
Work in progress for 16kV re-configuration with balanced load and 4 new circuits
Work in progress for 7kV to 16kV Conversion
Established 9-year Electric Meter Replacement Program and have made a significant advancement to
meet department goals.
Resource Division
Vernon Power Plant’s maximum output was increased from 134MW to 139MW
Completed agreements with 3 new gas counterparties
Sold excess capacity rights at Mead-Adelanto Transmission Line
(iii)
Major Initiatives and Accomplishments (Continued)
Customer Service
Placed a moratorium on late fees, halted disconnections, and helped customers with outstanding balances
as part of COVID-19 relief program for customers.
Working towards integrating a new CIS billing system that will provide automation to several manual
processes and connectivity to the City’s financial system
Compliance
Served in APPA’s Reliable Public Power Provider grading panel
Reliability Metrics benchmarked among the highest in the country in 2020
o System Average Interruption Duration Index (SAIDI) in the top quartile across the US (38 min v.
101 min)
System Average Interruption Frequency Index (SAIFI in the second quartile in the US (0.71 vs 1.03)
o Customer Average Interruption Frequency Index (CAIDI) in the top decile across the US (54 min
vs 105 min)
Developed an Electric Physical Security Plan approved by Vernon Police Department and adopted by
City Council in alignment with California Public Utilities Commission Decision 19-01-018.
Completed Risk and Resilience Assessment of the Water Division in compliance with the US
Environmental Protection Agency’s America’s Water Infrastructure Act of 2018.
Updated VPU’s Emergency Response Plan.
Performed an internal reliability assessment of the electric utility using the American Public Power
Association’s Reliable Public Power Provider program in the key areas of safety, reliability, workforce
development, and system improvement.
Implemented a Compliance Management Software for utility-wide compliance deadlines
Successfully advocated for proposed rule amendments with the South Coast Air Quality Management
District.
In conjunction with the Publics Works department, developed a 4-year City-wide Heavy Duty Vehicle
Replacement Program
FINANCIAL SECTION
CLA is an independent member of Nexia International, a leading, global network of independent
accounting and consulting firms. See nexia.com/member‐firm‐disclaimer for details.
CliftonLarsonAllen LLP
CLAconnect.com
(1)
INDEPENDENT AUDITORS’ REPORT
Honorable Mayor and the Members of the City Council
City of Vernon, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Electric Fund of the City of Vernon
(Electric Fund), an enterprise fund of the City of Vernon, California (City), which comprise the statement
of net position as of June 30, 2021, and the related statements of revenues, expenses, and changes in
net position and cash flows for the year then ended, and the related notes to the financial statements,
which collectively comprise the Electric Fund’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Honorable Mayor and the Members of the City Council
City of Vernon, California
(2)
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the Electric Fund of the City of Vernon, California, as of June 30, 2021,
and the changes in its financial position and cash flows for the year then ended in accordance with
accounting principles generally accepted in the United States of America.
Other Matter
As discussed in Note 1 to the financial statements, the financial statements present only the Electric
Fund of the City of Vernon, California and do not purport to, and do not, present fairly the financial
position of the City of Vernon, California as of June 30, 2021, and the changes in its financial position
and its cash flows for the year then ended in accordance with accounting principles generally accepted
in the United States of America. Our opinion is not modified with respect to this matter.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management’s discussion and analysis, schedule of proportionate share of the City’s net pension
liability, schedule of plan contributions, schedule of proportionate share of the City’s net OPEB liability,
and schedule of OPEB contributions, identified as Required Supplementary Information (RSI) in the
accompanying table of contents, be presented to supplement the basic financial statements. Such
information, although not a part of the basic financial statements, is required by the Governmental
Accounting Standards Board who considers it to be an essential part of financial reporting for placing
the basic financial statements in an appropriate operational, economic, or historical context. We have
applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of inquiries of
management about the methods of preparing the information and comparing the information for
consistency with management’s responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an
opinion or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Electric Fund’s financial statements. The introduction section and
supplementary information consisting of combining statements are presented for purposes of additional
analysis and are not a required part of the basic financial statements. The supplementary information is
the responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audit of the basic financial statements and
certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the basic financial statements or to the basic
financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the supplementary information is
fairly stated in all material respects in relation to the basic financial statements as a whole.
The introduction section has not been subjected to the auditing procedures applied in the audit of the
basic financial statements and, accordingly, we do not express an opinion or provide any assurance on
them.
(3)
Honorable Mayor and the Members of the City Council
City of Vernon, California
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated January
14, 2022, on our consideration of the Electric Fund’s internal control over the financial reporting and
on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements and other matters. The purpose of that report is solely to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing, and
not to provide an opinion on the effectiveness of the Electric Fund’s internal control over
financial reporting or on compliance. That report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the Electric Fund’s internal
control over financial reporting and compliance.
CliftonLarsonAllen LLP
Irvine, California
January 14, 2022
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(4)
The management of the Electric Fund of the City of Vernon (“the City”), offers the following overview
and analysis of the basic financial statements of the Electric Fund for the fiscal year ended June 30,
2021. Management encourages readers to utilize information in the Management’s Discussion and
Analysis (MD&A) in conjunction with the accompanying basic financial statements.
OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to the Electric Fund’s basic financial statements.
Included as part of the financial statements are three separate statements.
The statement of fund net position presents information on the Electric Fund’s total assets and
deferred outflows of resources and total liabilities and deferred inflows of resources, with the difference
between the two reported as net position.
The statement of revenues, expenses, and changes in fund net position presents information showing
how the Electric Fund's net position changed during the most recent fiscal year. Financial results are
recorded using the accrual basis of accounting. Under this method, all changes in net position are
reported as soon as the underlying events occur, regardless of the timing of cash flows. Thus,
revenues and expenses reported in this statement for some items may affect cash flows in a future
fiscal period (examples include billed but uncollected revenues and employee earned but unused
vacation leave).
The statement of cash flows reports cash receipts, cash payments, and net changes in cash and cash
equivalents from operations, noncapital financing, capital and related financing, and investing
activities.
The notes to the financial statements provide additional information that is essential.
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(5)
FINANCIAL HIGHLIGHTS
Fund Net Position
The table below summarizes the Electric Fund’s net position as of the current fiscal year ended
June 30, 2021, and prior fiscal year ended June 30, 2020. The details of the current year’s summary
can be found on page 12-13 of this report.
2021 2020 Amount %
Assets:
Current and other assets 173,630,753$ 197,703,495$ (24,072,742)$ ‐12%
Restricted assets 45,052,746 51,570,024 (6,517,278) ‐13%
Capital assets 227,240,565 220,443,024 6,797,541 3%
Total assets 445,924,064 469,716,543 (23,792,479) ‐5%
Deferred Outflows of Resources 4,242,285 6,028,850 (1,786,565) ‐30%
Liabilities:
Current liabilities 45,239,583 47,646,364 (2,406,781) ‐5%
Long term liabilities 266,319,231 288,058,733 (21,739,502) ‐8%
Total liabilities 311,558,814 335,705,097 (24,146,283) ‐7%
Deferred Inflows of Resources 8,013,955 11,606,508 (3,592,553) ‐31%
Net Position:
Net investment in capital assets 124,297,278 132,692,564 (8,395,286) ‐6%
Restricted for debt services 23,894,665 23,932,142 (37,477) ‐0.2%
Unrestricted (deficit)(17,598,363) (28,190,918) 10,592,555 ‐38%
Total net position 130,593,580$ 128,433,788$ 2,159,792$ 2%
Change
The assets and deferred outflows of resources of the Electric Fund exceeded its liabilities and deferred
inflows of resources at the close of the most recent fiscal year by $130.6 million (net position).
The category of the Electric Fund’s net position with the largest balance totaling $124.3 million
represents resources that are invested in capital assets, net of the related debt.
The second category restricted for debt services totaling $23.9 million represents resources that are
subject to external restrictions on how they can be used, in this case bond debt.
The remaining category of net position, totaling $(17.6) million represents a deficit in the unrestricted
net position that is expected to be recovered from the Electric Fund’s future revenues.
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(6)
Activities, net position:
Current and other assets decreased by $23.8 million from the prior year mainly due to a
decrease in prepaid natural gas by $25.6 million, offset by the increase in cash and cash
equivalents by $1.2 million.
Restricted assets decreased by $6.5 million from the prior year mainly due to the drawdowns
funding the capital improvement projects.
Capital assets increased by $6.8 million from the prior year mainly due to acquisition of
transformers and switches, substation improvements, converting from 7 to 16 KV voltage and
new customer installs and upgrades totaling $14.8 million, offset by depreciation of $8.2
million.
Deferred outflows of resources decreased by $1.8 million from the prior year due to
amortization of deferred costs of $3.5 million (See Note 6) and increase in deferred
outflows of resources related to pension by $1.7 million (See Note 8).
Current liabilities decreased by $2.4 million from the prior year mainly due to a $4.5 million
decrease in the current portion of bond payable offset by an increase in accounts
payable by $2 million.
Long-term liabilities decreased by $21.7 million from the prior year mainly due to a
decrease of $24.9 million in bonds payable repayment of principal loan for the 2020 Electric
Taxable Series A bonds offset by a $3 million increase in net pension liability updated from
the actuarial estimate.
Deferred inflows of resources decreased by $3.6 million largely due to the decrease in the
deferred gain from the sale of generation assets of $3.7 million from the prior year due to
amortization to capacity expense during the current year.
The unrestricted net deficit increased by $10.6 million from the prior year due primarily to
current year’s change in net position of $2.2 million offset by a decrease in net investment in
capital assets of $8.4 million.
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(7)
Changes in Fund Net Position
The table below summarizes the Electric Fund’s changes in net position over the current and prior
fiscal years. The details of the current year’s changes in net position can be found on page 13 of this
report.
2021 2020 Amount %
Operating Revenues:
Charges for services 184,828,389$ 181,225,309$ 3,603,080$ 2%
Operating Expenses:
Cost of sales 155,820,170 152,554,498 3,265,672 2%
Depreciation and amortization 8,178,971 7,907,184 271,787 3%
Total operating expenses 163,999,141 160,461,682 3,537,459 2%
Operating income 20,829,248 20,763,627 65,621 0%
Nonoperating revenues (expenses):
Investment income 57,190 918,236 (861,046) ‐94%
Net increase in fair value of investments (3,033)2,036 (5,069) ‐249%
Interest expense (18,723,613) (19,222,747) 499,134 ‐3%
Gain (loss) on sale of assets ‐ (424,922) 424,922 ‐100%
Net nonoperating revenues (expenses) (18,669,456) (18,727,397) 57,941 0%
Change in net position 2,159,792 2,036,230 123,562 6%
Net position ‐ beginning of year 128,433,788 126,397,558 2,036,230 2%
Net position ‐ end of year 130,593,580$ 128,433,788$ 2,159,792$ 2%
Change
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(8)
The Electric Fund’s operating income of $20.8 million, less nonoperating expenses of $18.7 million
resulted in an increase in net position by $2.2 million during the current year. The Electric Fund
expects to eliminate the deficit balance in unrestricted net position through future rate increases, cost
reductions, and revenues from renewable energy projects.
The Electric Fund’s activities increased net position by $2.2 million which is $124 thousand higher
than the prior year. The key reason for this change was due to an increase in the cost of sales in the
operating expense by $3.5 million and was offset by an increase in operating revenue by $3.6 million.
Operating Revenues and Expenses
For the Fiscal Years Ended June 30, 2021, and 2020
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(9)
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets
The Electric Fund’s investment in capital assets as of June 30, 2021, amounted to $227.2 million (net of
accumulated depreciation). This investment in capital assets includes land, intangible assets,
construction in progress, building, utility system improvements, and machinery and equipment. The total
increase in the Electric Fund's investment in capital assets for the current fiscal year was $15 million,
offset by the depreciation of $8.2 million. Additional information on the Electric Fund's capital assets can
be found in Note 5 on page 27 of this report.
Outstanding debt
As of June 30, 2021, the following debt remains outstanding:
$38,840,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A
$37,640,000 City of Vernon Electric System Revenue Bonds, 2012 Series A
$35,100,000 City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B
$111,720,000 City of Vernon Electric System Revenue Bonds, 2015 Taxable Series A
$43,335,000 City of Vernon Electric System Revenue Bonds, 2020 Series A
The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide
funds to (i) finance the cost of certain capital improvements to the City’s Electric System, (ii) fund a
deposit to the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds.
The City of Vernon Electric System Revenue Bonds, 2012 Series A were issued to provide funds to pay a
portion of the costs of certain capital improvements to the City’s Electric System, (ii) to provide for
capitalized interest on the 2012 Series A Bonds, and (iii) to pay costs of issuance of the 2012 Series A
Bonds.
The City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B were issued to provide
funds to (i) refund the $28,680,000 aggregate principal amount of 2009 Bonds maturing on August 1,
2012, (ii) to pay a portion of the Costs of the 2012 Project, and (iii) to pay costs of issuance of the 2012
Taxable Series B Bonds.
The City of Vernon Electric System Revenue Bonds, 2015 Taxable Series A were issued to provide
funds to (i) refund a portion of the Outstanding Electric System Revenue Bonds, 2009 Series A; (ii)
finance the costs of certain capital improvements to the City’s Electric System by reimbursing the
Electric System for the prior payment of such costs from the Light and Power Fund; (iii) fund a deposit to
the Debt Service Reserve Fund; and (iv) pay costs of issuance of the 2015 Bonds.
The City of Vernon Electric System Revenue Bonds, 2020 Series A were issued to provide funds to (i)
finance the acquisition and construction of certain capital improvements to the Electric System of the City,
(ii) to refund all of the City’s outstanding Electric System Revenue Bonds, 2009 Series A, and (iii) to pay
costs of issuance of the 2020 Bonds.
As of June 30, 2021, the ratings on all Electric System Revenue Bonds of the City have not changed from
the prior year BBB+ rating by S&P and Baa2 rating by Moody’s.
CITY OF VERNON
ELECTRIC FUND
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2021
(10)
Additional information on the Electric Fund's long-term debt can be found in Note 6 on pages 28-33 of this
report.
ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES
These factors were considered in preparing the Electric Fund’s budget for the 2022 fiscal year.
The City is strictly industrial and does not maintain an unemployment rate study of its small
population. However, the unemployment rate of adjacent communities is currently 10.5%,
which is higher than the State of California's average unemployment rate of 7.7%, and the
national average unemployment rate of 5.9%.
Inflationary trends in the region compare favorably to national indices.
The occupancy rate of the City’s central business district ranges between 96% and 98%.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the Electric Fund's finances for all those
with an interest in the Electric Fund's finances. Questions concerning any of the information provided in this
report or requests for additional financial information should be addressed to the Director of Finance, City of
Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.
CITY OF VERNON
ELECTRIC FUND
STATEMENT OF NET POSITION
JUNE 30, 2021
See accompanying Notes to Financial Statements.
(11)
ASSETS
Current Assets:
Cash and Cash Equivalents 123,485,481$
Accounts Receivable, Net of Allowance of $1,002,790 5,723,729
Accrued Unbilled Revenue 14,521,973
Accrued Interest Receivable 2,321
Due From Other City Funds 593,486
Prepaid Items 16,312
Total Current Assets 144,343,302
Noncurrent Assets:
Restricted Cash and Cash Equivalents 45,052,746
Advances to Other City Funds 27,193,955
Prepaid Items 1,012,402
Deposits 1,081,094
Capital Assets:
Nondepreciable 59,682,155
Depreciable, Net 167,558,410
Total Noncurrent Assets 301,580,762
Total Assets 445,924,064
DEFERRED OUTFLOWS OF RESOURCES
Deferred Outflows Related to Pensions 3,468,111
Deferred Outflows Related to OPEB Liability 481,702
Deferred Amount on Refunding 292,472
Total Deferred Outflows of Resources 4,242,285
CITY OF VERNON
ELECTRIC FUND
STATEMENT OF NET POSITION (CONTINUED)
JUNE 30, 2021
See accompanying Notes to Financial Statements.
(12)
LIABILITIES
Current Liabilities:
Accounts Payable 12,570,395$
Accrued Wages and Benefits 449,380
Customer Deposits 430,597
Bond Interest Payable 6,463,412
Bonds Payable, Net 24,975,000
Compensated Absences 350,799
Total Current Liabilities 45,239,583
Noncurrent Liabilities:
Bonds Payable, Net 246,925,951
Compensated Absences 701,597
Other Postemployment Benefit Liability 2,429,343
Net Pension Liability 16,262,340
Total Noncurrent Liabilities 266,319,231
Total Liabilities 311,558,814
DEFERRED INFLOWS OF RESOURCES
Deferred Inflows Related to Pensions 398,798
Deferred Inflows Related to OPEB Liability 1,059,241
Deferred Gain from Sale of Generation Assets 6,555,916
Total Deferred Inflows of Resources 8,013,955
NET POSITION
Net Investment in Capital Assets 124,297,278
Restricted for Debt Service 23,894,665
Unrestricted (Deficit)(17,598,363)
Total Net Position 130,593,580$
CITY OF VERNON
ELECTRIC FUND
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2021
See accompanying Notes to Financial Statements.
(13)
OPERATING REVENUES
Charges for Services 184,828,389$
Total Operating Revenue 184,828,389
OPERATING EXPENSES
Cost of Sales 155,820,170
Depreciation 8,178,971
Total Operating Expenses 163,999,141
OPERATING INCOME 20,829,248
NONOPERATING REVENUES (EXPENSES)
Investment Income 57,190
Net Decrease in Fair Value of Investments (3,033)
Interest Expense (18,723,613)
Total Nonoperating Revenues (Expenses) (18,669,456)
CHANGE IN NET POSITION 2,159,792
Net Position - Beginning of Year 128,433,788
NET POSITION - END OF YEAR 130,593,580$
CITY OF VERNON
ELECTRIC FUND
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2021
See accompanying Notes to Financial Statements.
(14)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers 184,984,914$
Cash Paid to Suppliers for Goods and Services (122,185,221)
Cash Paid to Employees for Services (3,850,277)
Cash Paid to City for Services (4,781,720)
Net Cash Provided by Operating Activities 54,167,696
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Repayment of Bonds (29,520,000)
Bond Interest Paid (15,208,498)
Net Acquisition of Capital Assets (14,976,512)
Net Cash Used by Capital and Related Financing Activities (59,705,010)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Payment from (Provided to) Other City Funds 185,639
Net Cash Provided by Noncapital Financing Activities 185,639
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Income 55,712
Net Cash Provided by Investing Activities 55,712
CHANGE IN CASH AND CASH EQUIVALENTS (5,295,963)
Cash and Cash Equivalents, Beginning of Year 173,834,190
CASH AND CASH EQUIVALENTS, END OF YEAR 168,538,227$
COMPOSITION OF CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents 123,485,481$
Restricted Cash and Investments 45,052,746
Total 168,538,227$
CITY OF VERNON
ELECTRIC FUND
STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30, 2021
See accompanying Notes to Financial Statements.
(15)
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH
PROVIDED (USED ) BY OPERATING ACTIVITIES
Operating Income 20,829,248$
Adjustments to Reconcile Operating Income
to Net Cash Provided (Used) by Operating Activities:
Depreciation 8,178,971
Change in Operating Assets and Liabilities:
Accounts Receivable (761,728)
Accrued Unbilled Revenue 901,103
Due from Other City Funds (588,100)
Prepaid Expenses and Deposits (90,832)
Prepaid Natural Gas 25,646,420
Deferred Outflows of Resources (1,723,107)
Accounts Payable 1,996,698
Accrued Wages and Benefits 54,690
Due to Other City Funds (2,161)
Customer Deposits 17,150
Compensated Absences 203,182
Other Postemployment Benefit Liability 34,730
Net Pension Liability 3,063,985
Deferred Inflows of Resources (3,592,553)
Net Cash Provided by Operating Activities 54,167,696$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(16)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present only the Electric Enterprise Fund (the
Electric Fund) of the City of Vernon, California (the City), and do not present fairly the
financial position and results of the operations of the City. The Electric Fund accounts for the
independent operations and the maintenance of the City’s electric utility. The Electric Fund
is administered as an independent fiscal and accounting entity with a self-balancing set of
accounts recording resources, related liabilities, obligations, reserves, and equities,
segregated for the purpose of carrying out specific activities or attaining certain objectives in
accordance with special regulations, restrictions or limitations.
For additional information regarding the City of Vernon, refer to the City’s annual financial
report.
The financial statements of the Electric Fund have been prepared in conformity with the U.S.
generally accepted accounting principles (U.S. GAAP). The Governmental Accounting
Standards Board (GASB) is the accepted standard-setting body for establishing
governmental accounting and financial reporting principles. The Electric Fund’s significant
accounting policies are described below.
A. Basis of Presentation
The Electric Fund’s financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting. Revenues are recorded when
earned and expenses are recorded at the time liabilities are incurred, regardless of when
the related cash flows take place.
The Electric Fund distinguishes operating revenues and expenses from nonoperating
items. Operating revenues, such as charges for services, result from exchange
transactions associated with the sale of electricity and gas. Exchange transactions are
those in which each party receives and gives up essentially equal values. Nonoperating
revenues, such as subsidies and investment earnings, result from nonexchange
transactions or ancillary activities. Operating expenses include the cost of sales and
services, administrative expenses and depreciation on capital assets. All expenses not
meeting this definition are reported as nonoperating expenses.
B. Pooled Cash
Part of the Electric Fund’s operating cash balance is pooled with various other City funds
for deposit purposes. The share of each fund in the pooled cash account is recorded in
each of the fund’s books of accounts, and interest income is apportioned to the
participating funds based on the relationship of their average monthly balances to the
total of the pooled cash.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(17)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Electric Fund considers all highly liquid
investments (including restricted cash and investments) with an original maturity of three
months or less when purchased to be cash equivalents. Investment transactions are
recorded on the settlement date. Investments in nonparticipating interest-earning
investment contracts are reported at cost and all other investments are reported at fair
value. Fair value is defined as the amount that the Electric Fund could reasonably
expect to receive for an investment in a current sale between a willing buyer and a seller
and is generally measured by quoted market prices.
D. Receivables/Payables
Short-term City interfund receivables and payables are classified as “due from other City
funds” and “due to other City funds”, respectively, on the statement of net position. Long-
term City interfund receivables and payables are classified as “advances to/from other
City funds,” respectively, on the statement of net position.
Trade receivables are shown net of an allowance for uncollectible accounts. Allowances
for uncollectible were $1,002,790 as of June 30, 2021. The Electric Fund’s customers
are billed monthly. The estimated value of services provided, but unbilled at year-end
has been included in the accompanying statement of net position.
E. Prepaid Items
The City entered into an agreement for the purchase and sale of natural gas in 2006 with
Citigroup Energy Inc. for a specified quantity of gas to be delivered to the Electric Fund
in accordance with the terms of the agreement. As full compensation for the total
contract quantity to be delivered, the City made a prepayment which is amortized over
the life of the agreement based on the monthly contract quantities to be delivered. The
agreement was in effect until May 31, 2021. As of June 30, 2021, the prepayment was
fully amortized.
The City also made a prepayment to Southern California Public Power Authority
(SCPPA) for the City’s share of SCPPA’s payoff of the Hoover Center and Air Slots debt.
This prepaid amount is amortized over the life of the debt based on the annual debt
service obligations. See Note 10 for further information regarding SCPPA.
F. Deposits
The City has deposits in SCPPA’s Project Stabilization Fund for use within SCPPA’s
project purposes at the City’s discretion. At June 30, 2021, the amount of deposits
totaled $1,081,094.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(18)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. Capital Assets
Capital assets (including infrastructure) are recorded at historical cost or at estimated
historical cost if the actual historical cost is not available. Contributed capital assets are
recorded at their estimated acquisition value at the date contributed. Capital assets
include land, intangible assets, construction in progress, and plant assets including
building, improvements, and machinery and equipment. The capitalization threshold for
all capital assets is $5,000. Capital assets used in operations are depreciated using the
straight-line method over their estimated useful lives. Intangible assets with an indefinite
useful life are not amortized but are evaluated annually for any impairment.
The estimated useful lives are as follows:
Utility Infrastructure and Buildings 25 to 50 Years
Improvements 10 to 20 Years
Machinery and Equipment 3 to 35 Years
Maintenance and repairs are charged to operations when incurred. Betterments and
major improvements, which significantly increase values, change capacities or extend
useful lives, are capitalized. Upon sale or retirement of capital assets, the cost and
related accumulated depreciation are removed from the respective accounts and any
resulting gain or loss is included in the statement of revenues, expenses, and changes in
net position.
H. Compensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the
City will pay the employee all accumulated vacation leave at 100% of the employee’s
base hourly rate.
I. Deferred Outflows and Inflows of Resources
The Electric Fund recognizes deferred outflows and inflows of resources. A deferred
outflow of resource is defined as consumption of net position by the Electric Fund that is
applicable to a future reporting period. A deferred inflow of resources is defined as an
acquisition of net position by the Electric Fund that is applicable to a future reporting
period. On June 30, 2021, the Electric Fund has deferred outflows of resources
representing deferred amounts on bond refunding, pension-related transactions, and
postemployment benefit-related transactions, and deferred inflows of resources
representing the deferred gain from the sale of generation assets, pension-related
transactions, and postemployment benefit-related transactions.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(19)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. Long-Term Obligations
Bond discounts, premiums and deferred amounts on refunding are amortized over the
life of the bonds.
K. Net Position
The Electric Fund’s financial statements utilize a net position presentation. Net position
is categorized as invested in capital assets (net of related debt), restricted and
unrestricted.
Net Investment in Capital Assets – This category groups all capital assets into
one component of net position. Accumulated depreciation and the outstanding
balances of liabilities that are attributable to the acquisition, construction or
improvement of these assets reduce the balance in this category.
Restricted Net Position – This category presents external restrictions imposed
by creditors, grantors, contributors or laws or regulations of other governments
and restrictions imposed by law through constitutional provisions or enabling
legislation.
Unrestricted Net Position – This category represents the net position of the
Electric Fund not restricted for any project or other purposes or included in Net
Investment in Capital Assets.
The City’s policy regarding whether to first apply restricted or unrestricted resources
when an expense is incurred for purposes for which both restricted and unrestricted net
position are available is to use restricted resources first.
L. Use of Estimates
The preparation of basic financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those estimates.
M. Pensions
For purposes of measuring the net pension liability and deferred outflows/inflows of
resources related to pensions and pension expense, information about the fiduciary net
position of the City’s California Public Employees’ Retirement System (CalPERS) plan
and additions to/deductions from the Pension Plans’ fiduciary net position have been
determined on the same basis as they are reported by CalPERS. For this purpose,
benefit payments (including refunds of employee contributions) are recognized when
due and payable in accordance with the benefit terms. Investments are reported at fair
value.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(20)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
N. Postemployment Benefits Other than Pensions (OPEB)
For purposes of measuring the net OPEB liability, deferred outflows of resources and
deferred inflows of resources related to OPEB, and OPEB expense information about
the fiduciary net position of the City’s OPEB Plan and additions to/deductions from the
OPEB Plan’s fiduciary net position have been determined on the same basis as they are
reported by the OPEB Plan. For this purpose, the OPEB Plan recognizes benefit
payments when due and payable in accordance with the benefit terms. Investments are
reported at fair value.
NOTE 2 CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of June 30, 2021 are classified in the accompanying
statement of net position as follows:
Cash and Cash Equivalents 123,485,481$
Restricted Cash and Cash Equivalents 45,052,746
Total Cash and Cash Equivalents 168,538,227$
Cash and cash equivalents as of June 30, 2021 consist of the following:
Equity in the City's Pooled Cash 23,753,031$
Deposits with Financial Institutions 42,213,405
Short-Term Investments 102,571,791
Total Cash and Cash Equivalents 168,538,227$
Equity in the Cash Pool of the City of Vernon
The Electric Fund has equity in the cash pool managed by the City. The Electric Fund is a
voluntary participant in that pool and the pool is governed by and under the regulatory
oversight of the Investment Policy adopted by the City Council of the City. The Electric Fund
has not adopted an investment policy separate from that of the City. The amount of the
Electric Fund cash in this pool is reported in the accompanying financial statements based
upon the Electric Fund’s pro rata share of the amount calculated by the City. The balance
available for withdrawal is based on the accounting records maintained by the City.
The City’s Investment Policy
The City’s Investment Policy sets forth the investment guidelines for all funds of the City.
The Investment Policy conforms to the California Government Code Section 53600 et. seq.
The authority to manage the City’s investment program is derived from the City Council.
Pursuant to Section 53607 of the California Government Code, the City Council annually,
appoints the City Treasurer to manage the City’s investment program and approves the
City’s investment policy. The Treasurer is authorized to delegate this authority as deemed
appropriate. No person may engage in investment transactions except as provided under
the terms of the Investment Policy and the procedures established by the Treasurer.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(21)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
The City’s Investment Policy (Continued)
This Investment Policy requires that the investments be made with the prudent person
standard, that is, when investing, reinvesting, purchasing, acquiring, exchanging, selling or
managing public funds, the trustee (Treasurer and staff) will act with care, skill, prudence,
and diligence under the circumstances then prevailing, including but not limited to, the
general economic conditions and the anticipated needs of the City.
The Investment Policy also requires that when following the investing actions cited above,
the primary objective of the trustee be to safeguard the principal, secondarily meet the
liquidity needs of depositors, and then achieve a return on the funds under the trustee’s
control. Further, the intent of the Investment Policy is to minimize the risk of loss on the
City’s held investments from:
A. Credit risk
B. Custodial credit risk
C. Concentration of credit risk
D. Interest rate risk
Investments Authorized by the California Government Code and the City’s Investment
Policy
The table below identifies the investment types that are authorized for the City by the
California Government Code and the City’s Investment Policy. The table also identifies
certain provisions of the California Government Code that address interest rate risk, credit
risk, and concentration of credit risk. This table does not address investment of debt
proceeds held by the bond trustee that are governed by the provisions of debt agreements
of the City, rather than the general provisions of the California Government Code or the
City’s Investment Policy.
Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of Portfolio* in One Issuer Rating
U.S. Treasury Bonds 5 Years None None None
State and Local Agency Bonds 5 Years None None None
Securities of the U.S. Government, or
its Agencies 5 Years None None None
Certain Asset-Backed Securities 5 Years 20% None AA
Negotiable Certificates of Deposit 5 Years 30% None None
Bankers' Acceptances 180 Days 40% 30% None
Commercial Paper 270 Days 25% 10% P-1
Repurchase Agreements 1 year None None None
Reverse Repurchase Agreements 92 Days 20% None None
Medium-Term Notes 5 Years 30% None A
Mutual Funds Investing in Eligible Securities N/A 20% 10% AAA
Money Market Mutual Funds N/A 20% 10% AAA
Mortgage Pass-Through Securities 5 Years 20% None AA
State Administered Pool Investment N/A None $75 Million None
* Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(22)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustees are governed by provisions of the debt
agreements, rather than the general provisions of the California Government Code or the
City’s Investment Policy. The table below identifies the investment types that are authorized
for investments held by the bond trustee. The table also identifies certain provisions of these
debt agreements that address interest rate risk, credit risk, and concentration of credit risk.
Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of Portfolio in One Issuer Rating
Securities of the U.S. Government, or
its Agencies None None None None
Certain Asset-Backed Securities None None None AA
Certificates of Deposit None None None None
Bankers' Acceptances 1 Year None None None
Commercial Paper None None None P-1
Money Market Mutual Funds N/A None None AAA
State Administered Pool Investment N/A None $75 Million None
Investment Contracts None None None None
Disclosure Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair
value of an investment. Generally, the longer the maturity of an investment, the greater the
sensitivity of its fair value to changes in market interest rates. One of the ways that the City
manages its exposure to interest rate risk is by purchasing a combination of shorter-term
and longer-term investments and by timing cash flows from maturities so that a portion of
the portfolio is maturing or coming close to maturity evenly over time as necessary to
provide the cash flow and liquidity needed for operations. The City has no specific limitations
with respect to this metric. Information about the sensitivity of the fair values of the Electric
Fund’s investments (including investments held by bond trustee) to market interest rate
fluctuations is provided in the following table that shows the distribution of the Electric
Fund’s investments by maturity:
Investment Maturities
Fair Value (in Months)
as of Less than 13 to 25 to
Investment Type 6/30/2021 12 Months 24 Months 60 Months
Local Agency Investment Fund 633,506$ 633,506$ -$ -$
Held by Trustee:
Money Market Mutual Funds 101,938,285 101,938,285 - -
Total investments 102,571,791$ 102,571,791$ -$ -$
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to
the holder of the investment. This is measured by the assignment of a rating by a nationally
recognized statistical rating organization. Presented below is the minimum rating required by
the California Government Code, the City’s Investment Policy, or debt agreements, and the
actual rating as of the year-end for each investment type.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(23)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Disclosures Relating to Credit Risk (Continued)
Minimum Actual Fair Value
Required Credit Rating as of
Investment Type Rating Moody's / S&P June 30, 2021
Local Agency Investment Fund Not Rated Not Rated 633,506$
Held by Trustee:
Money Market Funds Aaa / AAA Aaa / AAA 101,938,285
Total in Custody of Trustee 102,571,791$
Concentration of Credit Risk
The City’s Investment Policy places no limit on the amount the City may invest in any one
issuer excluding a 10% limitation on commercial paper, mutual funds, and money market
mutual funds and a 30% limitation on bankers’ acceptances. The City’s Investment Policy
also places no limit on the amount of debt proceeds held by the bond trustee that the trustee
may invest in one issuer that is governed by the provisions of debt agreements of the City,
rather than the general provisions of the California Government Code or the City’s
Investment Policy. As of June 30, 2021, there were no investments held by the Electric Fund
that exceeded 5% in any one issuer, excluding money market mutual funds.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository
financial institution, a government will not be able to recover its deposits or will not be able
to recover collateral securities that are in the possession of an outside party. The custodial
credit risk for investments is the risk that, in the event of the failure of the counterparty to a
transaction, a government will not be able to recover the value of its investment or collateral
securities that are in the possession of another party.
The California Government Code and the City’s Investment Policy do not contain legal or
policy requirements that would limit the exposure to custodial credit risk for deposits or
investments. Under the California Government Code, a financial institution is required to
secure deposits, in excess of the FDIC insurance amount of $250,000, made by state or
local governmental units by pledging government securities held in the form of an undivided
collateral pool. The market value of the pledged securities in the collateral pool must equal
at least 110% of the total amount deposited by the public agencies. California law also
allows financial institutions to secure City deposits by pledging first trust deed mortgage
notes having a value of 150% of the secured public deposits. Such collateral is held by the
pledging financial institution’s trust department or agent in the City’s name.
At June 30, 2021, all of the Electric Fund’s deposits were insured or collateralized as
required by Section 53652 of the California Government Code.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(24)
NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED)
Local Agency Investment Fund (LAIF)
The Electric Fund also maintained cash balances with the state of California Local Agency
Investment Fund (LAIF). LAIF is an external investment pool sponsored by the state of
California. The administration of LAIF is provided by the California State Treasurer and
regulatory oversight is provided by the Pooled Money Investment Board and the Local
Investment Advisory Board. The value of the pool shares in LAIF, which may be withdrawn,
is determined on an amortized cost basis, which is different than the fair value of the Electric
Fund’s position in the pool.
Fair Value Measurement
The Electric Fund categorizes its fair value measurements within the fair value hierarchy
established by generally accepted accounting principles. The hierarchy is based on the
valuation inputs used to measure the fair value of the asset.
Level 1 inputs are quoted prices for identical assets or liabilities in active markets
that the government can access at the measurement date.
Level 2 inputs are other than quoted prices included in Level 1 that are observable
for an asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for an asset or liability.
The Electric Fund’s investments in money market mutual funds and LAIF are not subject to
categorization in the fair value hierarchy.
NOTE 3 ACCOUNTS RECEIVABLES
The Electric Fund’s receivables at June 30, 2021, are as follows:
Accounts Receivables 6,726,519$
Less: Allowance for Uncollectible Accounts (1,002,790)
Total Receivables, Net 5,723,729$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(25)
NOTE 4 INTERNAL TRANSACTIONS
Transactions between the Electric Fund and the other City funds commonly occur in the
normal course of business for services received or furnished (accounting, management,
engineering, legal services, and capital projects).
Due to and Due From Other City Funds
The Electric Fund has a due from the City’s Water Enterprise Fund of $593,486 for
reimbursement of capital outlay costs.
Advances to Other City Funds
The following table summarizes the Electric Fund’s advances to the other City funds at
June 30, 2021:
Advances to Other City Funds - July 1, 2020 27,379,594$
Advance Repaid by City Funds During the Year (185,639)
Advances to Other City Funds - June 30, 2021 27,193,955$
The advances between the other City funds and the Electric Fund does not accrue interest
due to the nature of the City’s operational relationship and capital projects funded by the
Electric Fund that benefits both. On November 6, 2012, the City adopted Resolution No.
2012-215 extending the repayment term of the advance to the other City funds from 15
months to a period of over 10 years.
The City’s General Fund allocates certain administrative and overhead costs to the Electric
Fund which is included as part of the cost of sales. The allocated cost for the year ended
June 30, 2021, was $3,140,632.
Transfers to City
The Electric Fund’s retail rates are established by the City Council and are not subject to
regulation by the California Public Utility Commission or any other state agency. The retail
rates include a 3% surcharge for payments in lieu of franchise tax to the City’s General
Fund. For the current year, the Electric Fund paid the City’s General Fund $4,781,720 in lieu
of franchise tax. This amount is reported in the accompanying financial statements as part of
operating expenses.
Under the City Charter and the Electric Fund’s electric revenue bond indentures, the Electric
Fund is allowed to transfer up to 11.5% of its retail sales after meeting debt service
obligations and certain debt coverage ratios. However, no additional transfers were made
for the year ended June 30, 2021.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(26)
NOTE 5 CAPITAL ASSETS
Capital asset activity of the Electric Fund for the fiscal year ended June 30, 2021, was as
follows:
Balance Balance
June 30, 2020 Additions Deletions Transfers June 30, 2021
Capital Assets, Not Being Depreciated:
Electric Utility - Land 4,240,129$ -$ -$-$4,240,129$
Electric Utility - Intangibles - Environmental Credits 1,163,811 - - - 1,163,811
Electric Utility - Construction In Progress 54,130,254 147,961 - - 54,278,215
Total Capital Assets, Not Being
Depreciated 59,534,194 147,961 - - 59,682,155
Capital Assets, Being Depreciated:
Electric Utility - Production Plant 16,189,303 - - - 16,189,303
Electric Utility - Transmission Plant 4,888,113 - - - 4,888,113
Electric Utility - Distribution Plant 243,879,181 14,571,998 - - 258,451,179
Electric Utility - General Plant 9,258,248 256,553 - 73,132 9,587,933
Total Capital Assets, Being Depreciated 274,214,845 14,828,551 - 73,132 289,116,528
Less Accumulated Depreciation for:
Electric Utility - Production Plant (10,295,956) (461,537) - - (10,757,493)
Electric Utility - Transmission Plant (3,332,436) (92,145) - - (3,424,581)
Electric Utility - Distribution Plant (94,007,029) (7,219,909) - - (101,226,938)
Electric Utility - General Plant (5,670,594) (405,380) - (73,132)(6,149,106)
Total Accumulated Depreciation (113,306,015) (8,178,971) - (73,132)(121,558,118)
Total Capital Assets, Being Depreciated, Net
Electric Utility - Production Plant 5,893,347 (461,537) - - 5,431,810
Electric Utility - Transmission Plant 1,555,677 (92,145) - - 1,463,532
Electric Utility - Distribution Plant 149,872,152 7,352,089 - - 157,224,241
Electric Utility - General Plant 3,587,654 (148,827) - - 3,438,827
Net Depreciable Assets 160,908,830 6,649,580 - - 167,558,410
Total Capital Assets, Net 220,443,024$ 6,797,541$ -$ -$227,240,565$
The Electric Fund’s total depreciation expense for the year was $8,178,971.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(27)
NOTE 6 LONG-TERM OBLIGATIONS
As of June 30, 2021, outstanding debt obligations consisted of the following:
$43,765,000 Electric System Revenue Bonds (2008 Taxable Series A)
At June 30, 2021, $38,840,000 remained outstanding. The bonds are special obligation
bonds which are secured by an irrevocable pledge of electric revenues payable to
bondholders. The debt service remaining on the bonds is $76,291,541, payable through
fiscal year 2039. For the current year, debt service and net electric revenues were
$4,238,508 and $33,789,939, respectively. Under the Bond Indenture of Trust, interest and
principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms
are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2008 Taxable Series A were issued to provide funds to (i) finance the cost of certain capital
improvements to the City’s Electric System, (ii) fund a deposit to the Debt Service Reserve
Fund, and (iii) to pay costs of issuance of the 2008 Bonds.
$37,640,000 Electric System Revenue Bonds (2012 Series A)
At June 30, 2021, $37,640,000 remained outstanding. The bonds are special obligation
bonds which are secured by an irrevocable pledge of electric revenues payable to
bondholders. The debt service remaining on the bonds is $71,100,228, payable through
fiscal year 2042. For the current year, debt service and net electric revenues were
$2,031,394 and $33,789,939, respectively. Under the Bond Indenture of Trust, interest and
principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms
are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2012 Series A were issued to provide funds to (i) pay a portion of the costs of certain capital
improvements to the City’s Electric System, (ii) to provide for capitalized interest on the 2012
Series A Bonds, and (iii) to pay costs of issuance of the 2012 Series A Bonds.
$35,100,000 Electric System Revenue Bonds (2012 Taxable Series B)
At June 30, 2021, $35,100,000 remained outstanding. The bonds are special obligation
bonds which are secured by an irrevocable pledge of electric revenues payable to
bondholders. The debt service remaining on the bonds is $43,205,713, payable through
fiscal year 2027. For the current year, debt service and net electric revenues were
$2,222,900 and $33,789,939, respectively. Under the Bond Indenture of Trust, interest and
principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms
are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2012 Taxable Series B were issued to provide funds to (i) refund the $28,680,000 aggregate
principal amount of 2009 Bonds maturing on August 1, 2012, (ii) to pay a portion of the
Costs of the 2012 Project, and (iii) to pay costs of issuance of the 2012 Taxable Series B
Bonds.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(28)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
$111,720,000 Electric System Revenue Bonds (2015 Taxable Series A)
At June 30, 2021, $111,720,000 remained outstanding. The bonds are special obligation
bonds which are secured by an irrevocable pledge of electric revenues payable to
bondholders. The debt service remaining on the bonds is $129,227,536, payable through
fiscal year 2027. For the current year, debt service and net electric revenues were
$5,087,518 and $33,789,939, respectively. Under the Bond Indenture of Trust, interest and
principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms
are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2015 Taxable Series A were issued to provide funds to (i) refund a portion of the
Outstanding Electric System Revenue Bonds, 2009 Series A; (ii) finance the Costs of certain
Capital Improvements to the City’s Electric System by reimbursing the Electric System for
the prior payment of such Costs from the Light and Power Fund; (iii) fund a deposit to the
Debt Service Reserve Fund; and (iv) pay costs of issuance of the 2015 Bonds.
$71,990,000 Electric System Revenue Bonds (2020 Series A)
At June 30, 2021, $43,335,000 remained outstanding. The bonds are special obligation
bonds which are secured by an irrevocable pledge of electric revenues payable to
bondholders. The debt service remaining on the bonds is $55,915,875, payable through
fiscal year 2038. For the current year, debt service and net electric revenues were
$31,148,179 and $33,789,939, respectively. Under the Bond Indenture of Trust, interest and
principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms
are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2020 Series A were issued to provide funds to (i) to finance the acquisition and construction
of certain capital improvements to the Electric System of the City, (ii) to refund all the City’s
outstanding Electric System Revenue Bonds, 2009 Series A, and (iii) to pay costs of
issuance of the 2020 Bonds.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(29)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
A summary of bonds payable under the Electric Fund is as follows:
Fixed Annual Original
Interest Principal Issue Outstanding
Bonds Maturity Rates Installments Amount June 30, 2021
City of Vernon 07/01/38 7.40% - To begin 07/01/10: 43,765,000$ 38,840,000$
Electric System Revenue Bonds, 8.59% $265,000 -
2008 Taxable Series A $4,065,000
City of Vernon 08/01/41 5.00% - To begin 08/01/27: 37,640,000 37,640,000
Electric System Revenue Bonds, 5.50% $1,075,000 -
2012 Taxable Series A $7,120,000
City of Vernon 08/01/26 6.25% - To begin 08/01/22: 35,100,000 35,100,000
Electric System Revenue Bonds, 6.50% $6,165,000 -
2012 Taxable Series B $7,940,000
City of Vernon 08/01/26 4.05% - To begin 08/01/23: 111,720,000 111,720,000
Electric System Revenue Bonds, 4.85% $15,925,000 -
2015 Taxable Series A $22,540,000
City of Vernon 08/01/50 5.00% To begin 08/03/20: 71,990,000 43,335,000
Electric System Revenue Bonds, $1,525,000 -
2020 Taxable Series A $28,655,000
Premium 7,189,882
Discounts (1,923,931)
Total Revenue Bonds 271,900,951$
As of June 30, 2021, annual debt service requirements of the Electric Fund to maturity are
as follows:
Electric System Revenue Bonds
2008 Taxable Series A
Fiscal Year Ending June 30,Principal Interest
2022 945,000$ 3,295,768$
2023 1,025,000 3,211,157
2024 1,120,000 3,119,029
2025 1,220,000 3,018,526
2026 1,330,000 2,909,004
2027-2031 8,670,000 12,525,079
2032-2036 13,315,000 7,872,520
2037-2040 11,215,000 1,500,458
Total Requirements 38,840,000$ 37,451,541$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(30)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Electric System Revenue Bonds
2012 Taxable Series A
Fiscal Year Ending June 30,Principal Interest
2022 -$ 2,031,394$
2023 - 2,031,394
2024 - 2,031,394
2025 - 2,031,394
2026 - 2,031,394
2027-2031 4,645,000 9,707,094
2032-2036 7,315,000 8,086,266
2037-2041 18,560,000 5,314,100
2042-2045 7,120,000 195,800
Total Requirements 37,640,000$ 33,460,228$
Electric System Revenue Bonds
2012 Taxable Series B
Fiscal Year Ending June 30,Principal Interest
2022 -$ 2,222,900$
2023 6,165,000 2,030,244
2024 6,565,000 1,632,431
2025 6,990,000 1,208,838
2026 7,440,000 753,250
2027-2030 7,940,000 258,050
Total Requirements 35,100,000$ 8,105,713$
Electric System Revenue Bonds
2015 Taxable Series A
Fiscal Year Ending June 30,Principal Interest
2022 -$ 5,087,518$
2023 22,540,000 4,580,368
2024 23,520,000 3,596,938
2025 24,585,000 2,530,618
2026 25,780,000 1,341,193
2027-2030 15,295,000 370,904
Total Requirements 111,720,000$ 17,507,536$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(31)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Electric System Revenue Bonds
2020 Taxable Series A
Fiscal Year Ending June 30,Principal Interest
2022 24,030,000$ 1,566,000$
2023 -965,250
2024 -965,250
2025 -965,250
2026 -965,250
2027-2031 4,815,000 4,473,125
2032-2036 9,820,000 2,444,250
2037-2040 4,670,000 236,500
Total Requirements 43,335,000$ 12,580,875$
Changes in Long-Term Liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended
June 30, 2021.
Amounts
Balance Balance Due Within
June 30, 2020 Additions Reductions June 30, 2021 One Year
Other Debt - Bonds Payable 296,155,000$ -$ (29,520,000)$ 266,635,000$ 24,975,000$
Bond Premium 7,635,218 - (445,336) 7,189,882 -
Bond Discount (2,370,596) - 446,665 (1,923,931) -
Compensated Absences (Note 1)849,214 620,633 (417,451) 1,052,396 350,799
Total 302,268,836$ 620,633$ (29,936,122)$ 272,953,347$ 25,325,799$
Expense Stabilization Fund
The Electric Fund maintains an Expense Stabilization Fund held by a Trustee in such
amounts, at such times and from sources as shall be determined by the City in its sole
discretion. If an Event of Default under the Indenture has occurred and is continuing, the
Trustee shall transfer all moneys in this fund to the debt service funds as provided in the
Indenture. Moneys on deposit in this Fund may be withdrawn by the City at any time that no
Event of Default exists under the Indenture. As at June 30, 2021, this fund has a balance of
$13,917,555.
Right to Accelerate Upon Default
Notwithstanding anything contrary in the Indenture or in the Bonds, upon the occurrence of
an Event of Default, the Trustee may, with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, and shall,
at the direction of the Owners of a majority in principal amount of Outstanding Bonds (other
than Bonds owned by or on behalf of the City) by written notice to the City, declare the
principal of the Outstanding Bonds and the interest thereon to be immediately due and
payable, whereupon such principal and interest shall, without further action, become and be
immediately due and payable.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(32)
NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED)
Credit Ratings
As of June 30, 2021, the ratings on all Electric System Revenue Bonds of the City have not
changed from the prior year with an BBB+ rating by S&P and Baa2 rating by Moody’s.
NOTE 7 RISK MANAGEMENT
The Electric Fund is in the City’s self-insurance program as part of its policy to self-insure
certain levels of risk within separate lines of coverage to maximize cost savings.
The City is exposed to various risks of loss related to torts; theft of, damage to, and
destruction of assets, errors, and omissions; injuries to employees, and natural disasters.
The City utilizes insurance policy(s) to transfer these risks. Each policy has either self-
insured retention or deductible, which are parts of the City’s Risk Financing Program. These
expenses are paid on a cash basis as they are incurred. There have been no significant
settlements or reductions in insurance coverage during the past three fiscal years.
Starting in Fiscal 2010, the City chose to establish Risk Financing in the General Fund,
whereby assets are set aside for claim-litigation settlements associated with the
abovementioned risks up to their self-insured retentions or policy deductibles. Athens
Administrators Inc. is the Third-Party Administrator for the City’s workers’ compensation
program, and they provide basic services for general liability claims and litigation.
The insurance limits for the fiscal year 2021 are as follows:
Deductible/SIR
Insurance Type Program Limits (Self-Insured Retention)
Excess Liability Insurance $20,000,000 $2,000,000 SIR per occurrence
D and O Employment Practice $2,000,000 $150,000 SIR non-safety; $150,000 SIR safety
Excess Workers Compensation $50,000,000 $1,500,000 SIR per occurrence for presumptive loss
Employer's Liability $1,000,000 $1,000,000 SIR per occurrence for all employees
Commercial Property Insurance $100,000,000 $25,000 except:
$25,000,000 Flood Sublimit $250,000 power stations
$1.5/kVA transfers, subject to a $250,000 minimum
$500,000 named transformers
Employee Dishonest - Crime $1,000,000 $25,000
Pollution - Site Owned $5,000,000 $25,000 for non-utility locations, divested locations
and scheduled storage tanks
$50,000 for utility locations
$100,000 for natural gas pipeline
Cyber Liability $3,000,000 $100,000
Contractors Equipment/Auto $10,000,000 Maximum Loss Per Occurrence $5,000
Physical Damage $1,000,000 Equipment Limit-loss or damage to
any one piece
Residential Property Insurance $8,023,126 Blanket Building Limit $2,500
$89,013 Blanket Business Personal Property Limit
Terrorism and Sabotage $100,000,000 Policy Aggregate N/A
$5,000,000 Active Shooter and Malicious Attack
Per Occurrence/Aggregate
$5,000,000 Terrorism and Sabotage Liability
Per Occurrence/Aggregate
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(33)
NOTE 7 RISK MANAGEMENT (CONTINUED)
The City has numerous claims and pending litigations, which generally involve accidents
and/or liability or damage to City property. The balance of claims/litigations against the City
is in the opinion of management, ordinary routine matters, incidental to the normal business
conducted by the City. In the opinion of management, such proceedings are substantially
covered by insurance, and the ultimate dispositions of such proceedings are not expected to
have a material adverse effect on the Electric Fund’s financial position, results of operations
or cash flows. Further information regarding the City’s self-insurance program may be found
in the City’s Annual Financial Report.
NOTE 8 PENSION PLAN
A. General Information About the Pension Plans
Plan Descriptions
All full-time safety (police and fire personnel) and miscellaneous personnel and
temporary or part-time employees who have worked a minimum of 1,000 hours in a
fiscal year are eligible to participate in the City’s cost-sharing and agent multiple-
employer defined benefit pension Safety and Miscellaneous Plans, respectively,
administered by the California Public Employees’ Retirement System (CalPERS) that
acts as a common investment and administrative agent for participating public entities
within the state of California. The City allocates the costs of these Plans across all City
departments. The Electric Fund’s proportionate share of the net pension liability of these
Plans is reported as a cost-sharing plan in the financial statements. Benefits vest after
five years of service. Employees who retire at the minimum retirement age with five
years of credited service are entitled to retirement benefits. Monthly retirement benefits
are based on a percentage of an employee’s average compensation for his or her
highest consecutive 12 or 36 months of compensation for each year of credited service.
Benefits Provided
Miscellaneous members hired prior to January 1, 2013, with five years of credited
service may retire at age 55 based on a benefit factor derived from the 2.7% at 55
Miscellaneous formula or may retire between ages 50 and 54 with reduced retirement
benefits. New Miscellaneous members (PEPRA) with five years of credited service may
retire at age 62 based on a benefit factor derived from the 2% at 62 Miscellaneous
formula or may retire between age 52 and 61 with reduced retirement benefits. The
benefit factor increases to a maximum of 2.5% at age 67. Safety members with five
years of credited service may retire at age 50 based on a benefit factor derived from the
3% at 50 Safety formula for sworn Police and Fire Department employees. New Safety
members (PEPRA) with five years of credited service may retire at age 57 based on a
benefit factor derived from the 2.7% at 57 Safety (PEPRA) formula or may retire
between age 50 and 56 with reduced retirement benefits for new Safety (PEPRA)
members of both Police and Fire Departments. CalPERS also provides death and
disability benefits. These benefit provisions and all other requirements are established
by State statute provided through a contract between the City and CalPERS.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(34)
NOTE 8 PENSION PLAN (CONTINUED)
A. General Information About the Pension Plans (Continued)
Benefits Provided (Continued)
The Plans’ provisions and benefits in effect at the measurement date of June 30, 2020,
are summarized as follows:
Miscellaneous
Prior to On or After
Hire Date January 1, 2013 January 1, 2013
Benefit Formula 2.7%@55 2%@62
Benefit Vesting Schedule 5 Years of Service 5 Years of Service
Benefit Payments Monthly for Life Monthly for Life
Retirement Age 50 52
Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5%
Required Employee Contribution Rates 8.000% 6.250%
Required Employer Contribution Rates:
Normal Cost Rate 11.758% 11.758%
Payment of Unfunded Liability 3,185,676$ -$
Safety
Prior to On or After
Hire Date January 1, 2013 January 1, 2013
Benefit Formula 3.0%@50 2.7%@57
Benefit Vesting Schedule 5 Years of Service 5 Years of Service
Benefit Payments Monthly for Life Monthly for Life
Retirement Age 50 50
Monthly Benefits, as a % of Eligible Compensation 3.000% 2.0% to 2.7%
Required Employee Contribution Rates 9.000% 12.750%
Required Employer Contribution Rates:
Normal Cost Rate 23.164% 23.164%
Payment of Unfunded Liability 5,885,793$ -$
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the
employer contribution rates for all public employers be determined on an annual basis by
the actuary and shall be effective on July 1 following notice of a change in the rate.
Funding contributions for both Plans are determined annually on an actuarial basis as of
June 30 by CalPERS. The actuarially determined rate is the estimated amount
necessary to finance the costs of benefits earned by employees during the year, with an
additional amount to finance any unfunded accrued liability. The City is required to
contribute to the difference between the actuarially determined rate and the contribution
rate of employees. For the year ended June 30, 2021, the Electric Fund’s share of
employer contributions made to the plans was $1,518,109.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(35)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of
Resources Related to Pensions
Actuarial Assumptions
The net pension liability of each of the Plans is measured as of June 30, 2020, using an
annual actuarial valuation as of June 30, 2019, rolled forward to June 30, 2020, using
standard update procedures. A summary of principal assumptions and methods used to
determine the net pension liability is shown below.
Miscellaneous Safety
Valuation Date June 30, 2019 June 30, 2019
Measurement Date June 30, 2020 June 30, 2020
Actuarial Cost Method Entry Age Normal Entry Age Normal
Actuarial Assumptions:
Discount Rate 7.15% 7.15%
Inflation 2.625% 2.625%
Payroll Growth 2.875% 2.875%
Projected Salary Increase (1) (1)
Mortality Rate Table (2) (2)
Post-Retirement Benefit Increase (3) (3)
(1) Varies by entry age and service.
(2) The mortality table used was developed based on CalPERS-specific data. The
probabilities of mortality are based on the 2017 CalPERS Experience Study for the
period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates includes
15 years of projected mortality improvement using 90% of Scale MP-2016 published by
the Society of Actuaries. For more details on this table, please refer to the CalPERS
Experience Study and Review of Actuarial Assumptions report from December 2017
that can be found on the CalPERS website.
(3) The lessor of contract COLA or 2.50% until Purchasing Power Protection Allowance Floor
on purchasing power applies, 2.50% thereafter.
Long-Term Expected Rate of Return
The long-term expected rate of return on pension plan investments was determined
using a building-block method in which expected future real rates of return (expected
returns, net of pension plan investment expense and inflation) are developed for each
major asset class.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(36)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of
Resources Related to Pensions (Continued)
Long-Term Expected Rate of Return (Continued)
In determining the long-term expected rate of return, CalPERS took into account both
short-term and long-term market return expectations as well as the expected pension
fund cash flows. Using historical returns of all the funds’ asset classes, expected
compound (geometric) returns were calculated over the short-term (first 10 years) and
the long-term (11+ years) using a building-block approach. Using the expected nominal
returns for both short-term and long-term, the present value of benefits was calculated
for each fund. The expected rate of return was set by calculating the rounded single
equivalent expected return that arrived at the same present value of benefits for cash
flows as the one calculated using both short-term and long-term returns. The expected
rate of return was then set equal to the single equivalent rate calculated above and
adjusted to account for assumed administrative expenses.
The expected real rates of return by asset class are as follows:
Assumed Real Return Real Return
Asset Years Years
Asset Class (a) Allocation 1 - 10 (b) 11+ (c)
Global Equity 50.00% 4.80% 5.98%
Fixed Income 28.00 1.00% 2.62%
Inflation Assets 0.00 0.77% 1.81%
Private Equity 8.00 6.30% 7.23%
Real Assets 13.00 3.75% 4.93%
Liquidity 1.00 0.00% -0.92%
Total 100.00%
(a)
(b) An expected inflation of 2.0% used for this period.
(c) An expected inflation of 2.92% used for this period.
In the CalPERS CAFR, Fixed Income is included in Global Debt Securities; Liquidity is
included in Short-term Investments; Inflation Assets are included in both Global Equity
Securities and Global Debt Securities
Discount Rate
The discount rate used to measure the total pension liability was 7.15%. The projection
of cash flows used to determine the discount rate assumed that contributions from plan
members will be made at the current member contribution rates and that contributions
from employers will be made at statutorily required rates, actuarially determined. Based
on those assumptions, the Plan’s fiduciary net position was projected to be available to
make all projected future benefit payments of current plan members. Therefore, the
long-term expected rate of return on plan investments was applied to all periods of
projected benefit payments to determine the total pension liability.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(37)
NOTE 8 PENSION PLAN (CONTINUED)
B.Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of
Resources Related to Pensions (Continued)
Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to
the Electric Fund
The Electric Funds’ net pension liability for the Plans is measured as the proportionate
share of’ the combined net pension liability of the City’s miscellaneous and safety agent
multiple-employer plans. The Electric Fund’s proportionate share of the combined net
pension liability was based on the Electric Fund’s current year share of contributions to
the pension plans relative to the City’s total current year contributions to the pension
plans.
The Electric Funds’ proportionate share of the combined net pension liability for the
pension plans as of the measurement date ended June 30, 2019 and 2020 were as
follows:
Increase (Decrease)
Total Plan Net Pension
Pension Fiduciary Liability Proportionate
Liability Net Position (Asset) Share
Balance at June 30, 2019 (MD) 48,941,752$ 35,743,397$ 13,198,355$ 10.61%
Balance at June 30, 2020 (MD) 61,879,846 45,617,506 16,262,340 12.02%
Net Changes during 2019-20 12,938,094$ 9,874,109$ 3,063,985$ 1.41%
Pension Expense and Deferred Outflows and Inflows of Resources
For the measurement period ended June 30, 2020, the Electric Fund recognized its
proportionate share of the combined pension expense of the Plans, totaling $1,627,699.
At June 30, 2021, the Electric Fund reported its proportionate share of the Plans’
combined deferred outflows of resources and deferred inflows of resources related to
pensions from the following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension Contributions Subsequent
to Measurement Date 1,518,109$ -$
Differences Between Actual and
Expected Experience 1,147,130 -
Change in Assumptions -(41,509)
Net Differences Between Projected and
Actual Earnings on Plan Investments 427,021 -
Differences Between Employer Contributions
And Proportionate Share of Contributions -(216,649)
Change in Employer's Proportion 375,851 (140,640)
Total 3,468,111$ (398,798)$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(38)
NOTE 8 PENSION PLAN (CONTINUED)
B.Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of
Resources Related to Pensions (Continued)
Pension Expense and Deferred Outflows and Inflows of Resources (Continued)
$1,518,109 reported as deferred outflows of resources related to contributions
subsequent to the measurement date will be recognized as a reduction of the net
pension liability in the year ending June 30, 2022. Differences between projected and
actual investment earnings are amortized on a five-year straight-line basis and all other
amounts are amortized over the expected average remaining service lives of all
members that are provided with benefits. Other amounts reported as deferred outflows
of resources and deferred inflows of resources related to pensions will be recognized as
pension expense as follows:
Fiscal Year Ended June 30,Total
2022 430,644$
2023 546,542
2024 378,354
2025 191,949
2026 3,715
Thereafter -
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
The following presents the Electric Fund’s proportionate share of the Plans’ combined
net pension liability, calculated using a discount rate of 7.15%, as well as what the
Electric Fund’s proportionate share of the Plans’ combined net pension liability would be
if it were calculated using a discount rate that is a 1-percentage point lower or a
1-percentage point higher than the current rate:
Total
1% Decrease 6.15%
Net Pension Liability 24,827,335$
Current Discount Rate 7.15%
Net Pension Liability 16,262,340$
1% Increase 8.15%
Net Pension Liability 9,242,051$
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the
separately issued CalPERS financial reports.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(39)
NOTE 8 PENSION PLAN (CONTINUED)
B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of
Resources Related to Pensions (Continued)
Subsequent Events
There were no subsequent events that would materially affect the results of this
disclosure.
Payable to the Pension Plan
At June 30, 2021, the Electric Fund had no outstanding amount of contributions to the
pension plans required for the year ended June 30, 2021.
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB)
The other postemployment benefits (OPEB) described in the following paragraphs relate to
the City’s OPEB plan. The Electric Fund’s share of the net pension liability of the City’s
OPEB Plan is reported as a cost-sharing plan in these financial statements since the Electric
Fund’s operations are handled by City employees who are eligible to participate in the City’s
OPEB Plan.
Benefits Provided
Retiree medical and dental benefits are established through the City’s Fringe Benefits and
Salary Resolution as well as individual memoranda of understanding between the City and
the City’s various employee bargaining groups. Generally, the City will provide a
postemployment benefit only to those employees who retire at age sixty (60) or later with
twenty (20) years of continuous uninterrupted service, up to the age of sixty-five (65).
Alternatively, employees who retire before the age of sixty (60) with twenty (20) years of
continuous uninterrupted service, will be permitted to pay their medical and dental premium
cost and upon reaching the age of sixty (60), the City will pay the premium for the medical
and dental plans until they reach the age of sixty-five (65).
Resolution 2012-217 granted specific retiree medical benefits to employees who retired
during the 2012-2013 fiscal year in order to provide an incentive for early retirement
whereby the City authorized the payment of medical and dental insurance premiums for
eligible retiring employees and their eligible dependents with at least ten (10) years of
service plus 5% for each additional full year of service above the ten (10) years of service.
Resolution 2013-06 declared that the retiree medical benefits which had not been a vested
right for employees will continue to be a nonvested right for employees who continue to be
employed by the City on or after July 1, 2013, but will be a vested right for those who retire
during the 2012-2013 fiscal year. The City’s plan is considered a substantive OPEB plan
and the City recognizes costs in accordance with GASB Statement No 75. The City may
terminate its unvested OPEB in the future.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(40)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED)
Funding Policy and Contributions
The City has established an irrevocable OPEB trust with assets dedicated to paying future
retiree medical benefits. The City intends to contribute 100% or more of the actuarially
determined contribution for the explicit subsidy liability only. The portion of the liability due to
the implicit subsidy is not prefunded but is paid as benefits come due. For the fiscal year
ended June 30, 2021, the Electric Fund’s proportionate share of contributions made was
$376,409 ($232,190 contributed to the OPEB trust, $102,547 paid for retiree premiums, and
the estimated implied subsidy of $41,672).
Net OPEB Liability
The City’s net OPEB liability is measured as of June 30, 2020, and the total OPEB liability
used to calculate the net OPEB liability was determined by an actuarial valuation as of
June 30, 2020. A summary of the principal assumptions and methods used to determine the
total OPEB liability is shown on the next page.
Actuarial Assumptions
The valuation has been prepared on a closed group basis. Assumptions such as age-related
healthcare claims, healthcare trends, retiree participation rates, and spouse coverage, were
selected based on demonstrated plan experience and the best estimate of expected future
experience. Explicit subsidy benefit payments by employee group were allocated based on
expected benefit payments. The following actuarial assumptions, applied to all periods
included in the measurement unless otherwise specified:
Funding Method Entry age normal level percent of pay cost method
Inflation 2.25%
Salary Increases 2.75% annual increases
Long-Term Return on Assets 6.25% net of investment expenses
Discount Rate 6.25%
Healthcare Cost Trend Rates 6.7% for FY2021, gradually decreasing over several
decades to ultimate rate of 3.8% in FY76 and later
years
Mortality 2017 CalPERS Experience Study. Tables include
15 years of static mortality improvement using 90%
of scale MP-2016
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(41)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED)
Long-Term Expected Rate of Return
The long-term expected rate of return was determined using a building-block method in
which best-estimate ranges of expected future real rates of return (expected returns, net of
OPEB plan investment expense and inflation) are developed for each major asset class.
These ranges are combined to produce the long-term expected rate of return by weighing
the expected future real rates of return by the target asset allocation percentage and by
adding expected inflation. Best estimates of arithmetic real rates of return for each major
asset class included in the OPEB plan’s target asset allocation as of June 30, 2020 are
summarized in the following table:
Long-Term
Target Expected Real
Asset Class Allocation Rate of Return
CERBT Strategy 1:
Equity 59.00% 4.90%
Fixed Income 25.00 1.40%
TIPS 5.00 0.57%
Commodities 3.00 1.88%
REITs 8.00 4.43%
Total 100.00%
Discount Rate
The discount rate used to measure the total OPEB liability was 6.25%. The projection of
cash flows used to determine the discount rate assumed that City’s contributions will be
made at rates equal to the actuarially determined contribution rates. Based on those
assumptions, the fiduciary net position was projected to be available to make all projected
OPEB payments for current active and inactive employees and beneficiaries. Therefore, the
long-term expected rate of return on plan investments was applied to all periods of projected
benefit payments to determine the total OPEB liability.
Change of Assumptions
Medical trend rates were updated to exclude the Affordable Care Act’s Excise Tax on high-
cost health insurance plan due to its repeal.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(42)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED)
Allocation of the Net OPEB Liability
The Electric Fund’s proportionate share of the net OPEB liability as of the measurement
dates ended June 30, 2019 and 2020 was as follows:
Increase (Decrease)
Total Plan Net OPEB
OPEB Fiduciary Liability Proportionate
Liability Net Position (Asset)Share
Balance at June 30, 2019 (MD)2,860,913$ 466,300$ 2,394,613$ 10.93%
Balance at June 30, 2020 (MD)3,271,125 841,782 2,429,343 12.02%
Net Changes during FY 2019-20 410,212$ 375,482$ 34,730$ 1.09%
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the Electric Fund’s proportionate share of net OPEB liability if it were
calculated using a discount rate that is 1% point lower or 1% point higher than the current
rate:
Discount Rate
1% Decrease Current Rate 1% Increase
(5.25%) (6.25%) (6.25%)
Net OPEB Liability 2,820,847$ 2,429,343$ 2,103,229$
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates
The following presents the Electric Fund’s proportionate share of the net OPEB liability if it
were calculated using a healthcare cost trend rates that are 1% point lower (5.7%
decreasing to an ultimate rate of 2.8%) or 1% point higher (7.7% decreasing to an ultimate
rate of 4.8%) than the current rate:
Healthcare Trend Rate
1% Decrease Current Rate 1% Increase
Net OPEB Liability 2,300,057$ 2,429,343$ 2,561,366$
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(43)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED)
OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB
For the year ended June 30, 2021, the Electric Fund recognized its proportionate share of
the OPEB expense(revenue) of $(97,416). At June 30, 2021, the Electric Fund reported
deferred outflows of resources and deferred inflows of resources related to OPEB from the
following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Contributions Between Measurement Date and
Reporting Date 376,409$ -$
Difference Between Expected and Actual Liability 20,730 (466,551)
Changes of Assumptions 58,273 (592,690)
Net Differences Between Projected and Actual
Earnings on Investments 26,290 -
Total 481,702$ (1,059,241)$
The $376,409 reported as deferred outflows of resources related to contributions
subsequent to the measurement date will be recognized as a reduction of the net OPEB
liability in the year ended June 30, 2022. Differences between projected and actual
investment earnings are amortized on a five-year straight-line basis and all other amounts
are amortized over the expected average remaining service lives of all members that are
provided with benefits. Other amounts reported as deferred outflows of resources and
deferred inflows of resources related to OPEB will be recognized as OPEB expense as
follows:
Deferred
Outflows
(Inflows)
Fiscal Year Ending June 30,of Resources
2022 (232,013)$
2023 (232,012)
2024 (232,110)
2025 (232,483)
2026 (26,879)
Thereafter 1,549
Subsequent Events
There were no subsequent events that would materially affect the results presented in this
disclosure.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(44)
NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED)
Payable to the OPEB Plan
At June 30, 2021, the Electric Fund had no outstanding amount of contributions to the
OPEB plan required for the year ended June 30, 2021.
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS
Bicent Agreements
Asset Sale
On December 13, 2007, the City entered into an Amended and Restated Purchase and
Sale Agreement (the Bicent Agreement), with Bicent (California) Power LLC (Bicent),
which is an affiliate of Bicent Holdings and Natural Gas Partners, to sell to Bicent the
Malburg Generating Station (MGS) and the economic burdens and benefits of the City’s
interests in 22 MW from the Hoover Dam Uprating Project for $287,500,000. This
transaction closed on April 10, 2008.
Bicent has agreed to sell the capacity and the energy of the MGS to the City on the
terms set forth in a Power Purchase Tolling Agreement, by and between the City and
Bicent, dated as of April 10, 2008 (the PPTA). In addition, Bicent has acquired the
benefits and burdens of the City’s interest in the Hoover Uprating Project (described
below) on the terms set forth in the Hoover Contract for Differences (CFD), between
Bicent (California) Hoover LLC, a Delaware limited liability company (BCH) and the City,
dated as of April 10, 2008 (the Hoover Differences Contract). Pursuant to the Bicent
Agreement, Bicent has assigned its rights and obligations with respect to the MGS to its
affiliate, Bicent (California) Malburg LLC, a Delaware limited liability company (BCM).
Pursuant to the Bicent Agreement, Bicent has assigned its rights and obligations with
respect to the economic benefits and burdens of the Hoover Uprating Project to its
affiliate, BCH. The City treated the PPTA as an asset lease-back transaction due to a
30-year ground lease between the City and BCM by deferring most of the gain from the
sale of MGS to be amortized over the 15-year life of the PPTA. The City also deferred
the gain from the CFD to be amortized over the 10-year life of the CFD. As of June 30,
2021, a deferred gain of $6,555,916 remains to be amortized over the life of the PPTA
and CFD, which will be amortized in proportion to the capacity payments the City will be
making under the PPTA and CFD (See Note 11 for disclosure on uncertainties).
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(45)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED)
Bicent Agreements (Continued)
Power Purchase Commitments
As of June 30, 2021, under the Bicent Agreements, the City had the following long-term
commitments to purchase power subject to certain conditions:
Fiscal Year Ending June 30,Amount*
2022 34,904,231$
2023 27,146,619
Total 62,050,850$
* Commitments under the PPTA and CFD, net of amortization of deferred gain.
Southern California Public Power Authority
In 1980, the City entered into a joint powers agreement with nine (9) Southern California
cities and an irrigation district to form the Southern California Public Power Authority (the
Authority). The Authority’s purpose is the planning, financing, acquiring, constructing, and
operating of projects that generate or transmit electric energy for sale to its participants. The
joint powers agreement has a term expiring in 2030 or such later date as all bonds and
notes of SCPPA and interest thereon have been paid in full or adequate provisions for
payments have been made. A copy of SCPPA’s audited financial statements can be
reviewed on their website at www.scppa.org or can be obtained by written request at 225
South Lake Avenue, Suite 1250, Pasadena, CA 91101.
Take or Pay Contract
The Authority’s interests or entitlements in natural gas, generation, and transmission
projects are jointly owned with other utilities. Under these arrangements, a participating
member has an undivided interest in a utility plant and is responsible for its proportionate
share of the costs of construction and operation and is entitled to its proportionate share
of the energy, available transmission capacity, or natural gas produced. Each joint plant
participant, including the Authority, is responsible for financing its share of construction
and operating costs. The City has the following “take or pay” contract with the Authority:
Palo Verde Project
The Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating
Station (the Station), a nuclear-fired generating station near Phoenix, Arizona, from
the Salt River Project Agricultural Improvement and Power District, and a 6.55%
share of the right to use certain portions of the Arizona Nuclear Power Project Valley
Transmission System. The City has a 4.9% entitlement share of the Authority’s
interest in the station.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(46)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED)
Southern California Public Power Authority (Continued)
Take or Pay Contract (Continued)
Palo Verde Project (Continued)
Between 1983 and 2008, the Authority issued $3.266 billion in debt of Power Project
Revenue Bonds for the Station to finance the bonds and the purchase of the
Authority’s share of the Station and related transmission rights. The bonds are not
obligations of any member of the Authority or public agency other than the Authority.
Under a power sales contract with the Authority, the City is obligated on a “take or
pay” basis for its proportionate share of power generated, as well as to make
payments for its proportionate share of the operating and maintenance expenses of
the Station, debt service on the bonds and any other debt, whether or not the project
or any part thereof or its output is suspended, reduced or terminated. The City took
its proportionate share of the power generated and its proportionate share of costs
during the fiscal year 2021 was $2,771,758. The City expects no significant
increases in costs related to its nuclear resources.
Power Purchase Commitments
The Authority has entered into power purchase agreements with project participants.
These agreements are substantially “take-and-pay” contracts where there may be other
obligations not associated with the delivery of energy. The City has entered into power
purchase agreements with the Authority related to the following projects:
Astoria 2 Solar Project
On July 23, 2014, the Authority entered into a power purchase agreement with
Recurrent Energy for solar energy from the Astoria 2 Solar Project. SCPPA is
entitled to 35 MW of photovoltaic generating capacity from commercial operation to
December 31, 2021 and 45 MW of generating capacity from January 1, 2022 until
the expected expiration date of December 31, 2036. The commercial operation date
was December 2016. Power and Water Resources Pooling Authority, Lodi, Corona,
Moreno Valley, and Rancho Cucamonga, are each buying the output of a separate
portion of the facility, which is located in Kern County, California. SCPPA has
purchase options in the 10th, 15th, and 20th Contract Years. The project is
forecasted to start at a capacity factor of 31% with a 0.5% annual degradation. ACES
Power Marketing is the third-party scheduling coordinator for the project. The City
contracted to purchase 57.1429% until December 31, 2021, and 66.6667%
thereafter, of the output. The City’s proportionate share of costs during the current
fiscal year was $2,276,622.
CITY OF VERNON
ELECTRIC FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(47)
NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED)
Southern California Public Power Authority (Continued)
Power Purchase Commitments (Continued)
Puente Hills Landfill Gas-to-Energy Project
On June 25, 2014, the Authority entered into a power purchase agreement with
County Sanitation District No. 2 of Los Angeles County for 46 MW of the electric
generation from a landfill gas to energy facility, located at Whittier, California. The
project began deliveries to the Authority on January 1, 2017 for a term of 10 years.
The City contracted to purchase 23.2558% of the output. The City’s proportionate
share of costs during the current fiscal year was $1,585,536.
Antelope DSR 1 Solar Project
On July 16, 2015, the Authority, entered into a power purchase agreement with
Antelope DSR 1, LLC for 50 MW solar photovoltaic generating capacity from the
Antelope DSR 1 Solar Facility. The facility is located near Lancaster, California, and
commercial operation occurred on December 16, 2016 for a term of 20 years. The
City contracted to purchase 50.00% of the output. The City’s proportionate share of
costs during the current fiscal year was $1,689,552.
NOTE 11 CONTINGENCIES
Sale of Generation and Transmission Assets
The financial and operational effects of the 2008 sale of generation and transmission assets,
while reducing the electric system’s debt burden and providing liquidity, puts the utility at
some risks in terms of increased fixed-charge obligations and long-term power resource
uncertainty.
NOTE 12 SUBSEQUENT EVENTS
In December 2021, the City issued $183,815,000 in Electric System Revenue Bonds, 2021
Series A and $52,070,000 in Electric System Revenue Bonds, 2022 Series A. The 2021
Series A bonds provide funds to finance the acquisition of Malburg Generating Station
(MGS), the deposit to the Debt Service Reserve Fund, and the cost of issuance of the 2021
Bonds. The City made the determination to reacquire MGS on December 15, 2021 to
achieve potential costs savings and other resource management benefits. In addition to any
potential savings, the City expects there to other benefits associated with the acquisition of
the MGS, which includes having control of the facility and the site, providing the City with
flexibility with respect to MGS operations and MGS’s role in the City’s resource portfolio. The
2022 Series A bonds provide funds to refund and defease all of the outstanding 2012A
Bonds, a portion of the 2012B bonds and pay the cost of issuance of the 2022 bonds. The
defeasance of the 2012 A Bonds and portion of the 2021 Series B bonds will result in total
debt service cash flow savings of $18,509,369 and an economic gain of $15,309,641.
(48)
REQUIRED SUPPLEMENTARY INFORMATION
CITY OF VERNON
ELECTRIC FUND
SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY
CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(49)
Fiscal Year Ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017
Measurement Date 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016
Plan’s Proportion of the
Net Pension Liability 0.25% 10.93% 10.61% 10.60% 10.41%
Plan’s Proportionate Share of the
Net Pension Liability 16,262,340$ 13,198,355$ 12,037,649$ 11,622,798$ 9,913,819$
Plan’s Covered Payroll 2,971,068 3,153,590 3,119,774 2,844,009 1,368,926
Plan’s Proportionate Share of the
Net Pension Liability as a
Percentage of Covered Payroll 547.36% 418.52% 385.85% 408.68% 724.20%
Plan Fiduciary Net Position as a
Percentage of the Total
Pension Liability 74.79% 76.15% 77.68% 77.85% 78.91%
Notes to Schedule:
Benefit Changes:
There were no changes in benefits.
Changes in Assumptions:
From fiscal year June 30, 2017 to June 30, 2018:
The discount rate was reduced from 7.65% to 7.15%.
From fiscal year June 30, 2018 to June 30, 2019:
There were no significant changes in assumptions.
From fiscal year June 30, 2019 to June 30, 2020:
There were no significant changes in assumptions.
From fiscal year June 30, 2020 to June 30, 2021:
The inflation rate was increased from 2.5% to 2.625%
The payroll growth rate was reduced from 3.00% to 2.875%.
* Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Electric Fund, therefore only five years are
shown.
CITY OF VERNON
ELECTRIC FUND
SCHEDULE OF PLAN CONTRIBUTIONS
CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN
LAST TEN FISCAL YEARS *
(50)
Fiscal Year Ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017
Actuarially Determined
Contributions 1,518,109$ 1,347,573$ 1,158,143$ 1,005,691$ 947,914$
Contributions in relation to the
Actuarially Determined
Contributions (1,518,109) (1,347,573) (1,158,143) (1,005,691) (947,914)
Contribution :
Deficiency (Excess) -$ -$ -$ -$ -$
Covered Payroll 57,987$ 2,971,068$ 3,153,590$ 3,119,774$ 2,844,009$
Contributions as a Percentage
of Covered Payroll 2618.00% 45.36% 36.72% 32.24% 33.33%
Notes to Schedule:
Valuation Date 6/30/2018 6/30/2017 6/30/2016 6/30/2015 6/30/2014
Methods and Assumptions Used to
Determine Contribution Rates:
Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age
Amortization Method (1) (1) (1) (1) (1)
Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value
Inflation 2.625% 2.625% 2.75% 2.75% 2.75%
Salary Increases (2) (2) (2) (2) (2)
Investment Rate of Return 7.25% (3) 7.25% (3) 7.375% (3) 7.50% (3) 7.50% (3)
Mortality (4) (4) (4) (4) (4)
(1) Level percentage of payroll, closed
(2) Depending on age, service, and type of employment
(3) Net of pension plan investment expense, including inflation
(4) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study
adopted by the CalPERS Board.
* Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Electric Fund, therefore only five years are
shown.
CITY OF VERNON
ELECTRIC FUND
SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY
LAST TEN FISCAL YEARS *
(51)
Fiscal Year Ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018
Measurement Date 6/30/2020 6/30/2019 6/30/2018 6/30/2017
Plan’s Proportion of the
Net OPEB Liability 12.02% 10.93% 10.61% 6.43%
Plan’s Proportionate Share of the
Net OPEB Liability 2,429,343$ 2,394,613$ 2,449,998$ 2,333,037$
Plan’s Covered-Employee Payroll 3,491,517 3,731,469 2,152,941 2,153,877
Plan’s Proportionate Share of the
Net OPEB Liability as a Percentage
of Covered-Employee Payroll 69.58% 64.17% 113.80% 108.32%
Plan Fiduciary Net Position as a
Percentage of the Total OPEB Liability 25.70% 16.30% 8.62% 2.83%
Notes to Schedule:
Changes in Assumptions:
* Fiscal year 2018 was the first year of implementation, therefore only four years are shown.
The discount rate was changed from 2.85% to 3.58% for the measurement period ended June 30, 2017. The discount
rate for the measurement periods ended June 30, 2018 and 2019 was 6.50%. The discount rate for the measurement
period ended June 30, 2020 was reduced to 6.25%.
The mortality, retirement, disability, and termination rates for the measurement periods ended June 30, 2017 and 2018
were based on the CalPERS 1997-2011 Experience Study and CalPERS 1997-2015 Experience Study, respectively.
The mortality improvement rates for the measurement periods ended June 30, 2017 and 2018 were based on the Scale
MP-2016 and Scale-2018, respectively.
In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after
age 65.
CITY OF VERNON
ELECTRIC FUND
SCHEDULE OF OPEB CONTRIBUTIONS
LAST TEN FISCAL YEARS *
(52)
Fiscal Year Ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018
Actuarially Determined
Contribution 184,942$ 211,038$ 285,605$ 173,080$
Contributions in relation to the
Actuarially Determined
Contribution (376,391) (427,758) (317,055) (132,751)
Contribution:
Deficiency (Excess)(191,449)$ (216,720)$ (31,449)$ 40,329$
Covered Payroll 3,810,495$ 3,491,517$ 3,731,469$ 2,152,941$
Contributions as a Percentage
of Covered Payroll 4.85% 6.04% 7.65% 8.04%
Notes to Schedule:
Valuation Date 6/30/2018 6/30/2017 6/30/2016 6/30/2015
Methods and Assumptions Used to
Determine Contribution Rates:
Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age
Amortization Method (1)(1)(1)(1)
Amortization Period 28 years 27 years 27 years 29 years
Asset Valuation Method Market Value Market Value Market Value Market Value
Inflation 2.25% 2.50% 2.50% 2.75%
Healthcare Trend Rates (6)(3)(3)(2)
Investment Rate of Return 6.25% 6.50% 7.00% 7.00%
Mortality (5)(5)(5)(4)
(1) Level percentage of payroll, closed.
(2) 8.50% trending down to 5.00%.
(3) 6.90% trending down to 4.00%.
(4) CalPERS December 2014 experience study
(5) CalPERS December 2017 experience study
(6) 6.70% trending down to 3.80%.
* Fiscal year 2018 was the first year of implementation, therefore four years year are shown.